Atlantic Computers

Atlantic Computer

A Bundle of Pricing Options

Naveen Rathee

Overview

Atlantic Computers is looking to enter the basic server market with their server Tronn. This market is growing at the rate of 36% with a demand of 50,000 units in coming year. This market is dominated by the Ontario which owns 50% of the market revenue with their product Zinc which is similar in spec to Tronn(without the loaded PESA software).

Issues at hand

* What price should Jowers charge DayTraderJournal.com for the Atlantic Bundle (i.e., Tronn servers + PESA software tool)?

* Approximately how much money over the next three years will be “left on the table” if the firm were to give the software tool away for free (i.e., status quo pricing) versus utilizing one of the other pricing approaches?

* How are Matzer, the sales force, customers in your target market, and competitors likely to react to your pricing strategy?

Assumptions

* Performance of one Tronn server is capable of handling the workload equivalent to 2 basic servers.

* The difference in performance of Tronn server is only evident in case of Web server and file sharing.

* PESA was distributed free of cost along with the servers until now.

Facts

High performance server unit demand per year | 200,000 |

Basic server unit demand per year | 50,000 |

Estimated market share for basic servers | 2,000 (4% of 50,000) |

Cost of development of PESA software: | $2,000,000 |

Cost of one server administrator’s salary | $80,000 |

Pricing options

1. Traditional approach where PESA software is given free along with the server (Status Quo)

Cost of each server | $1,538 |

Price of each server | $2,000 |

Price of software | $0 |

Market demand | 50000 |

Atlantic Computer Market share | 4% |

Units needed for DayTraderJournal.com | 2 |

Price for DayTraderJournal.com | $4,000 |

Total Revenue expected from the market | $4,000,000 |

The status quo prices allow Atlantic to keep...