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Question 1

What price should Jowers charge DayTraderJournal.com for the


Atlantic Bundle (i.e. Tronn+PESA software tool)?

Recommended Pricing Strategy


Value-in-use pricing strategy
Assumption: Conservatively Tronn server + PESA Software is equivalent to 2 Zinc servers
Benefits
Cost

For 2 x Zink

For 1 x Tronn

Electricity

500

250

Admin
Software

4000
1500

2000
750

Server

3400

2000

Total

9400

5000

Savings

4400

50/50 Split

2200

Final Price

4,200

Benefits:

Higher perceived value by the customer in terms of


monitory benefits
Higher profit earning through 50-50 sharing if sales
increases
Helps in building a customer focused sales strategy

Cons
Priced 2X higher than the status quo (traditional)
approach
Customer might not be aware that the software price is
included in the pricing

Question 2
Think broadly about the top-line revenue implications from each of the four
alternative pricing strategies. Approximately how much money over the next three
years will be left on the table if the firm were to give away the software tool away
for free (i.E., Status quo pricing) versus utilizing one of the other pricing approaches?

Revenue Implications

Revenue Implications

Revenue Implications
Software Free
2002

2003

2,000

2,000

2,000

40,00,000

126,00,000

9,24,000

29,10,600

2001
Bundle Price
Sales Revenue
Net Income
Left on Table
Profit Per Unit
Breakeven
Units

Price = 4 x Zinc

Cost Plus

2002

2003

6,800

6,800

6,800

257,60,000

136,00,000

428,40,000

59,50,560

105,24,000

331,50,600

2001

Value in use

2002

2003

2,245

2,245

2,245

875,84,000

44,90,000

141,43,500

677,74,560

14,14,000

44,54,100

2001

2002

2003

4,200

4,200

4,200

289,15,600

84,00,000

264,60,000

540,96,000

91,06,160

53,24,000

167,70,600

342,86,560

2001

1016,64,000

51,89,100

465,96,000

462

5,262

707

2,662

4,329

380

2,829

751

Question 3
How is Matzer likely to react to your recommendation?

Chris Matzer-Profile

Head of Server division


20 yr veteran of the computer business
Force to be reckoned with
Has prepared several reports on server
markets
Wants server to be sold along with PESA
Gives responsibility to Jowers to prepare a
pricing strategy for the Atlantic Bundle
Conservative
Prefers the industry norm of giving away
software free of cost along with Hardware

Jowers Recommendation:

Value in Use pricing

Matzers Reaction

Industry Norm- Cost Plus Pricing


Convincing the customer about
benefits and value achieved like
reduced utilities and lesser hardware
Profits earned are higher
Convincing Sales team, Jairo Cadena
on selling using Value in use pricing

Question 4
How is Cadenas sales force likely to react to your
recommendation? What can Jowers recommend
to get Cadenas hardware-oriented sales force to
understand and sell the value of the PESA
software effectively?

Value based pricing Reaction of sales force


Considerable amount of salary is variable in form
of commision
Selling the Atlantic bundle at the new cost with

value based pricing would get the sales team


higher commissions

Fixed (70%)

Salary
Variable
(30%)

Though, against the norm of giving away

Recommendation to sales force

software, the bundle has considerable cost

Jowers should recommend the sales force


to look on the more efficient working of the
hardware due to this software
Sales force should highlight lesser
requirement of server racks, manpower,
electricity cost, maintenance costs with the
other benefit of faster operational speed

benefits
Salesforce should be ready to leverage on the
new offering and look forward to make higher
commissions

Question 5
How are customers in your target market likely to react to your
recommended pricing strategy? What response can be provided to
overcome any objections?

Customer Reaction & Sales Response

Challenges
Initial Resistance due to per unit
higher acquisition cost
Reluctance to pay for software as
traditionally given for free

Resolutions
Higher Perceived Value
Focusses on all the operational and
additional costs
Show that PESA is the driver for low cost

Question 6
How is Ontario Zinks senior management team likely to react to the
Atlantic Bundle?

Ontario Zinks Reaction


Competitor Response
Short Term tactics like price reductions
Similar product will be formidable when combined with
Zinks operational efficiency
May focus on direct sales more rather than relying on
online sales

Atlantics Perspective
Lifetime Cost will still be lower
Will take time to develop. Can gain sizable market
share by then
Zink will have higher operational costs. Atlantic can
focus on online sales after gaining share and visibility