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Objectives of the case:

1. To decide the price that Jowers should charge Daytraderjournal.com for the Atlantic Bundle
2. To formulate plans for addressing reactions show by different individuals to our
recommendations
3. To compare the top line revenue implications of different pricing strategies for the next three
years.


1.Different Pricing Strategies:

a) Current Pricing Strategy:


According to this pricing strategy, there is no separate pricing for PESA as it is provided free of cost
along with the Tronn server. As PESA is an added value for the customer which gives significant
reduction in cost in the long run and also better performance, it should not be provided free of cost as
done historically.



b) Customer Paying a Price equivalent to 4 Zinc servers:







a) Current Pricing Strategy


2001 2002 2003

Revenues 4000000 12600000 25760000

Costs Incurred on Hardware 3076000 9689400 19809440

Profit (exc. Software Costs) 924000 2910600 5950560 9785160
Cost of Software Development

2000000
Profit after Software Development

7785160
b) Customer paying equal to 4 Zink
Servers Column1 Column2 Column3 Column4

2001 2002 2003
Servers sold with PESA 1000 3150 6440
Servers sold without PESA 1000 3150 6440
New Selling Price 6800 6800 6800
Revenues for Servers (PESA) 6800000 21420000 43792000 72012000
Revnues for Severs (Non PESA) 2000000 6300000 12880000 21180000
Costs Incurred (PESA Servers) 1725000 5433750 11109000 18267750
Costs Incurred (Non PESA Servers) 1538000 4844700 9904720 16287420
Net Profits

58636830



As the performance of a Tronn server with PESA gives the benefit of 4 Zinc servers, this can be a
pricing strategy under consideration. But the price of $6800 per server bundled with PESA, is too
high and there might be a problem in convincing customers to pay such a high price. Also since the
Tronn server without PESA will be priced at 2000$, customers might consider it to be cheaper to opt
for more number of servers without PESA or opt for Zinc servers.


c) Cost-Plus Approach



c) Cost Plus Approach Column1 Column2 Column3 Column4

2001 2002 2003
Servers sold with PESA 1000 3150 6440
Servers sold without PESA 1000 3150 6440
Hardware Costs incurred (per server) 1538 1538 1538
Software Costs (Applicable for
servers with PESA) 188.9 188.9 188.9
Total Costs for Servers with PESA 1726.9 1726.9 1726.9
Revenues for Servers (Non-PESA) 2000000.0 6300000.0 12880000.0 21180000
Selling Price for PESA Sever 2244.9 2244.9 2244.9
Revenues for PESA 2244914.6 7071481.1 14457250.3 23773646
Costs for PESA Servers 1726857.4 5439600.8 11120961.7 18287420
Costs for Non PESA Servers 1538000 4844700 9904720 16287420
Total Profits

10378806


In the Cost Plus pricing method, all the direct and indirect costs of production are calculated and a
30% markup is added to determine the price of the servers. This can be an appropriate pricing
strategy, but the price does not reflect the savings of the customer appropriately. Also the total profit
of the firm is less as compared to Value- in pricing strategy.

























d) Value- in Use Pricing Strategy


d) Value in Use Approach Column1 Column2 Column3 Column4

2001 2002 2003

Servers sold with PESA 1000 3150 6440

Servers sold without PESA 1000 3150 6440

Hardware Costs incurred (per server) 1538 1538 1538

Savings in term of hardware 1700 1700 1700

Electricity Cost Savings 250 250 250

Software Savings 750 750 750

Admin. Charges 2000 2000 2000

Savings (for the consumer) 4700 4700 4700

New Server Price (PETA) 3888 3888 3888

Revenues (for PESA) 3888000 12247200 25038720 41173920
Revenues (for Non PESA) 2000000 6300000 12880000 21180000
Costs (for Non-PESA Servers) 1538000 4844700 9904720 16287420
Costs (for PESA Servers) 1726857.413 5439600.85 11120961.74 18287420
Net Profits

27779080





This pricing strategy makes use of the value which the customer will gain by using the Tronn server
with PESA as compared to a Zinc Server and this savings is shared equally by Atlantic Computers
and the customer. This is an appropriate strategy as the customer can be made aware of the cost
savings and added benefits of PESA. Also, the revenue earned by the company can be increased. The
slightly high price also shows the quality of Atlantic Computers servers and the added benefit of using
PESA in the long run.

Hence Value-in Use approach should be used for deciding the price of the Server+PESA bundle and it
should be priced at 3900$ per server approximately.

















Q2. a) Matzer
Reactions Formulations
Difficult to convince him to charge a
price for the PESA software
Past failures and conservative nature
would resist him for adopting him a
different price strategy
Value-in-use pricing strategy proves to
be an aggressive and prospective
strategy and would easily convey the
price gain, thus, convincing Matzer.
First and second order savings would be
substantially impacted by installing
PESA, thus, charging a price for the
software is a good option.


b) Cadena & Salesforce
Reactions Formulations
30% commission for the distributors was
given previously and thus, they would
prefer newer pricing strategy
Business would expand to the SME and
distributors would leverage new sales
script and other marketing collateral
Sales force would get more commission
as following newer pricing strategy
would add more consumers and have
more profit.

c) Senior Management at Atlantic Co.
Reactions Formulations
Create a market share in already
competitive market lead by Ontario
Computer
Enter a new market and lead by example
Demonstrate how effectively the value is
created for DayTraderJournal.com and
generalize to the entire market
Increasing consumers, growing profits
and entry into the new market will
always be welcome
Fixing sales target for every distributor

d) Customers
Reactions Formulations
Savings per installation would increase
for every consumer
Performance in case of critical issues is
enhanced and costs are minimized
Availability of high level support
Offer competitive pricing/discounts in
comparison to Ontario to attract more
consumers
Performance and cost effectiveness
should be communicated to the
consumers
Profit sharing on 50-50 basis shall be
popularized

e) Competitors (Ontario Zinks Senior Management)
Reactions Formulations
Can lower the price in response to
competition from Atlantic computers
Advertisement and communication
strategies can be promoted aggressively
or may offer discounts
Maintain advertisement strategy and
offer incentives to the distributors
Maintain personal contacts with the
consumers and leverage on highly
responsive post sales assistance
Promote performance and cost-
effectiveness features of the software


3.Comparison of top line revenues


Method Revenues 2001 2002 2003
Servers sold with PESA 2000 6300 12880
Current Pricing
strategy 4000000 12600000 25760000
Servers sold with PESA 1000 3150 6440
Customer paying a
price of 4 Zink servers 6800000 21420000 43792000
Cost Plus Approach 2244914.6 7071481.1 14457250.3
Value in use Pricing
Strategy 3888000 12247200 25038720