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Marketing-II
Assembled by :
1 .Market for basic servers growing at 1. Major player Ontario already has a
a CAGR of 36% 50% share in basic server market
2. Tronn + PESA bundle very high on 2. Ontario had a very flexible and
performance in its application as web innovative supply chain strategy
servers 3. Widely held belief that software
3.Upper hand in value based pricing tools should be provided for free
strategy 4. Unlike Atlantic, Ontario’s had an
online channel for sales
3. 5 C Analysis of Atlantic Computers Company
Company :
Atlantic computers is a leading developer of high-tech servers
Largest player in computer industry, selling its high-end performance server –Radia
Providing top notch, highly reliable products and had developed a reputation of
providing high quality , responsive post sales assistance
Planning to launch ‘Atlantic bundle’-new Tronn server and the PESA software tool
Customer :
Company deals with large enterprise customers
Two market segments in server industry- high performance server & basic server
High performance server used by firms for supply chain management, resource
planning, simulation etc.
Basic server used by firms for simple repeatable tasks like ‘Web server’ for
DayTraderJournal.com
Context :
Company is going to launch ‘Atlantic bundle’- Tronn server and the PESA software
tool
PESA-Performance Enhancing Server Accelerator, software tool allowing Tronn to
perform four times faster than its standard speed
Atlantic computer needs to decide the pricing strategy required to be implemented
Available pricing strategies are: Status Quo, Competition Based, Cost-Plus, and Value
in Use pricing. Pricing right for the ‘Atlantic Bundle’ which benefits the firm and to
figure out how the customers and competitors are likely to react and respond for
proposed pricing strategy
Competitors :
Ontario Computers Inc. are the prominent competitor of Atlantic computers
Its Zink product line, a low-end server, claims 50% revenue market share in the basic
server market
Ontario’s servers performed at approximately the same level as Atlantic’s Tronn
Ontario’s majority sales were generated online
4. Computation of number of Tronn Servers anticipated to be sold with PESA software
tool
Year Projected Market Atlantic’s share of Volume of Tronn
Volume in Basic basic server segment servers in market (in
Segment(in units) (A) (As per footnote 5 in units) (A*B)
case) (B)
2001 50000 4% 2000
2002 70000 9% 6,300
2003 92000 14% 12,880
Total 2,12,000 21,180
Assumption: Volume sales computation has been used according to the method
mentioned in footnote no.5 for cost plus approach, but this has been extended to other
alternative methods too.
Alternative methods of setting the price for the Tronn+PESA bundle
1. Give the software tool away for free and charge only for the hardware
2. Charge a price equal to what the customer would pay for four Ontario Zink servers.
3. Charge a price based on a cost-plus approach to pricing PESA(based on software
tool’s development costs)
4. Charge a price based on value-in-use pricing.
2. Charge a price equal to what the customer would pay for four Ontario Zink servers.
Price the product according to the value in method:- The total price could be decided
according to the consolidated savings available on all aspects like equivalent
performance , electricity etc. However it could lead to very high prices that were
unattractive.
6. Critical Evaluation
Handing out software which required significant development costs freely would affect
the margins of the company. Moreover it would lead to a higher price even for
customers who did not need the enhanced performance. The advantage was that it went
along with the current industry trends and did not disturb the consumption pattern of
the industry.
The strategy could demonstrate that the server together with the software was as good
as 4 servers of the competitor but it could lead to tremendously high retail prices which
may not go down well with the customers.
Pricing on a cost plus basis may not allow the company to fully leverage the value it
could derive from a breakthrough product. People could be willing to pay significantly
more if it met their requirements. Charging a uniform cost plus rate could thus affect
the profitability. However it could lead to affordable prices that would appeal to a large
population.
The Value in method could allow the company to reap the maximum profits. However
it would be difficult to explain all the cost advantages to the customers as they would
have to shell out very high prices this way.