This document summarizes a case analysis for Atlantic Computer Inc regarding pricing strategies for its new basic server product called Tronn. Key points: - Atlantic faces a pricing dilemma for Tronn as it enters the basic server market dominated by Ontario's Zink server. - Options include bundling/unbundling Tronn and software, maintaining cost-plus pricing, competitive pricing, or value pricing. - Tronn targets small/medium businesses with inexperienced IT needs for file/web servers. - A value proposition shows Tronn with bundled software has lower total cost of ownership than two Zink servers. - The decision is made to value price T

1. Atlantic Computer Inc
Case Analysis
BBM, NMP Term III
Group 4
Argha Ray - 15
Chakra Dhar Kundu - 22
Khushal Malik - 28
Sanjay Kumar Prasad – 45

2. Context
• Atlantic Computer is the largest player in the overall Computer Industry.
• Competes in following Product segments


High Performance Servers
Basic Servers
• Offers following products
 Radia (High Performance Servers)
 Tronn (Basic Servers)
• Facing Pricing Dilemma on Tronn servers
• Entry into Basic Server Market with Tronn will pit it directly against Ontario’s
Zink.

3. Jason’s Dilemma:
In the context of direct competition with Basic Server market leader Ontario,
the following questions are staring at Atlantic’s product pricing team
•
•
•
•
Bundle or Unbundle Tronn and PESA
Maintain Cost Plus pricing
Go for Competitive Pricing targeting Zink
Shift market paradigm with Value Pricing
Additional considerations included
• Market Share
• Find Resonating Focus with Customers
• Recover PESA’s R&D cost

4. Market Segmentation:
• Demographics
 Company Size: Small and Medium Business
• Operating Variables:
 Company Technology: Inexperienced
 Company Capabilities: Small Players
• Purchasing Approaches:
 Purchasing Criteria: Cost and Product Support
Based on above segmentation Atlantic must target Tronn in only the
Basic Server category which has uses in File Sharing and Web Servers.

5. Yardsticks:
• Tronn is in the beginning of its Product Life Cycle.
• Basic Server Market is an emerging new market, with possibility of Market
Development among Inexperienced Generalist’s customers.
• Ontario has already achieved economies of scale, hence difficult to compete on price.
• Traditional view of Software Tools as freebies with Server.

6. Top Line Revenue for 3 Years:
Year 1
Year 2
Year 3
Total Market in Units
50000
70000
92000
Market Share in Units
500
700
920
Sale Price per Server
3500
3500
3500
Cost Per Server
1538
1538
1538
Contribution Margin per Unit
1962
1962
1962
Total Contrinution Margin
981000 1373400 1805040
R&D for PESA
2000000
Payback Period
2 Yrs
• Atlantic is able to recover PESA R&D cost within two years, as evident from above
table.
• Initial Acquisition Cost is comparable with Ontario, when One Tronn is compared with
Two Zink.
• Only 1% market share considered for Price Calculation.

7. Distinctive Value Proposition:
Tronn + PESA (One Server) Zink (Two Server)
Unit Cost
3500
1700
Equivalent Unit Cost
3500
3400
Electricity
250
500
License
750
1500
Unit Administrator Cost
2000
2000
Equivalent Administrator Cost
2000
4000
Total Unit Cost
6500
9400
Savings
2900
•
Annual Maintenance Cost is significantly less for Tronn.
•
Total Cost of Ownership is less than Zink.
•
This POD can be reason enough to convince SME customers.

8. Decision:
• Don’t leave money on the table.
• Cost Plus pricing doesn't make sense as SME customers will not have
enough clout to ask for Cost Audit.
• Sell Tronn and PESA as system with adequate after sales support.
• Don’t compete on price with Ontario.
• To get approval on pricing, specially Matzer, keep products bundled for
now.
• Engage in Value pricing.
• Convince customers using Value Equation.