Atlantic Computers is a server manufacturer with a 20% share in the high-performance market, but it is entering the growing basic server market with its new Tronn server and PESA software. The company is evaluating pricing strategies, including maintaining the status quo, competition-based pricing, cost-plus pricing, and value-in-use pricing, with a recommendation to adopt value-in pricing due to its potential to demonstrate greater customer value. There are challenges such as ensuring salespeople can effectively communicate this strategy, given that their commissions are tied to sales volume.

1. By- Akshay Kumar Jain

2.  In this case, Atlantic Computer is a manufacturer of
servers and high-tech products.
 Two market segments exist in the server industry: High
performance and Basic Servers.
 Atlantic Computers has held a 20% share of the High
Performance market with their Radiaservers being their
premier product.
 However, the market for Basic servers is growing andthis
has caused Atlantic Computers to develop and introduce a
Basic Server called the Tronnand a software tool called the
“Performance Enhancing Server Accelerator” (PESA).

3. • Atlantic Computer is a manufacturer of servers
and high-tech products.
• Currently there 2 market segments: Traditional
and Basic server markets.
• Atlantic is a market leader in traditional market
with its product Radia, which is a premier product.
• Basic market is a new market and is a fast
growing one.
• For basic market, Atlantic has developed a
server Tronn. Also Atlantic has developed a
software tool PESA, Performance Enhancing Server
Accelerator

4.  • PESA enhances the Tronn server’s speed by
4 times from its normal speed. • Atlantic’s
main competitor in basic market segment is
Ontario, which commands 50% market share
with its product Zinc.

5. • The pricing strategy for the Atlantic bundle, which is Tronn
server with PESA tool, need to be determined.
• There are 4 options available.
1. Atlantic Computers can stay with the status quo and
provide PESA as free with Tronn server.
2. 2. It can choose competitive based pricing, which is
charging customer to 4 times Ontario Zinc servers.
3. 3. Arrive at price by cost-plus pricing.
4. 4. Arrive at price based on value-in use pricing.
5. • Also other questions regarding product’s target market,
competitor’s and customer’s reaction need to be answered.

6.  The industry norm for pricing a server and software
bundle is to merely include any
 Neeraj Bharadwaj, John Gordon, “Atlantic Computers: A
Bundle of Pricing Options”, 2007, 2 Id.
 software tools with the hardware. Atlantic Computers has
always practiced this pricingstrategy.
 This would require Atlantic Computers to offer the PESA
software tool for free
 with the Tronn Server. This would require Atlantic
Computers to essentially lose the
 $2,000,000 cost of research and development of PESA.
Additionally, the Tronn Server would
 appear to customers as very comparable to the Zink
servers and it would make it difficult for
 Atlantic Computers to compete with and gain market
shares in the basic servers segment.

7.  Competition-Based pricing uses the prices of competitors as a
benchmark for pricing
 products rather than considering costs.
 The price of Ontario’s Zink servers is $1700 and
 conservatively speaking, the Tronn loaded with the PESA
software tool is equivalent to two
 of Ontario’s Zink servers. Furthermore, customers would need
further justification to have only half of
 the hardware and run the risk of one or both servers being out
of commission for any given
 amount of time. Customers would likely not consider
purchasing the “Atlantic Bundle” based
 on Competition-Based pricing because they would not see it as
a fair price and worth the risk.

8.  . Cost-plus pricing is determined by adding the direct, indirect and
fixed costs associated
 with a product and converting it into a per-unit cost for the
product.
 A predetermined
 percentage is then added to these costs to provide a profit margin.
 The cost of a Tronn
 server is $1,538 and based on a $2,000 price, this additional
markup is approximately 30% .
 Adding 30% to the cost of PESA would make the price $189. As the
chart below details,
 under the cost-plus method, the price of a Tronn loaded with PESA
would be $2,246 which is
 $546 above the Zink server. Because we are looking at this
conservatively, we will assume
 that two Tronn servers are the equivalent of four Zink servers.
Therefore, it would cost
 $4,492 as compared to $6,800 for the Zink servers.
 Again, It would be difficult for Atlantic

9. • Though the most profitable option looks to be
option2(competition-based pricing), we recommend Atlantic to
go for option 4(value-in pricing).• Reasons to opt for value-in
pricing are listed below.
1. Atlantic computer can show more value to customers by
showing them the monetary benefits. 2. If sales increase
then Atlantic will also gain by 50-50 profit sharing.
2. 3. Also opting for price-war may not be an good option for
Atlantic because the cost of Tronn itself is $1538 while
Ontario sells the Zinc at $1700. Atlantic need to factor the
cost of PESA as well. So if Ontario lowers the price then it
will be difficult for Atlantic to survive.

10.  • Though the value-in pricing looks to be most beneficial to
both customers and Atlantic, there are certain challenges. –
Salespeople need to be convinced about this because their
30% of pay comes from sales and value-in pricing is lower
priced than other parts. – Sales people need to be trained to
describe the value to customers properly.
 Pricing Method Expected Sale Revenues($)
 Costs Profit Status-Quo 21,180 $18,287,420 $2,416,030
$2,416,030
 Comp-Based 21,180 $36,006,000 $18,287,420
$17,242,030
 Cost-Plus 21,180 $23,785,140 $18,287,420 $5,021,170
Value-In 21,180 $33,888,000 $18,287,420 $15,124,030