ATLANTIC COMPUTERS – BUNDLING OF OPTIONS. CASE STUDY ANALYSIS
Ajith S – PGP14-191 Arun Raveendran – PGP14-204 Bhavana Kawat – PGP14-205 Prasoon Mazumdar – PGP14-227 Preethi R.S. – PGP14-228 Priyankar Biswas – PGP14-229
ATLANTIC COMPUTERS
Problem Statement: To determine the optimum pricing strategy for the Atlantic Bundle (Tronn Server and PESA Software Tool) Situation Analysis: Atlantic Computers was the largest player in overall computer industry but it was mainly concentrated in High Performance Servers. It is thinking of entering the Basic servers market.
• Customer: The customers needed servers for basic computing activities for simple,
repeatable tasks such as displaying and file-sharing tasks.
o
Key buying criteria: The criterion can be derived from an analysis of DayTraderJournal.com, which is a typical user of basic server. ? ? ? Minimum acquisition costs Minimum possession costs Website should be able to process many information requests
Also customers were willing to pay for software applications but not for software tools because they believed that software tools were integral to server, hence should be provided for free.
• Competition: The main competitor in the Basic Server segment is Ontario Computer Inc, with its Zink Product line with a market share of 50%.Ontario’s business model
is based on operational excellence that enabled them to compete on price, but they never claim to be the best product in the market.
• Company: Atlantic Computers is introducing Tronn Server, which has same
performance as Zink. However on bundling with the PESA, the performance of Tronn enhanced by 4 times the standard speed. Also PESA was specifically designed to make frequently requested information easily accessible, this will be of great use in web servers and File Sharing applications.
• Context: The Basic Server market is estimated to grow to 50,000 units in 2001 and
register about 36% CAGR through 2003.The growth of the Basic Server segment is fuelled by the rapid growth of internet. The pricing strategy should be there before the upcoming SME tradeshow in November, 2000.
Marketing Strategy: We evaluated pricing strategy based on status quo pricing, competition based pricing, cost-plus pricing and value-in-use pricing. We based our calculations on the requirements of a typical potential customer like DayTraderJournal.com and we decided to go for Cost-plus pricing strategy over other strategies for the following reasons:
?
We cannot opt status quo pricing because the benefits of the PESA will be overlooked by the customers. In fact we should compete with Ontario on product
differentiation to show the superior quality of our product and not on operational excellence. Our profits get hit as the PESA fixed costs go uncovered.
?
We cannot opt Competition pricing as price of 4 Ontario Zink servers ($6800) which is so prohibitively high that the benefits of secondary savings are overlooked as customers tend to minimize acquisition costs. This price most likely exceeds customer’s reservation price. By the Value-based-pricing the price per server comes to $4072 as illustrated in the calculation sheet based on 50-50 share of savings benefits. Though there are tremendous savings on both first and second order, the acquisition costs are more than double that of Zink which might hinder the customer for this kind of purchase. Also, Matzer may not agree to such a pricing as Cadena’s sales team believes that customers will not pay much more for a software tool like PESA as customers believe software tools should be ideally provided for free and may not be willing to pay much more. The sales team is too hardware-oriented to make the customers realize the benefits of the software tools. The Cost-plus approach with PESA suggests a price of $2245 which is higher than that of Zink at $1700. Such a price premium in fact allows us to differentiate our product as superior in quality to Zink as well as affordable. With this reasonable pricing we may capture an estimated 14% of the market share in low end servers by 2003 assuming a 50% attachment rate. It will be easier for a sales team to explain the benefits of $500 excess price than a price which is in excess of double for Zink.
?
?
For all financial calculations to arrive at pricing please refer to the attached calculation sheet. Competitor Reaction: The senior management of Ontario will most likely react by further price cuts by increasing their operational excellence which is their strong point. Their cost per server is atleast $300 less than Tronn (without PESA). They may infact advertise themselves to customers on cheaper acquisition costs. We can react to such contingencies by advertising TRONN with PESA as a superior product which should thus be sold at a premium. The benefits of first order savings (acquisition costs), second order savings (possession costs) and superior product performance (4 times efficiency than Zink) should be highlighted. We should fight Zink by showing our product as superior which is justified by its premium pricing. Conclusion Thus taking all dimensions into account we believe we must charge $2245 for Atlantic Bundle since justifying the $500 difference for Tronn with PESA will be easier to justify with calculations for potential savings and superior performance.
doc_563490356.doc
Ajith S – PGP14-191 Arun Raveendran – PGP14-204 Bhavana Kawat – PGP14-205 Prasoon Mazumdar – PGP14-227 Preethi R.S. – PGP14-228 Priyankar Biswas – PGP14-229
ATLANTIC COMPUTERS
Problem Statement: To determine the optimum pricing strategy for the Atlantic Bundle (Tronn Server and PESA Software Tool) Situation Analysis: Atlantic Computers was the largest player in overall computer industry but it was mainly concentrated in High Performance Servers. It is thinking of entering the Basic servers market.
• Customer: The customers needed servers for basic computing activities for simple,
repeatable tasks such as displaying and file-sharing tasks.
o
Key buying criteria: The criterion can be derived from an analysis of DayTraderJournal.com, which is a typical user of basic server. ? ? ? Minimum acquisition costs Minimum possession costs Website should be able to process many information requests
Also customers were willing to pay for software applications but not for software tools because they believed that software tools were integral to server, hence should be provided for free.
• Competition: The main competitor in the Basic Server segment is Ontario Computer Inc, with its Zink Product line with a market share of 50%.Ontario’s business model
is based on operational excellence that enabled them to compete on price, but they never claim to be the best product in the market.
• Company: Atlantic Computers is introducing Tronn Server, which has same
performance as Zink. However on bundling with the PESA, the performance of Tronn enhanced by 4 times the standard speed. Also PESA was specifically designed to make frequently requested information easily accessible, this will be of great use in web servers and File Sharing applications.
• Context: The Basic Server market is estimated to grow to 50,000 units in 2001 and
register about 36% CAGR through 2003.The growth of the Basic Server segment is fuelled by the rapid growth of internet. The pricing strategy should be there before the upcoming SME tradeshow in November, 2000.
Marketing Strategy: We evaluated pricing strategy based on status quo pricing, competition based pricing, cost-plus pricing and value-in-use pricing. We based our calculations on the requirements of a typical potential customer like DayTraderJournal.com and we decided to go for Cost-plus pricing strategy over other strategies for the following reasons:
?
We cannot opt status quo pricing because the benefits of the PESA will be overlooked by the customers. In fact we should compete with Ontario on product
differentiation to show the superior quality of our product and not on operational excellence. Our profits get hit as the PESA fixed costs go uncovered.
?
We cannot opt Competition pricing as price of 4 Ontario Zink servers ($6800) which is so prohibitively high that the benefits of secondary savings are overlooked as customers tend to minimize acquisition costs. This price most likely exceeds customer’s reservation price. By the Value-based-pricing the price per server comes to $4072 as illustrated in the calculation sheet based on 50-50 share of savings benefits. Though there are tremendous savings on both first and second order, the acquisition costs are more than double that of Zink which might hinder the customer for this kind of purchase. Also, Matzer may not agree to such a pricing as Cadena’s sales team believes that customers will not pay much more for a software tool like PESA as customers believe software tools should be ideally provided for free and may not be willing to pay much more. The sales team is too hardware-oriented to make the customers realize the benefits of the software tools. The Cost-plus approach with PESA suggests a price of $2245 which is higher than that of Zink at $1700. Such a price premium in fact allows us to differentiate our product as superior in quality to Zink as well as affordable. With this reasonable pricing we may capture an estimated 14% of the market share in low end servers by 2003 assuming a 50% attachment rate. It will be easier for a sales team to explain the benefits of $500 excess price than a price which is in excess of double for Zink.
?
?
For all financial calculations to arrive at pricing please refer to the attached calculation sheet. Competitor Reaction: The senior management of Ontario will most likely react by further price cuts by increasing their operational excellence which is their strong point. Their cost per server is atleast $300 less than Tronn (without PESA). They may infact advertise themselves to customers on cheaper acquisition costs. We can react to such contingencies by advertising TRONN with PESA as a superior product which should thus be sold at a premium. The benefits of first order savings (acquisition costs), second order savings (possession costs) and superior product performance (4 times efficiency than Zink) should be highlighted. We should fight Zink by showing our product as superior which is justified by its premium pricing. Conclusion Thus taking all dimensions into account we believe we must charge $2245 for Atlantic Bundle since justifying the $500 difference for Tronn with PESA will be easier to justify with calculations for potential savings and superior performance.
doc_563490356.doc