ATLANTIC COMPUTERS
Question 1
What price should Jowers charge DayTraderJournal.com
for the Atlantic Bundle (i.e. Tronn+PESA software tool)?
ecommended Pricing Strategy
Value-in-use pricing strategy
Assumption: Conservatively Tronn server + PESA Software is equivalent to 2 Zinc servers
Cost
Electrici
ty
Admin
Softwar
e
Server
Total
Savings
50/50
Split
Final
For 1
For 2 x Zink xTronn
Benefits
Benefits:
500
250
4000
2000
1500
750
3400
2000
9400
5000
4400
2200
Higher perceived value by the customer in terms
of monitory benefits
Higher profit earning through 50-50 sharing if
sales increases
Helps in building a customer focused sales
strategy
Cons
Priced 2X higher than the status quo
(traditional) approach
Customer might not be aware that the software
price is included in the pricing
Question 2
Think broadly about the top-line revenue implications from each of
the four alternative pricing strategies. Approximately how much
money over the next three years will be left on the table if the firm
were to give away the software tool away for free (i.E., Status quo
pricing) versus utilizing one of the other pricing approaches?
REVENUE IMPLICATIONS
REVENUE IMPLICATIONS
REVENUE IMPLICATIONS
Software Free
2001
Bundle Price
Sales
Revenue
Net Income
Left on Table
2,000
Price = 4 x Zinc
2002
2003
2,000
2,000
2001
6,800
Cost Plus
2002
2003
6,800
6,800
2001
2,245
Value in use
2002
2003
2,245
2,245
2001
4,200
2002
2003
4,200
4,200
40,00,000 126,00,000 257,60,000 136,00,000 428,40,000 875,84,000 44,90,000 141,43,500 289,15,600 84,00,000 264,60,000 540,96,000
9,24,000 29,10,600 59,50,560 105,24,000 331,50,600 677,74,560 14,14,000 44,54,100 91,06,160 53,24,000 167,70,600 342,86,560
-
1016,64,000
51,89,100
465,96,000
Profit Per
Unit
462
5,262
707
2,662
Breakeven
Units
4,329
380
2,829
751
Question 3
How is Matzer likely to react to your
recommendation?
Head of Server division
20 yr veteran of the computer business
Force to be reckoned with
Chris
Matzer-Profile
Has prepared
several reports on server
markets
Wants server to be sold along with
PESA
Gives responsibility to Jowers to
prepare a pricing strategy for the
Atlantic Bundle
Conservative
Prefers the industry norm of giving
away software free of cost along with
Hardware
Jowers Recommendation:
Value in Use pricing
Matzers Reaction
Industry Norm- Cost Plus Pricing
Convincing the customer about
benefits and value achieved like
reduced utilities and lesser
hardware
Profits earned are higher
Convincing Sales team, Jairo
Cadena on selling using Value in
use pricing
Question 4
How is Cadenas sales force likely to react
to your recommendation? What can Jowers
recommend to get Cadenas hardwareoriented sales force to understand and sell
the value of the PESA software effectively?
Value based pricing Reaction of sales force
Considerable amount of salary is variable
Fixed
(70%)
in form of commision
Selling the Atlantic bundle at the new
cost with value based pricing would get
the sales team higher commissions
Though, against the norm of giving away
software, the bundle has considerable
cost benefits
Salesforce should be ready to leverage
on the new offering and look forward to
make higher commissions
Salary
Variable
(30%)
Recommendation to sales force
Jowers should recommend the sales
force to look on the more efficient
working of the hardware due to this
software
Sales force should highlight lesser
requirement of server racks,
manpower, electricity cost,
maintenance costs with the other
benefit of faster operational speed
Question 5
How are customers in your target market likely to react
to your recommended pricing strategy? What response
can be provided to overcome any objections?
CUSTOMER REACTION & SALES
RESPONSE
Challenges
Initial Resistance due to per unit
higher acquisition cost
Reluctance to pay for software as
traditionally given for free
Resolutions
Higher Perceived Value
Focusses on all the operational and
additional costs
Show that PESA is the driver for low
cost
Question 6
How is Ontario Zinks senior management team likely
to react to the Atlantic Bundle?
ONTARIO ZINKS REACTION
Competitor Response
Short Term tactics like price reductions
Similar product will be formidable when combined
with Zinks operational efficiency
May focus on direct sales more rather than relying
on online sales
Atlantics Perspective
Lifetime Cost will still be lower
Will take time to develop. Can gain sizable market
share by then
Zink will have higher operational costs. Atlantic can
focus on online sales after gaining share and
visibility
