200103199 Ahana Chatterjee

200103201 Himanshu Sharma

Atlantic Computers: 200103203 Sumit Kumar Panwar

A bundle of Pricing Options 200103113 Pratistha Poonam

200103182 Vishwas Handa

Case Solutions by Group 11, Section B
200103140 Shaaswat Mukherjee
1. Price Setting for Atlantic Bundle
1.1 Status-Quo Pricing
“Choosing to sell product at set price that everyone sells their product for”
Price of Atlantic Bundle = Price of Tronn + Price of PESA (FREE) = $2000

1.2 Cost-Plus Pricing

Atlantic Bundle Price Calculation
Market Market 50% attach
Cost of Tronn Server $1538 volume of Share of rate of
Year basic servers Atlantic Unit Sales PESA
Number of unit sales (2001- 10590
2003) 2001 50000 4% 2000 1000

Cost of software R$D per server $2,000,000/10590 = $188.85

2002 70000 9% 6300 3150
Cost of Atlantic Bundle $1538 + 188.85 = $1726.85
2003 92000 14% 12880 6440
30% Mark-up 0.30*1726.85 = $518
Price of Atlantic Bundle $1726.85 + $518 = $2245 Total 21180 10590

Table 1 Table 2 : Calculation for no. of unit sales

Solution 1 | Solution 2 | Solution 3 | Solution 4 | Solution 5

1.3 Competition-based Pricing:
“Comparison to competitors pricing”
1 Zinc server Price : $1700
Conservative Approach : 2 Tronn with PESA performs equal to 4 Zinc Servers
Price to Set : 2* Zinc servers = 2*1700 = $3400
Aggressive approach : 1 Tronn with PESA performs equal to 4 Zinc Servers
Price to Set : 4* Zinc servers = 4*1700 = $6800

1.4 Value-in-use Pricing: (Recommended Strategy)

“Value based comparison (taking into account electricity costs, labor costs, licensing costs and price of the servers)”
Tronn Zinc
Additional Cost
Price 2000 1700
Savings gain = 9400 – 5000 =
Electricity cost per server 250 Units 1 2
$4400
Licensing cost per server 750 Total setup cost 2000 3400
Salary of labour $80000 Total electricity cost 250 500 50-50 sharing = 4400*0.5 = $2200
Servers per administrator 40 Total liscencing cost 750 1500 Price to Set: $2000 + $2200 =
Cost of labour per server $2000
Total Cost of labour 2000 4000 $4200
Final Cost 5000 9400
Table 3
Table 4 : Cost of ownership

Solution 1 | Solution 2 | Solution 3 | Solution 4 | Solution 5

2. Potential Money left on the table if PESA is given for free:
Estimated Sales over
Price 3 years Total Revenue Potential Left on the table

Status Quo Pricing 2000 10590 $ 2,11,80,000.00 $ -

2245
Cost-Plus Pricing 10590 $ 2,37,74,550.00 $ 25,94,550.00
Table 5
Conservative Competition- 3400
Based Pricing 10590 $ 3,60,06,000.00 $ 1,48,26,000.00

Aggressive Competition- 6800

Based Pricing 10590 $ 7,20,12,000.00 $ 5,08,32,000.00
4200
Value-in-use Pricing 10590 $ 4,44,78,000.00 $ 2,32,98,000.00

The most money is left behind in case of aggressive competition-based pricing, followed by Value-in-use Pricing.
Considering that aggressive pricing is difficult to justify for basic server usage, Atlantic Computers should take
advantage of Value-in-use Pricing.

Solution 1 | Solution 2 | Solution 3 | Solution 4 | Solution 5

3.1 Matzer’s Reaction to Jower’s Proposal
• Objection to charging for PESA software tool separately

• Might become challenging for the Sales Team to push a high-priced product

3.2 Handling Matzer’s Objections

Jower should recommend Value-in-use Pricing Strategy:

• Value-in-use Pricing ensures the company breaks-even within the first year (Table 6, next slide)
• The sales force can justify the price to customers by conveying saving benefits and lower ownership cost
• This strategy helps the company increase its profits by not leaving money on the table (Table 5)
• Charging value-based price emphasizes the high-quality and superiority of the product and differentiates it from the
competitors
• Despite Aggressive Competitive Pricing being more profitable than Value-based Pricing, the later can show better
value to the customer and justify the price based on the performance.

Solution 1 | Solution 2 | Solution 3 | Solution 4 | Solution 5

 3.2 Handling Matzer’s Objections

Price Set Cost Profit/unit R&D Cost Estimated Break-Even Break-Even

Sales over 3 Units Year
years
Status Quo Pricing 2000 1538 462 2000000 10590 4329 2003
Cost-Plus Pricing 2245 1538 707 2000000 10590 2829 2002

Conservative Competition- 3400 1538 1862 2000000 10590 1075 2002

Based Pricing
Aggressive Competition-
6800 1538 5262 2000000 10590 380 2001
Based Pricing

Value-in-use Pricing 4200 1538 2662 2000000 10590 751 2001

Table 6 : Break-Even Analysis

Solution 1 | Solution 2 | Solution 3 | Solution 4 | Solution 5

4.1 Issues with the Sales Team
• Objection to the higher price: Salesforce might deem it difficult to sell a product priced much higher than the
competition
• Communicating the value of PESA software tool to the hardware-oriented salesforce
• Difficulty in convincing customers to buy PESA tool along with Tronn server: Industry norm is to provide
software tool for free along with the server

4.2 Recommendations for the Sales Team to sell PESA tool effectively
• Emphasize that PESA will increase Tronn server’s performance significantly for basic server applications

Application Tested Tronn without PESA Tronn with PESA Performance Improvement Ratio
File Sharing
404 812 Twice
(e.g., shared storage and data backup)
Websites
(e.g., running websites such as 542 2222 Four Times
www.espn.com)

Table 7

• Communicate the saving benefits with Atlantic Bundle as compared to buying Tronn separately

Solution 1 | Solution 2 | Solution 3 | Solution 4 | Solution 5

4.2 Recommendations for the Sales Team to sell PESA tool effectively
• Emphasize on the lower ownership cost of the Atlantic Bundle
Sample Customer : Tradersjournal.com
Requirement: 4 basic servers
(Considering 2 Atlantic Bundles = 4 Zinc Servers) Table 8: Low Ownership Cost

Atlantic Bundle (Tronn + PESA) Zinc Server Even though the one time
cost of acquisition is $1600
Total Cost of Setup 4200 1700
more than Zinc servers, it
Units 2 4 lowers the total ownership
Total Cost of Acquisition 8400 6800 cost by $4400 per year.
Annual Electricity Cost 500 1000
Total Cost of Software License 1500 3000
Total Cost of Labor 4000 8000
Total Cost of Ownership 14400 18800

• Role Playing Exercise to train the salesforce on how to convince a potential customer
• Highlight the higher commission they can generate due to higher revenue via proposed value-based pricing method

Solution 1 | Solution 2 | Solution 3 | Solution 4 | Solution 5

5.1 Target Customer’s Reaction to Value-in-use Pricing:
• Reluctance in buying the Atlantic Bundle: Customers might want to opt for Tronn separately and expect
the software for free as is the norm

• Shift to Zinc Servers: Customers might switch to Zinc servers, priced at $1700, to lower their acquisition cost
• Customers might also link the high price to high quality

5.2 Handling Customer Objections:

• Emphasize on higher performance with PESA (Table 7) – first order saving by purchasing lesser no. of servers
• Highlight second order savings (in terms of electricity, labour etc. over the average product life of 3 years)

• Emphasize on lowered possession cost (Table 8)

• Ensure excellent after-sales service to the customers

Solution 1 | Solution 2 | Solution 3 | Solution 4 | Solution 5