Atlantic Computer: A Bundle of Pricing Case Review

Atlantic Computer: A Bundle of Pricing Case Review

Atlantic Computers has decided to enter into the emerging U.S. market for basic servers ( 36% CAGR). It has developed the “Atlantic Bundle” which consists of a Tronn Server and the PESA software which enables the Tronn Server to perform at the rate of four of their competitor’s basic servers. We have discussed the various decisions that lie ahead of Atlantic computers

Pricing Strategies:

 We must not continue to use status quo pricing because offering PESA free of cost, would mean sunk cost for our R&D of upto $2 million and also it would not differentiate “Atlantic bundle” from  the Zink servers.

With Competition based pricing, we will be charging the price of 4 Zinc servers (1,700 x 4 = $6,800) from our customer. This would mean lower unit margins than our current price for us as a company resulting in lower profits. Also, this would not be able to change the perceived value for our customers.

With all considerations for costs and savings between the “value in” and “cost plus” pricing we concluded that it would be beneficial to go with the “value in” pricing strategy to launch the new Tron servers with Pesa to our new target market, companies with applications dealing with “file sharing” and “web servers”. This will allow us to charge the additional R&D costs associated with our new software tool (Pesa). We can justify the additional cost with improved server performance and high availability that comes with Pesa. The customers will also realize the value added in the benefits that comes with the new Tron both in terms of dollar savings and less server management as well as they have to buy and manage fewer servers.

The detailed analysis of all cost savings have been attached as an exhibit which does show that on average the customers will be able to save more than $13000 over the useful life of Tron by going with Cost plus or value in.

The tradeoff going with value in v/s cost plus pricing is to be able to justify the higher price tag. Since the new Tron is in an introduction phase the anticipated step would be to accept lower gross margins and profits. But we would like to penetrate the market and gain additional market share as well which “value in” pricing will allow us to achieve. Since we will have higher margins this will allow us to allocate appropriate resources in motivating and streamlining our marketing efforts in stimulating the sales for the new Tronn.

Target Market and Companies:

Since we are advertising increased efficiencies and performance through our new servers, our new target market is companies that do a lot a web hosting and file sharing. Initial testing has proved hat Tronn with PESA has performance increase of approx. 2 % and 4 % for file sharing and web servers respectively. The new target market is likely to accept the increased price if we can advertise the perceived value added benefits that comes with reliability, high performance and availability. This may be one of the more difficult tasks associated with pricing the “Atlantic Bundle.”  But our marketing efforts will emphasize not only the cost savings but psychological benefits of managing less servers and increased efficiency. Our Sales and marketing team will have a vital role in establishing this message and creating this brand image.