Case Analysis submitted by: Section D- Group 2 Anish Jain - 2013PGP163 Chirag Jain - 2013PGP113 Deepti Kaushal - 2013PGP121

Rakesh Pani 2013PGP310 Shivani Vishwanath - 2013PGP377 Vinay Raj Chowhan 2013PGP441

Submitted to: Prof. Sabita Mahapatra [Marketing Management II]

Background Company Profile Core Competency Server Manufacturer o Top-notch, highly reliable, high quality, responsive post-sales assistance 20% market share in High Performance server industry

Server industry Segments o High Performance Servers 3% annual growth rate with 200000 units next year Complex applications o Basic Server 36% CAGR with 50000 unit demand next year Simple repeatable tasks Key Players Basic server o Ontario Computer Inc. 50% revenue market share in basic servers Generated online sales Competitive advantage was on price non-vale added costs were driven out o Small players

Objective of Atlantic Computers Launch of a new product bundle Tronn Server with PESA software tool Value proposition server performance is four times faster Market opportunity enter the emerging US Basic server market

Purpose Determine Pricing strategy for Atlantic Bundle

Quantitative Analysis We analyse the pricing strategy of Atlantic computers using the following four pricing strategies Status Quo Cost Plus Approach Competition Based Approach Value in pricing Status Quo
Costs Cost of Tronn server (per unit) % Mark-up Mark-up Price Selling price of Tronn server $ 1,538 30% $ 461.40 $ 2,000 Reference Page 9, Exhibit 3 Page 6, footnote 5 Mark-up% * per unit cost mark-up price +cost

Cost Plus Approach

Costs # units with PESA attached Total R&D costs of PESA software Estimating R&D costs per unit Per unit R&D costs per unit cost of Tronn server Reference 50% * production volume Pg 9, point 4

10590 $ 2,000,000

$ 188.86 $ 1,538 TRONN + PESA

tot R&D cost/#units with PESA Page 9, exhibit 3

Total cost of server without PESA Mark-up percentage Mark-up Total selling price per server

$ 1,726.86 30% $ 518.06 $ 2,244.91

per unit R&D + Tronn server cost (TRONN+PESA) Page 6, footnote 5 30% * cost mark-up + cost

Competition Based
Cost Structure Reference

Strategy Price of 1 Zinc Server Price of 4 Zinc Servers # Zinc servers equivalent to 1 Atlantic bundle Price of Atlantic Bundle Price of Atlantic Bundle per unit

4 Zinc servers is equivalent to 2 Tronn servers $ 1,700 $ 6,800

Page 5, parah 5, Line 10-11 Page 9, Exhibit 3

2 Page 5, parah 5, Line 10-11 $ 6,800 $ 3,400 Price of 4 Zinc server / #equivalent servers to 1 bundle

Value In Pricing

Annual / per unit # servers Per unit price of server Total price of server Electricity Cost License Cost Labor Cost Total Cost to client total cost saving 50% sharing arrangement with Tronn Price charged by Company Price per server

Zince Servers 4 $ 1,700

Equivalent #Tronn servers with PESA 2 $2,000

Reference Page 5, parah 5, Line 10-11 Page 9, exhibit 3

$ 6,800 $ 250 $ 750 $ 2,000 $ 1,000 $ 3,000 $ 8,000 $ 18,800

$4,000 $ 500 $1,500 $4,000 $ 10,000 $8,800 $4,400

#servers * per unit price Page 9, exhibit 3 Page 9, exhibit 3

price+electricity+license costs cost with zince - cost with tronn Page 6, footnote 5 Price of server*# of servers + 50% sharing

$ 18,800 $ 4,700

$8,400 $4,200

Revenue calculations
Per Unit Price $ 2,000 $ 3,400 $ 2,245 $ 4,200 Revenue $ 21,180,000 $ 36,006,000 $ 23,774,550 $ 44,478,000 Cost $ 16,287,420 $ 16,287,420 $ 16,287,420 $ 16,287,420 Profit $ 4,892,580 $ 19,718,580 $ 7,487,130 $ 28,190,580 Profit per unit $462 $ 1,862 $707 $ 2,662

Status Quo Competition Based Cost Plus Approach Value In use Pricing

We see that maximum profit is generated using Value in Use pricing. Hence we should go with the price of $4200

Qualitative Analysis
Price Objective
Atlantic Computers was known for providing top notch highly reliable products. They had also developed a reputation for providing high quality responsive post sales assistance. To summarize, their overreaching strategy was based on customer intimacy and product differentiation. In the basic server segment of the market too, they have come up with a product (Tronn + PESA) that is highly innovative and very different from those offered by the competitors. Hence any pricing strategy of Atlantic computers should have Product Quality Leadership as the primary objective.

Price Strategy
The Probable pricing strategies include o Status Quo o Competition Based o Cost-plus pricing o Value-in Pricing The disadvantages of status-quo is inability to capture excess consumer value Competition based pricing has its advantages in being able to prevent under-pricing leading to price wars or over-pricing to lose market share Value-in use pricing has its advantages in displaying to the consumer the benefits of using Atlantic bundle over Ontarios Zinc o This strategy highlights product innovation which is a differentiator for the Atlantic Bundle

o It evaluates product benefits from consumer point of view thus pre-empting the resistance the of consumers towards having to pay for a software tool which they traditionally were getting free of cost

Price Levels
Through the Quantitative analysis, the price of Tronn + PESA is set at $4200

Price Promotions
No price promotions are needed for the product

Potential Challenges that Atlantic may face

Stake Holders Consumers Challenges Consumers dont see value in paying for software tools (Page 3, Footnote 2) PESA being a software tool will face this resistance Recommendations Develop innovative strategies to communicate to the customer the cost-savings Include working product demos of the Atlantic server with PESA and without PESA to demonstrate the speed efficiencies acquired due to PESA Primarily target the web server and the file server customers, as they would benefit the most out of PESA software (from Exhibit 2) Being a B2B sale, leverage on the brand image of the company i.e. the image of a customer focussed high quality, innovative player which is already established in the high performance server market Increase the visibility in trade shows and exhibitions Develop a promotion strategies to communicate to the customer the cost-savings as compared to the competitors product Impart training to the sales force to enable them to sell

Competitors

Well established players 50% of market share Potential reaction- Leverage the distribution network and supply chain management proficiencies to aggressively respond to Atlantics high priced novel product

Sales Person

They lack experience in selling software tools and

specialise in hardware sales alone Traditionally they have been bundling the software along with the hardware for free Further since their compensation is 30% sales they might negatively respond to the charging for the software tool they might anticipate lower sales due to consumer resistance

software along with the server hardware Possibly increase the compensation or share the increased profits with the sales team to motivate them to sell using the new strategy

Recommendation Thus using results of qualitative and quantitative analysis, we conclude that pricing Strategy should be Value in Pricing and we can price the product at $4200.