ATLANTIC COMPUTER: A BUNDLE

OF PRICING OPTIONS
Group 8, Section E

Name Roll No.

Arjun Jain 180103045

Krishnapriya M R 180102047

Nikhil Garg 180103138

Rohan Mujumdar 180102084

Shreyansh Vasishtha 180101097

Syed Salman Haider Rizvi 180103237

Urvika Agrawal 180103242

 INTRODUCTION

Objective: To find out the optimum price of "Atlantic Bundle" which consists of
new product named "The Tronn Server" and a server accelerator named "PESA".

Company Profile:
• Largest market share company in "Computer Industry".
• Has a history of 30 yrs.
• Manufactures "High End Server" and "High Technological Products"
• Market Segmentation: Traditional Segment and Basic Server Segment.
• Forecasting a good growth in the upcoming years in Traditional Market (High
End Market).
• The new product "The Tronn" and "PESA" are inter depended for the
performance part like PESA would allow The Tronn to work four time faster.
• Wants to grab the emerging US Marketplace opportunity.
STATUS-QUO PRICING
 CALCULATIONS FOR PRICE

• Stick with company tradition by charging only for hardware and give PESA for free
• Price of Atlantic Bundle = Price of Tronn + Free PESA software
= $2,000
• Cost per server = $1,538; Cost per PESA = $189
• Profit per machine = $462; Profit per machine after PESA = $273
• 1 Tronn loaded with PESA = same level of performance as 4 basic servers
• Lowest price option and devalues the package
• PESA Software development cost = $2,000,000
• Failed to capture the total value of the product
COMPETITION-BASED PRICING
 CALCULATIONS FOR PRICE

• Charge a price equal to what the customer would pay for four Ontario Zink
servers (priced $1,700 each)
Price of 1 Atlantic Bundle = Price of 2 Zinc Server
= $1,700 * 2
= $3,400
• Cost per server = $1,538; Cost per PESA = $189
• Cost with PESA = $1727
• Profit with PESA per machine = $1673
COST PLUS APPROACH
 PROJECTED MARKET VOLUMES FOR
ATLANTIC
(Figures are in Units)
2001 2002 2003 TOTAL
Market 50,000 70,000 92,000
Volume of the
segment
Market Share 4% 9% 14%
of Atlantic
Computers
Total Sales for 2000 6300 12880 21,180
Tronn
Total Sales for 1000 3150 6440 10,590
PESA (50%)

Source: Exhibit 1 for Projected market volumes by

segment (basic server)
Footnote 5
 CALCULATIONS FOR PRICE

• Cost per server for Tronn (Basic) = $1538

• Total PESA Software development cost = $2000000
• Cost of PESA per server = $2000000/10590 units = $189/unit
With PESA:
• Total cost of Atlantic Bundle = $1727/ unit
• Final Price after adding 30% Mark-up = $ 1727 * 1.03 = $2245
Without PESA
• Total cost of Tronn servers = $1538/ unit
• Final Price after adding 30% Mark-up = $ 1538 * 1.03 = $1584.14

Source: Exhibit 3
Footnote 5
VALUE-IN-USE PRICING
 CALCULATIONS FOR COST
( Calculations are made for 1 year)

2 Tronn Servers 4 Zink Servers

Price of the servers 2* $2000 4* $1700
Conservatively 2 Tronn servers with
= $4000 = $6800
PESA are equivalent to 4 basic Zink
Electricity 2* $250 4* $250 servers
Cost = $500 = $1000
License Cost 2* $750 4*$750 Therefore, Price per Atlantic Bundle
= $1500 = $3000 = $8400/2
Labor Cost 2* $80000/40 4 * $80000/40 = $4200
= $ 4000 = $8000
Total Cost $10000 $18800
Savings by Tronn $18800- $10000
server = $8800
50% of Savings $4400 50-50 savings
sharing
Final Cost for $4000+$4400 $18800 Source: Exhibit 3
Atlantic Bundle = $8400 Footnote 6
 PRICING DECISION

• Though the most profitable option looks to be option 2(competition-based pricing), we

recommend Jowers to go for option 4(value-in pricing) i.e. $4,500/machine to
DayTraderJournal.com for the Atlantic Bundle
• Key Buying Criteria’s for DayTraderJournal.com are :
• Minimize acquisition costs
• Minimize possession costs
• Allow their website to process many information requests
• All their criteria's can be fulfilled by Tronn servers + PESA software tool while using
Value-in Pricing
• It will show more value to customers by highlighting them the low acquisition and
possession costs
• If sales increase then Atlantic will also gain by 50-50 profit sharing
• Also opting for price-war may not be an good option for Atlantic because the cost of
Tronn itself is $1538 while Ontario sells the Zinc at $1700. Atlantic need to factor the
cost of PESA as well. So if Ontario lowers the price then it will be difficult for Atlantic
to survive.
TOP- LINE REVENUE IMPLICATIONS
 [ calculations for three years (2001-03)]

Pricing Price/server No of units Revenue Cost R & D Cost Profit

Method (in $) (in $) (in $) (in $) (in $)

Status-Quo 2000 21180 42,360,000 32574840 2000000 7,785,160

Pricing
Competitive 3400 21180 72,012,000 32574840 2000000 37,437,160
Pricing
Cost-plus 2245 & 21180 40,550,592.6 32574840 2000000 5,975,752.6
approach 1584.14
(with and
without PESA)

Value-in-use 4200 21180 88,956,000 32574840 2000000 54,381,160

pricing

Company earns the highest revenue from value-in-use pricing. Also, this looks profitable in the long run as well because
It is based on core concept of creating value and calculating price based on savings to a customer.
TARGET CUSTOMER REACTION
• Though the market segment is new for Atlantic, it has a good reputation of product
quality and post sales service
• In purchasing the two-in-one, hardware and software, package deal, time wasted is
virtually eliminated
• This will help gain some market share in the basic server segment
• Lower cost compared to the existing competitor will also attract the customers
THANK YOU