Atlantic Computer

A bundle of Pricing Options

By
Komal Chandak
Rohan Srivastava
Abhishek Sarkar
Abhishek Garg
Sneh Khathuria
(Section B Group 2)
 Server Need : Web Servers to host the companys new website,
DayTraderJournal.com

Top 3 Requirements : (i.e., ranking of key buying criteria for basic

server purchase)
DayTraderJournal 1. Minimize our acquisition costs.
.com 2. Minimize our possession costs (i.e., total cost of ownership)
3. Allow our website to process many information requests.
As DayTraderJournal.com will use the hardware as web server,
PESA the Software tool will improve the performance of Tronn
around 4 times.
 Charging only for hardware & Give the PESA software tool away
for free : In this, Customer have to pay for the Hardware only and
will get the PESA software at free of cost.
Charge a Price equal to What Customer would pay for four Ontario
Zink Servers : In this, Customer have to pay the price for Tronn &
PESA equal to the value of 4 Ontario Zink servers.
Alternatives for
Charge a Price based on a cost-plus approach to pricing PESA
Pricing (Based on Software tools development costs) : In this, price is set
i.e. equal to development and production cost of the Tronn & PESA
along with reasonable profit margin.
Charge a price based on value-in-use pricing : In this, attempt is
made to capture the portion of what a customer would save by
buying firms product.
Option-1
This option includes charging for Tronn server only and give PESA
tool for free
Cost of Atlantic bundle = $ 2000
Atlantic will have to forego the amount of R&D investments done
in PESA software here. This amounts to $ 20,00,000
Option-2
Competition based pricing
Conservatively 2 Tronn Servers should be able to 4 Zinc Servers.
Aggressively 1 Tronn Server will be equal to 4 Zinc Servers
Price of 4 Zinc Servers will be = 1700*4= 6800
 Option-3
Cost Plus Pricing
Expected sales in 3 years=(4*50000+9*70000+14*92000)/100 =
2118000

Value Remarks
Expected sales for Tronn Servers 21180
(Units)
Expected number of PESA 10590 (50% of 21180)
installations
Cost of PESA per installation 189 (2,000,000/10590)
Total Cost of Atlantic Bundle 1727 1538+189
30% Mark-up 518.1 0.3*1727
Final Cost 2245.1 1727+518.1
Option-4
Value-in-Use Pricing
Conservatively 2 Tronn Servers+ PESA is equivalent to 4 Zinc
Servers.
2 Tronn Servers 4 Zinc Server Remarks
Price of Servers 4000 6800
Electricity 500 1000 $250 per server
S/w Licenses Cost 1500 3000 $750 per server
Total Cost 6000 10800
Savings by Tronn 4800 0 10800-6000
50% of Savings 2400 0 50-50 cost
sharing
Final Cost for 6400 10800 4000+2400
Atlantic Bundle
 From the above we can say that the second option (competition-
based pricing) looks most profitable, but we recommend Atlantic
to go for option 4(value-in pricing).
Reasons to opt for value-in pricing are listed below.
1. More value can be shown to the customers by showing them
Pricing monetary benefits.
Recommendation 2. An increase in sales would mean that Atlantic will gain by 50-50
profit sharing.
3. Price war might not be the best option for Atlantic as the cost of
Tronn ($1538) is very close to that of Ontarios Zinc ($1700) as it will
also need to look at the cost of the PESA software that it means to
sell together. In this case if Ontario lowers the price of Zinc, then it
would be difficult for Atlantic to survive in this sector.
 Though the value-in pricing looks to be most beneficial to both
customers and Atlantic, there are certain challenges.
Pricing Salespeople need to be convinced about this because their 30% of
Recommendation pay comes from sales and value-in pricing is lower priced than other
parts.
-Contd.. Sales people need to be trained to describe the value to customers
properly.
THANK YOU