Atlantic Computer, Inc. is the largest player in overall computer industry. It has been
competing in the server market for 30 years by selling its high-end performance servers,
called Radia, to large enterprise customers. It has reputation of providing top-notch, highly
reliable products with high quality, responsive post-sales assistance. Its strategy, based on
customer intimacy and product differentiation, has helped it capture 20% of the revenue
market share in high-end servers.
Current problem:
With the growth of the internet, it has realised the need for competing in a newer segment of
Basic Servers with Atlantic Bundle (Tronn + PESA). The Tronn was developed mainly for
the emerging US market. PESA (Performance Enhancing Server Accelerator) enhances the
performance of Tronn by four times. It has decided to introduce the Basic server into the
market by 2000. Jowers is given the responsibility of developing the pricing strategy for
Atlantic Bundle. He has the following tasks in hand:
Server Division at Atlantic Computers primarily focused on hardware and had placed
little emphasis on developing software tools
Historically, sales force have given software tools to customers for free
Careful consideration of customer segments who will benefit from PESA software,
like customers in web server and file sharing applications
$ 2,000.00
$ 0
Total Price
$ 2,000.00
$ 4,000
$ 6,800
Pros:
Cons:
Competitive-Based Pricing:
One Tronn would be priced at the same rate as two Zinks
Price of 4 Zink Servers
Price of 2 Tronn Server loaded with PESA Software
$ 6,800.00
$ 6,800.00
$ 3,400.00
Pros:
Cons:
21180
10590
$ 189
$ 1,538
$ 1,727
$ 2,245
Pros:
Cons:
Value-in-Use Pricing:
Considers savings that a customer would make by purchasing the Tronn server
Particulars
Savings : Purchase 2 Tronn servers instead of 4 Zink Servers
Savings: Electricity
Savings: Additional licensing fees
Savings: Labour Charges
Total Savings for Two Tronn Servers
Total Savings for one Tronn Server
Savings for the customer (50% of total savings)
Total Price (Price of 1 Tronn Server + Savings)
Total Price (Price of 1 Tronn Server + 50% Savings)
$
$
$
$
$
$
$
$
$
Pros:
Cons:
Sales force requires training that would cost time and money
Market share will not be maximized
Amount
2,800.00
500.00
1,500.00
4,000.00
8,800.00
4,400.00
2,200.00
6,400.00
4,200.00
Recommendations:
1. Atlantic Computers Inc. should go in for a value-in use pricing strategy. This would
maximise their profit, still costing less than competitors product.
2. Atlantic Computers should target clients who do a large amount of web hosting. This is
because they will be the mostly benefitted from the Tronn with PESA enhancing
performance 4 times.
3. Customers may not respond well to the sudden change of paying for software, when
they have been used to receiving it free on purchase of hardware. In order to counter this
tendency, Atlantic will have to emphasize on the benefit of using the PESA and will have
to run live demonstrations to prove its worth to its customers.
4. Atlantic will have to convince their sales people to charge for PESA. Since they derive
their 30% commission from the amount of sales they make, they would try for higher
sales. But they have to be trained first through role-playing exercises so that they can
convince the customer of their mutual savings.
5. Ontario Computer can respond by lowering the margin till $1214(cost per server).
However, Atlantic would have advantage still with value-in-use pricing.