Venkata Narayana Ega

Case Preparation Assignment 3 -Atlantic Bundle

1. The case introduces three pricing options: i) Status quo; ii) Competition-based;

and iii) Cost Plus. For each option, what price should Jowers charge for the Atlantic
Bundle (Tronn Server + PESA Software tool)?

Answer:
Three pricing options are
i) Status quo; 
ii) Competition-based;
iii) Cost Plus
Prices are calculated as :

1. Status Quo:
Let’s consider giving PESA for free and consider server costs

Price for one Tronn server is = $2,000

Price for two Tronn servers = 2*$2,000 = $4,000
Price for two Tronn servers and PESA = $4,000

**Per Atlantic bundle (one Tronn and PESA) = $2,000

Let’s consider selling 21,180 units (estimate based on 4%,9%,14% of the market
share for three consecutive years) in the span of three years

Revenue for 21,180 units = 21,180 * 2,000 = $42,360,000

Cost for 21,180 units = 21,180 * 1,538 = $32,574,840

PESA software development costs = $2,000,000
-----------------
Profit = $7,785,160
-----------------
2. Competition-based:
Let’s consider giving PESA for free and consider pricing Tronn servers
based on competitor’s server price. Here 2 Tronn servers are equal to 4
competitor servers.

Price for 4 Competitor servers (Zink server) = 4*$1,700 = $6,800

Price for two Tronn servers = $6,800
Price for two Tronn servers and PESA = $6,800

**Per Atlantic bundle (one tronn and PESA) = $6,800/2=$3,400

Let’s consider selling 21,180 units (estimate based on 4%,9%,14% of the market
share for three consecutive years) in the span of three years

Revenue for 21,180 units = 21,180 * $3,400 = $72,012,000

 Venkata Narayana Ega
Case Preparation Assignment 3 -Atlantic Bundle

Cost for 21,180 units = 21,180 * 1,538 = $32,574,840

PESA software development costs = $2,000,000
-----------------
Profit = $37,437,160
-----------------

3. Cost Plus :
Cost for PESA Software development = $2,000,000
Cost for Tronn server = $1,538

Price for Tronn server = $1,538 + 30% markup =$1,999.4

Price for PESA for one bundle = (2,000,000/21180) + 30% markup
= 188.86 + 56.658 = 245.518

**Per Atlantic bundle (one Tronn and PESA) = $1,999.4 + $245.518

= $2,245

Let’s consider selling 21,180 units (estimate based on 4%,9%,14% of the market
share for three consecutive years) in the span of three years

Revenue for 21,180 units = 21,180 * $2,245 = $47,549,100

Cost for 21,180 units = 21,180 * 1,538 = $32,574,840

PESA software development costs = $2,000,000
-----------------
Profit = $12,974,260
-----------------
I would say competition-based approach is best as we have seen high profits in the above
calculations and if the price is too low, people may consider it as low quality product. I
the prices are too high customer may not buy it. So, keeping it intact with competitor is
the best approach.

Below are the prices Jowers should charge for the Atlantic Bundle (Tronn Server + PESA
Software tool)

i) Status quo  - $2,000

ii) Competition-based - $3,400
iii) Cost Plus - $2,245