Case Study

Atlantic computers are the largest manufacturer of servers and other high tech products with a 20% market revenue share in the segment. The company plans to launch a basic server TRONN and software PESA due to growth in demand for basic servers.

Important Details

  * competitor: ONTARIO ZINK

  * CAGR: 3%(BS segment)

  * TRONN along with PESA works FOUR times more efficiently.

  * Value of 2 TRONNs = Value of 4 ZINKs

Four types of pricing strategies:

  * Competition based pricing

  * Cost plus pricing

  * Charging only for TRON

  * Value in use pricing

RECOMMENDATION:

The company should adopt COST PLUS PRICING with a price of $2245.5 because:

  * Charging for PESA would increase its value and act as a key feature

  * Although revenues will not be the highest, but the possibility is that the customers might not be willing to pay a very high price as in case of value in use.

  * It has a 30% margin which means that the company will surely make 30% profit

CALCULATING PRICE IN EACH MODEL(* all calculations done based on assumptions and figures given in case)

MARKET SHARE

| 2001 | 2002 | 2003 | Total |

Basic server | 50000 | 70000 | 92000 | 212000 |

Market share | 4% | 9% | 14% | |

Share | 2000 | 6300 | 12880 | 21180 |

  1. Competition based pricing

Price for 2 TRONN = 2 * $2000 = $4000

Price for 4 ZINK = 4 * $1700 = $6800

Acc to competition based pricing,

Price for 2 TRONN= $6800

Price for 1 TRONN= $ 3400

  2. Charging only for TRONN

Price for 1 TRONN= $2000

  3. Cost Plus Pricing

total market share for 3 years= 21180

volume of market share with PESA (50%)= 10590

R&D costs = $2000000

Per unit cost of PESA= $2000000/10590 = $189

Add margin 30%=189+30% = 245.5

Total price per unit of TRONN&PESA= $2000+245.5= $2245.5