Atlantic Computer manufactures servers and high-tech products. It dominates the traditional server market but seeks to enter the growing basic server market. It developed the Tronn server and PESA software to accelerate Tronn's speed by 4 times. Atlantic must determine pricing for the Tronn-PESA bundle. Four options are analyzed: 1) include PESA for free 2) price competitively against main rival Ontario 3) use cost-plus pricing 4) value-in-use pricing sharing savings. The analysis recommends value-in-use pricing to demonstrate value to customers while allowing for potential profit sharing that benefits both parties.

1. ATLANTIC COMPUTER
PGPM912 – Div B – Group 3
Sandeep Bharihoke
M. Farhan Khan
Munish Kumar
Piyush Audichya
Madhuparna Das
Ritesh Ranjan
Vijay Aggarwal
Atlantic Computer Analysis-Group3
MARKETING -1 CASE ANALYSIS

2. Case Analysis
• 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.
Atlantic Computer Analysis-
Group3

3. Case Analysis. Contd…
• 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.
Atlantic Computer Analysis-
Group3

4. Objective
• 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. It can choose competitive based pricing, which is charging
customer to 4 times Ontario Zinc servers.
3. Arrive at price by cost-plus pricing.
4. Arrive at price based on value-in use pricing.
• Also other questions regarding product’s target market,
competitor’s and customer’s reaction need to be answered.
Atlantic Computer Analysis-
Group3

5. Option-1
• This option include charging for Tronn server only and give
PESA tool for free.
• Cost Of Atlantic bundle = $2,000
• Atlantic will have to forego the amount of R&D investments
done in PESA software here. This amounts to $20,00,000.
Atlantic Computer Analysis-Group3

6. Option 2
• Competition based pricing.
• Conservatively 2 Tronn servers should be equal to 4 Zinc
servers. Aggressively 1 Tronn server will be equal to 4 Zinc
servers.
• Price of 4 Zinc server = 1700*4 = $6,800
Atlantic Computer Analysis-
Group3
Conservative Aggressive
Price of Atlantic Bundle $3,400 $6,800

7. Option 3
• Cost-plus pricing.
• Expected sales in 3 years=(4*50000+9*70000+14*92000)/100
• Cost of Tronn server = $1,538
Atlantic Computer Analysis-
Group3
Value Remarks
Expected sales for Tronn servers(units) 21180
Expected number of PESA installations 10590 (50% of 21180)
Cost of PESA per installation 189 (2,000,000/10590)
Total cost of Atlantic bundle 1727 1538+189
30% mark-up 518.1 0.3*1727
Final cost 2245.1 1727+518.1

8. Option 4
• Value-in use pricing.
• Conservatively 2 Tronn servers + PESA is equivalent to 4 Zinc
servers.
Atlantic Computer Analysis-
Group3
2 Tronn Server 4 Zinc server Remarks
Price of Servers 4000 6800
Electricity 500 1000 $250 per server
S/w licenses cost 1500 3000 $750 per server
Total cost 6000 10800
Savings by Tronn 4800 0 10800-6000
50% of saving 2400 0 50-50 cost sharing
Final cost for
Atlantic bundle
6400 10800 4000+2400

9. Pricing - Recommendation
• 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.
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.
Atlantic Computer Analysis-
Group3

10. Pricing-Recommendation. Contd…
• 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.
Atlantic Computer Analysis-
Group3
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

11. Other Questions
• Which market should be targeted?
– Atlantic should target market that do web hosting and file sharing.
These companies can achieve the maximum benefit from PESA
software. Showing the pricing benefit to these customers will be most
beneficial for Atlantic as well and these companies can become
attractive customers.
• How will Ontario’s top management likely to respond?
– In the short run they may not respond as the market share of Atlantic
will be very small 4%. But as the market share for Atlantic
grows, Ontario may react by lowering prices. Atlantic may need to
compromise on the 50-50 profit sharing to show the pricing difference
if needed.
Atlantic Computer Analysis-
Group3