...due to how conservative DayTraderJournal purchasers are, we recommend that this price is slightly reduced from $8,400 to $6,800 (profit-sharing becomes reduced to 78/22) for two Tronn/PESA bundles, to provide an equal acquisition cost of four Zinc servers. Even though two Tronn/PESA bundles provide twice as much capacity and significantly less possession costs, we believe that DayTraderJournal purchasers, who are most concerned about acquisition costs, DayTraderJournal purchasers will be turned off by a price that’s higher than the perceived competition’s ($6,800). Because the high value that the Tronn/PESA bundle provides is difficult to convey, the initial cost of the bundle should be reduced. Once Atlantic’s market share in the basic server industry becomes larger and the Tronn/PESA value is fully recognized by consumers, we believe that Atlantic can and should increase the price. Even though we propose a Value-In-Use Pricing of 78/22 (78% of the savings is passed on to the customer and 22% is kept by Atlantic), Atlantic still maintains a good profit margin of roughly 70% while saving the customer $6,000 (or 32%) of the possession cost of a similar offering. Additionally, this pricing strategy could bolster Atlantic’s image of being responsible and ethical once customers understand that two Tronn/PESA bundles provide the processing capacity of eight Zinc servers, yet Atlantic charged a 50% reduction in price. Further, the decreased possession cost of this package will confirm...
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...ATLANTIC COMPUTER: A BUNDLE OF PRICING OPTIONS Situation Analysis Atlantic Computer is a manufacturer of servers and high-tech products. Two market segments exist in the server industry: High performance and Basic Servers. Atlantic Computers has held a 20% share of the High Performance market with their Radia servers being their premier product. However, the market for Basic servers is growing and this has caused Atlantic Computers to develop and introduce a Basic Server called the Tronn and a software tool called the “Performance Enhancing Server Accelerator” (PESA). The Tronn was developed mainly for the emerging US market opportunity for basic servers. The PESA would allow the Tronn to perform up to four times faster than its standard speed and make frequently requested information more accessible. Thus, bundling the Tronn and PESA made more sense. Atlantic is not concerned that the Tronn will be considered a substitute for its High Performance servers. Primary Concerns: What pricing strategy should Atlantic Computers implement to price the Atlantic Bundle? Model Customer In order to decide which pricing strategy to use, it is best to identify and use the basic server needs of a model customer. In this case, DayTraderJournal.com will be used as the model customer. DayTrader.com is seeking four basic servers for their new website where day traders will be able to review articles and relevant training information. Their top requirements for a basic server purchase...
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...(2009022) NEELAY THALY (2009026) SAGAR KHICHADE (2009040) ALOK SHETTY (2009047) SIDDHARTH CHAKU (2009048) Case Issue Develop a pricing strategy for ¶Atlantic bundle· - the new Tronn server and the PESA (Performance Enhancing Server Accelerator) software tool before SME trade show Company Overview y y Atlantic Computers is a manufacturer of Servers and High-tech products Jason Jowers joined the Company four months back and he was responsible for the pricing strategy of the ´Atlantic Bundleµ i.e (A package of the Tronn server and PESA software tool) y The Tronn was developed mainly f or the emerging US market opportunity for basic web servers y The ´Performance Enhancing Server Acceleratorµ (PESA) would allow Tronn to perform four times faster than its usual speed for standard procedures and hence the bundling made sense y y Existence of 2 market segments - High Performance and Basic Servers Atlantic has 20% market share in High Performance Servers with Radia being premier product over 30 years y y An emerging market for basic servers is coming up in the late 1990s Decided to introduce the Basic server into the market by 2000 with the belief that it won·t be seen as a substitute of the High Performance Servers Advantages of PESA & Tronn PESA ² will improve Tronn speed by 4 times Need to purchase fewer servers Lower annual electricity charges Less software licensing fee Less labor costs Customer segments which will gain advantage by using PESA...
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...ATLANTIC COMPUTER: A Bundle of Pricing Options Case# 4, Donny Hamilton June 29th, 2014 ATLANTIC COMPUTER: A Bundle of Pricing Options Case# 4, Donny Hamilton June 29th, 2014 Problem Definition: We need to develop a pricing strategy for our ‘Atlantic Bundle’ – the new Tronn Server and the PESA (Performance Enhancing Server Accelerator) software before the SME trade show.ATLANTIC COMPUTER: A Bundle of Pricing Options Case# 4, Donny Hamilton June 29th, 2014 ATLANTIC COMPUTER: A Bundle of Pricing Options Case# 4, Donny Hamilton June 29th, 2014 Basic Server Market Details: * Advent of Internet: Need of low end Performance servers or Basic Servers * Collection of these basic servers could support a company’s website * Market Demand expected to be 50,000 unit in 2001 Product: * Tronn: Server developed to cater to the Basic Server Market * We will bundle the products together! Alternative Development: Competitors: * Major Competitor: Ontario Computer Inc. * Low End Server Zink, currently 50% markets share in the basic server market * Majority Sales were generated online * Zink’s server performed at approximately the same level as Tronn’s * Rest of competitors were Local Vendors Key Factors Influencing the Pricing Strategy: * Status Quo Pricing: Matzer believed that as per the company’s traditional Software, should be given for free with the purchase of the hardware * Cost Plus Pricing: According to Matzer’s...
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...manufacturer of servers and high-tech products * Two market segments: High performance and Basic Servers * The Tronn was developed mainly for the emerging US market opportunity for basic web servers * The Performance Enhancing Server Accelerator (PESA) allows Tronn to perform four times faster than its usual speed for standard procedures * Atlantic has 20% market share in High Performance Servers with Radia * Two Tronn servers equivalent to four Zink servers Decision to be made: * The management team needs to decide the pricing strategy for the Atlantic Bundle: Tronn&PESA Alternatives and Pros&Cons: Alternatives: | Pros: | Cons: | Result: | Status quo pricing | * Keep the tradition, which will offer the PESA for free * Two Tronn will be priced at $4,000 | * Lose the $2 million R&D cost on PESA * PESA will be viewed invaluable to the customers * Customers will then view no substantial difference between the Tronn and Zink servers | Not a good decision | Competition based pricing | * Two Tronn will be $6,800 since one Zink server is $1,700 and two Tronn is equivalent to four Zinks * Most Profit per unit | * Customers would view as getting less hardware with the same prices * Does not make the bundle a unique product | Not a good decision | Cost plus pricing | * Make the PESA valuable * Two Tronn will be priced at $4,492 in compare to $6,800 of Zinks' (See Exhibit One) | * Some customers may view it $1,092...
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...1. Introduction and Problem Definition Jason Jowers, a newly minted MBA, had joined Atlantic Computer just four months ago as the youngest product manager. He would be responsible for developing the pricing strategy for the "Atlantic Bundle" (i.e., the new Tronn server and the PESA software tool), which had been developed specifically to meet an emerging basic server market, a new market to the company. But it had to compete with Zink server of Ontario Computer, its major rival in this market. 2. Situation analysis * External Analysis Since the basic server market had 36% compound annual growth rate through 2003, significantly higher than around 3% of high performance market, Atlantic Computer decided to penetrate the basic server market with its "Atlantic Bundle". But Atlantic Computer had no competitive market share in the basic market and had to fight against a strong competitor Ontario Computer which only focused on the basic server market with 50% revenue market share. In addition, for the business model of Ontario Computer that possessed “the most flexible and innovative supply chain strategy” was based on operational excellence, the company had been able to drive out many nonvalue-added costs and compete largely on price. For example, its major sales were generated online, saving lots of selling expenses. However, Atlantic Computer had already been a strong player with 20% of the revenue market share in high performance market, the largest market in servers...
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...Introduction Jason Jowers, who had recently been hired by the computer manufacturer, Atlantic Computer, needed to devise a pricing plan for the company’s newest products: The Atlantic Bundle. This bundle contained the Tronn server and its corresponding software, the PESA. After an initial marketing meeting with a few key players, Jowers had input from the head of the server division (Matzer), the director of the division’s R&D team (Jones), and the director of new product marketing (Fowler). In addition, Jowers also needs to take into consideration the thoughts of the sales department, lead by Jairo Cadena. Atlantic’s biggest competitor is Ontario Computer, Inc, which is a cost cutter in the industry, and Atlantic Computer needs to bear in mind the customers and products that Ontario is after as well. Problem Identification Jowers was faced with a challenge of recommending a right price for the new bundle that Atlantic was planning to launch. According to the Tronn performance test results, he knew that one Tronn server equipped with the PESA tool was equivalent to four Zink (competitor’s basic server). This, among other things, made Jowers’ decision extremely difficult. Jowers had four options in front of him. 1. Continue the company tradition of charging for the server and provide the PESA tool for free 2. Charge a price equivalent to four Zink servers 3. Charge a marked-up price based on development cost of PESA tool 4. Charge a price based on value-in-pricing ...
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...products with a 20% market revenue share in the segment. The company plans to launch a basic server TRONN and software PESA due to growth in demand for basic servers. Important Details * competitor: ONTARIO ZINK * CAGR: 3%(BS segment) * TRONN along with PESA works FOUR times more efficiently. * Value of 2 TRONNs = Value of 4 ZINKs Four types of pricing strategies: * Competition based pricing * Cost plus pricing * Charging only for TRON * Value in use pricing RECOMMENDATION: The company should adopt COST PLUS PRICING with a price of $2245.5 because: * Charging for PESA would increase its value and act as a key feature * Although revenues will not be the highest, but the possibility is that the customers might not be willing to pay a very high price as in case of value in use. * It has a 30% margin which means that the company will surely make 30% profit CALCULATING PRICE IN EACH MODEL(* all calculations done based on assumptions and figures given in case) MARKET SHARE | 2001 | 2002 | 2003 | Total | Basic server | 50000 | 70000 | 92000 | 212000 | Market share | 4% | 9% | 14% | | Share | 2000 | 6300 | 12880 | 21180 | 1. Competition based pricing Price for 2 TRONN = 2 * $2000 = $4000 Price for 4 ZINK = 4 * $1700 = $6800 Acc to competition based pricing, Price for 2 TRONN= $6800 Price for 1 TRONN= $ 3400 2. Charging only for TRONN Price for 1 TRONN= $2000 3. Cost Plus Pricing total market share for 3 years= 21180 volume of market share with...
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...years. Chris Matzer, head of the server division, strongly believed that Atlantic Computer also needed to enter the Basic server market competing with Ontario Computer, Inc. Competitor’s basic server called Zink has the 50% of the market share in the Basic Server segment. Atlantic Computer hired Jason Jowers recently and he is responsible for the pricing strategy of the ‘Atlantic Bundle’ i.e (A package of the Tronn server and PESAsoftware tool) The Tronn was developed mainly for the emerging US market opportunity for Basic Server Market. The ‘Performance Enhancing Server Accelerator’ (PESA) would allow Tronn to perform four times faster than its usual speed for standard speed. Atlantic Computer wants to sell the two products as a bundle calling it ‘The Atlantic Bundle’. According to the Beta tests done by Atlantic Computer, it was confirmed that PESA allowed their low-end servers to perform up to four times faster than their standard speedwhen loaded with PESA software tool meaning a business customer would achieve the same level of performance out of one Tronn server loaded with PESA as four basic servers. This would be a key strategy in marketing. There are other advantages to having the ‘Atlantic Bundle’ such as since there would not be a need for 4 servers this would result in lower...
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...Individual’s Assignment Atlantic Computer: A Bundle of Pricing Options As Atlantic computer was largest manufacturer of servers and other hi-tech product, Jason Jowers has been assigned the task of developing the pricing structure for the Atlantic Bundle, a unique combination of the TRONN server along with the software tool - Performance Enhancing Server Accelerator – called PESA. The TRONN server has been specifically designed to address the current US market demand. In conjunction with the PESA, the TRONN ‘s performance capacity is four times faster than standard speed. Atlantic has continued to hold a significant portion (20% revenues) of the high-performance sector, but as the continual growth of the internet reached new heights, the demand of a basic server increasing rapidly. Hence, in order to meet the demand of market, the Atlantic company is planning to launch a basic server TRONN with a software tool PESA which will grow up the efficiency of server approximately four times. First of all, apart from choosing the suitable pricing method for Atlantic computers, the broad of this company also need to consider about the lifecycle of their product. Basing on the case of IBM HTTP Server or The server products of Microsoft, it seems that the lifecycle of high tech products is decreasing rapidly nowadays. According to some experts in this field, they believe that the average life expectancy of these products is around 3 or 4 years depending on many factors which include...
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...package, 10% commission from every sold server and 5% from monthly fee/ month. 1. Problem statement: Jason Jowers has to develop a pricing strategy for the new Tronn server and the PESA software before the SME trade show. Server Market Overview: ● ● ● High Performance Servers ○ For Complex Applications ○ Next year marker potential 200.000 units ○ 3%/year Growth possibilities. ○ Atlantic Computer has a 20% market share. Basic servers ○ For single task, without the need of high computing performance ○ Next year market potential 50.000 units ○ Growth potential 36% till 2003 Competitor ○ Ontario Computer Inc. ZINK server is a main brand in the low end market On-line sales Low prices Company Overview: Atlantic Computer is a producer of High Performing Servers Jason Jowers joined AC four months ago and his main task is to develop the pricing strategy of the new Tronn Server with PESA support. Tronn is developed for low end market. PESA (Performance Enhancer Server Accelerator) is a software tool that was developed to allow Tronn to perform 4 times faster than normal servers like ZINK The server division focus on the hardware traditionally, the sales force historically given away software for free. Practice to use the cost plus pricing method based this Tronn price is 2000 USD. Main customer segment for Tronn and PESA combination is the web and file sharing companies who are relatively price sensitive but still looking for a good...
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...Atlantic Computers: A bundle of pricing options In the case, it mentioned that, conservatively, one Tronn server equals to two Zink servers; Aggressively, one Tronn equals to four Zink servers. Within the premise that Matzer and his colleagues were quite conservative, he decided to compare two basic servers loaded with the PESA versus four basic servers. In this case, therefore, we calculate the price of Atlantic Bundle with the assumption that two Atlantic Bundles is the equivalent of four Ontario Zink servers. 1. * Status-Quo Pricing This pricing strategy considers only the cost of server and gives PESA software tool away for free. Therefore, the price of two Atlantic Bundles is $4,000. ------------------------------------------------- Price of 1 Tronn server $2,000 ------------------------------------------------- 2 Tronn servers + PESA software (Free) $4,000 This pricing strategy gives the lowest price. However, by giving PESA for free, there is no substantial difference between Tronn and Zink. This would be difficult for Atlantic Computer to gain market shares in the basic servers segment. * Competition Based Pricing Using price of competing products as a benchmark instead of considering own costs or the customer demand, we price the Tronn server based on the price of competitive server, Zink by Ontario, rather than considering costs and give PESA away for free. ------------------------------------------------- ...
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...best option is Value-in-Use pricing. ATLANTIC COMPUTER: A BUNDLE OF PRICING OPTIONS Summary of the Situation Analysis Atlantic Computer is a manufacturer of servers and high-tech products. Two market segments exist in the server industry: High performance and Basic Servers. Atlantic Computers has held a 20% share of the High Performance market with their Radia servers being their premier product. However, the market for Basic servers is growing and this has caused Atlantic Computers to develop and introduce a Basic Server called the Tronn and a software tool called the “Performance Enhancing Server Accelerator” (PESA). The Tronn was developed mainly for the emerging US market opportunity for basic servers. The PESA would allow the Tronn to perform up to four times faster than its standard speed and make frequently requested information more accessible. Thus, bundling the Tronn and PESA made more sense. Atlantic is not concerned that the Tronn will be considered a substitute for its High Performance servers.1 Primary Question to be addressed: What pricing strategy should Atlantic Computers implement to price the Atlantic Bundle? Model Customer: In order to decide which pricing strategy to use, it is best to identify and use the basic server needs of a model customer. In this case, DayTraderJournal.com will be used as the model customer.2 DayTrader.com is seeking four basic servers for...
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...segment is growing significantly faster than the high performance segment in terms of growth. Now, this firm’s mail goal is to enter the basic segment by launching its new basic server “Tronn”. Ontario Computer, the leader of this market, with its basic server “Zink” is the main competitor. Ontario Computer has got 50% of the market share and offers lower prices. Atlantic computer’s basic server Tronn, when combined with the PESA software, performs four times faster than Zink. To enter this new market successfully, it is necessary to choose the right pricing strategy that is value in use pricing strategy, focus on target customer segment and use a proper marketing and promotion tactic. Problem statement Atlantic computers faces some issues before the launch of the product. These are which pricing strategy to use, the competition from Ontario Computer, difficulty of entering a new market, Matzer’s and sales force’s reaction to the pricing strategy, the customers’ perception in the target market and the competitor’s reaction. Situation Analysis Competition: Ontario holds 50% revenue market share of the basic server market. It has been able to drive out many non-value added costs and compete on the basis of price as majority of its sales are generated online. Context: Price of Tronn itself is higher than Zink. Atlantic computer is a well-known company in high performance server market. Therefore, it will require high efforts to create awareness among customers and change...
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...Atlantic Computer: A Bundle of Pricing Options 1. Determine the price for two Tronn servers plus PESA according to the following pricing methods: * Status-quo pricing * Competition-based pricing * Cost-plus Pricing (Hint: footnote # 5) Note: Jowers makes a conservative estimate that two Tronn servers plus PESA equals the performance of four Ontario Zink servers. To calculate the prices you could use the spreadsheet file included in the course content (Week 3). 2. Determine the Value-based price for two Tronn servers plus PESA. Follow these steps use the spreadsheet file included in the course content (Week 3): 1. Calculate the costs of running for a year 4 Ontario Zink serves, 4 Atlantic Tronn servers, and 2 Atlantic Tronn servers with PESA 2. Calculate the annual savings of owning 2 Atlantic Tronn servers with PESA 3. Determine the Value-based price for two Tronn servers plus PESA assuming that 50% of the savings will be passed to the consumer. At the end of the session each team should raise their card with an answer. 4. How is Cadena’s sales force likely to react to your recommendation? What can Jowers recommend to get Cadena’s hardware-oriented sales force to understand and sell the value of the PESA software effectively? In conclusion, based on our analysis we recommend using Competition Based Pricing because this approach acknowledges competitor prices and gives superior services at a same rate. Competition...
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