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ATLANTIC COMPUTER ATLANTIC COMPUTER - A BUNDLE OF PRICING OPTION

PRICING APPROACH TOWARDS TRONN WITH PESA AAKASH PATHAK Ramaiah Institute of Management Studies

ATLANTIC COMPUTER Abstract

Atlantic Computer, a leading player in the high-end server market, has detected a market place opportunity in the basic server segment. They have developed a new server, the Tronn, to meet the needs of this segment. In addition, they have created a software tool, called the 'Performance Enhancing Server Accelerator', or PESA, that allows the Tronn to perform up to four times faster than its standard speed. The central question revolves around how to price the Tronn and PESA (i.e. Atlantic Bundle). Although cost-plus, competition based, and status-quo pricing are the most common means by which firms establish prices for their offerings, these approaches may prevent firms from fully realizing the benefits that are due to them. Provides an opportunity to optimize value capture for the firm by utilizing value-in-use pricing (ie, examining the value that a firm's offering creates for the customer, and using the savings generated as the basis for developing prices). Also allows for the exploration of the challenges surrounding the implementation of a value-in-use pricing strategy. These include the reactions of competitors, customers, and stakeholders within the firm. Atlantic Computers is an leading player in the server market (past 30 years).Its products are considered top notch, high quality reliable system and this trust can be carried forward with the new Atlantic bundle. Success of product launch depends on the server and PESA being sold bundle. Consumer perception and company tradition has been to give away software tools for free. PESA, being effective only for file sharing and web server application, will consequently be not effective for the other customer. Sales force do not have prior experience of selling PESA as a software tools. The sale termed was not taken into confidence for initial planning. However, they form a vital component for the success of the product. Basic servers expected sales 50,000 in 2001 with 36% growth rate. Resulting share of the basic server segment (in units) will be 4% in 2001, 9% in 2002, & 14% in 2003. Daytraderjournal.com is an exemplary customer for Atlantic with keys buying criteria of minimizing initial purchase cost and subsequent possession cost.

ATLANTIC COMPUTER PRICING APPROACH TOWARDS TRONN WITH PESA

An Atlantic computer is a largest manufactures of servers and other hi-tech products and have 20% revenue share in high performance sever segment. The high end performance server, Radia was sold to large Enterprise customers and it was known for providing top notch highly reliable product quality and post sales assistance. Due to growth of internet, demand for basic servers is increasing rapidly; to meet the demand company is planning to launch a basic server TRONN with a software tool PESA which will increase the efficiency of server approximately four times. The competitor, Ontario was in the basic server segment having 50% market share by revenue and a product, ZINK. The performance of Zink was equal to performance of Tronn. Jason Jowers has to plan launch of TRONN keeping in mind, the major competitive threat from Ontario which was generating its major sales from online business. Basic Server Market Details Advent of internet need for Low end performance servers or BS Collection of these Basic Server could serve for a companys website support Market demand expected to be 50000 units in 2001. 36% Growth rate throughout 2003. Tronn developed to cater to this Basic Server. Assumption Higher Performance Server and Basic Server would not be used as substitutes to one another

ATLANTIC COMPUTER

Problem Identification To develop pricing strategy for Atlantic bundle-new TRONN server and the PESA software tool. What would be the reaction of customers, sales force and senior management of Ontario to pricing of Atlantic Computers? Basic Server-TRONN with PESA upto 4 times faster than standard one. Performance = 4 BS, So even if we price it higher than Std. BS still long term costs will be lower Marketing TRONN + PESA We can conclude that gains of TRONN with PESA mainly to the segments Web Servers (300 %), File Sharing (100%) and E-mail applications (10%) Inefficient marketing Strategy of Hardware Division w.r.t software.ring servers. Instead of marketing as akey differentiator used indifferently by giving it for free. Approach not to be used with PESA. According to Cost plus pricing analysis $2,245.51 for 1 TRONN BS and PESA Advantages to be communicated to consumers First order savings-They have to buy lesser numbers of servers, thus savings can be achieved Second Order Savings- Lower electricity costs, software license fees & labour costs

ATLANTIC COMPUTER

Conclusion Atlantic Computer was new in the basic market, thus its priority was to penetrate the market with Atlantic Bundle whose pricing should follow the tide value-in-use pricing, showing how much customers could save and reasonably exploiting the consumer surplus. At the entry beginning, it should consider fifty-fifty sharing rate or even lower forty-sixty rate, but after standing firm, customers getting used to Atlantic Bundle and Zink losing more and more market share, Atlantic Computer could increase sharing rate and benefit from economy of scale. In the short run, Ontario Computer must cut price to fight back Atlantic Bundle, but the company should stick on its original price on the basis of high product quality. Meanwhile, the company should study and learn any successful experience from Ontario Computer in the basic market and integrate that with its own core competency. Reaction of Cadenas sales force Cadena will not react favourably first. As high cost will make his job even harder from the other methods like status-quo approach, in the market where they are already not a leader. But a substantial competitive advantage can be explained by Jowers and hence can rationalize his decision of cost-plus pricing approach. Reaction of Customers Since prices are lower than competition and added long term and short term advantages of the product are highlighted, Atlantic Bundle will be beneficial for them. Reaction of Ontario Zinks senior management team to threat of Atlantic Bundle: The Ontario competes mostly on price and better inventory management. It is a web based supplier, reason for reduced cost. Since their cost is lower than Tronn, they will try to reduce their price further. But Atlantic can compete by saving in other domains like electricity, labour etc.