Atlantic Computer Case
Atlantic Computer Case
Case Analysis
A Submission By:
Team AC2
PROBLEM STATEMENT
In what ways can Jason Jowers strategize the pricing for Atlantic bundle comprising of the new Tronn server and the
PESA (Performance Enhancing Server Accelerator) software tool before SME trade show?
COMPANY OVERVIEW
Atlantic Computers was a manufacturer of servers and related high-tech products based in Amberville, New York. Jason
Jowers joined the Company four months ago and was made responsible for the pricing strategy of the product Atlantic
Bundle
Components of the Bundle:
1) Tronn: It was developed mainly for the emerging US market opportunity for basic web servers
2) Performance Enhancing Server Accelerator (PESA): This was an additional tool which would allow Tronn to
perform four times faster than its usual speed for standard procedures and hence the bundling made sense by
making frequently requested information extremely accessible.
Atlantic Computer & the Market
The company targeted two market segments vis--vis High Performance and Basic Servers. Atlantic had 20% market share
in High Performance Servers with Radia being its premier product for over 30 years. There was an indication of emerging
market for basic servers coming up in the late 1990s which led to the introduction of the Basic server into the market by
Atlantic Computer by 2000 with a view that there will not be any cannibalization of their high performance product taking
place due to the new venture. The major competition for the company in the now market segment of basic server was that
from its competitor Ontario which had a 50% market share in this business with its flagship brand Zink Business model
based on operational excellence and hence was able to curtail many non value-added costs to pose a very competitive
pricing for their product.
Server Type
Segment
size
Projected
demand (1st yr)
Projected demand
(next 2yrs)
Atlantic
Market share
High performance
servers
Largest
200,000 units
3% annually
20%
50,000 units
36% CAGR
Basic Servers
Ontario
Market Share
Zink 50%
CUSTOMERS
Atlantic Internal Performance Testing Results (July 22, 2000)
Tronn with PESA
Tronn without
PESA
Added Advantage in %
180
187
-3.89%
280
341
281
300
-0.36%
12.02%
File Sharing
812
404
50.25%
Web Servers
2222
542
75.61%
Application Tested
High Performance/ Compute Intensive
Workloads
Graphics Application
E-mail Applications
After analysing the table above, we can get the below customer findings:
Web Server Basic Server Customer
These customer get the highest advantage from the PESA tool in Tronn. Hence should be targeted.
File Sharing Basic Server Customer
As computing power without PESA was same as the competitors, pricing will have to be considered in this case. PESA
was not giving any added advantage for the graphical application
Heavy computing Application Customer
Same as the case above, PESA was not giving any added advantage in heavy computing technology. Hence pricing needs
to be considered wisely in this case as well
ALTERNATIVES AT HAND
There are 4 alternative available for strategizing pricing:
1.
2.
3.
4.
Stay with the status quo and provide PESA as free with Tronn server
Choose competitive based pricing, which is charging customer to 4 times Ontario Zinc servers
Arrive at price by mark up (cost-plus) pricing
Arrive at price based on perceive value (or value in) pricing
Apart from these, other questions regarding products target market, competitors and customers reaction also needs to be
figured out.
2001
2002
2003
$
$
2,000.00
-
$
$
2,000.00
-
$
$
2,000.00
-
2,000.00
2,000.00
2,000.00
50,000
2000
$ 4,000,000.00
$ 3,076,000.00
$ 924,000.00
68,000
6120
$ 12,240,000.00
$ 9,412,560.00
$ 2,827,440.00
Net Income
Note:
1. The R&D cost would be a sunk cost if this option is chosen
2. The costing doesnt include all associated costs of the server
92,480
12,945
$ 25,890,000.00
$ 19,912,794.00
$ 5,977,206.00
2001
2002
$2,000.00
$245.00
2003
$2,000.00
$245.00
$2,000.00
$245.00
SP of Atlantic Bundle
Market Share
Sales Volume(20%)
Sales Revenue
Total Server Cost
$2,245.00
50,000
2,000
$4,489,829.00
$3,076,000.00
$2,245.00
68,000
6120
$13,738,878.00
$9,412,560.00
$2,245.00
92,480
12,945
$29,065,359.00
$19,912,794.00
2002
2003
Note:
1. Better Costing compared to Option 1
2. Factors the cost of software development
Option 3: Cost Plus Approach
SP of Atlantic Bundle = $6800
R&D cost = $2000000
Cost per unit = $1538
Profit per unit = $5262
Atlantic Computers has to sell 381 units to Breakeven:
Year
SP of Atlantic Bundle
Market Share
Sales Volume(20%)
Sales Revenue
Total Server Cost
Net Income
2001
$
6,800.00
50,000
2,000
$13,600,000.00
$ 3,076,000.00
$10,524,000.00
6,800.00
68,000
6,120
$ 41,616,000.00
$ 9,412,560.00
$ 32,203,440.00
6,800.00
92,480
12,945
$ 88,040,960.00
$ 19,912,794.00
$ 68,128,166.00
Note:
1. Delivers value in cost savings associated with having one server in place of four
2. High priced option
3. Customers could expect a discount owing to reduced material cost for the vendor
Option 4: Value-In-Use Pricing
SP of Atlantic Bundle = $4200 (2000(traditional price) +50% of [Electric (500) + Admin (4000) + Software (1500) + Server
savings (3400)])
R&D cost = $2000000
Cost per unit = $1538
Profit per unit = $2662
Atlantic Computers has to sell 752 units to Breakeven
Year
SP of Atlantic Bundle
Market Share
Sales Volume(20%)
Sales Revenue
Total Server Cost
Net Income
Note:
1.
2.
3.
4.
2001
$
4,200.00
50,000
2,000
$8,400,000.00
$3,076,000.00
$5,324,000.00
2002
$
4,200.00
68,000
6,120
$25,704,000.00
$ 9,412,560.00
$16,291,440.00
2003
$
4,200.00
92,480
12,945
$54,378,240.00
$19,912,794.00
$34,465,446.00
RECOMMENDATIONS
Based on the above analysis of prices, we recommend value in approach to be followed by the company for Atlantic
bundle