Atlantic Computer: A Bundle of Pricing Options

Names: Avinash Rajani, Andy Johns, Donald Kirkland,

Gnonle Ouattara, Megan Gallivan, Semira Yusuf

Date: April 11, 2016

MBA 8145

Atlantic Computer: A Bundle of Pricing Options

1. What price should Jowers charge DayTraderJournal.com for the Atlantic Bundle (i.e., Tronn Servers +PESA software tool)? Specifically, which of the four routes (page 6 of the case) to choose from

Atlantic computers has a reputation of providing quality and reliable products with a prompt after sales services. The strategy of product differentiation has benefitted Atlantic historically, Out of the four routes, value-in-use pricing is a profitable opportunity. It provides great savings to customers and in turn high profits to Atlantic due to 50-50 profit sharing from cost savings. The below analysis of costs and pricing of each option will indicates that the value-in-use pricing route will be the best option.

Route 1: This option includes charging for Tronn only and provided PESA to customers for free. Using Matzer’s proposed price of $2,000 and a cost to produce the Tronn server of $1,538, the resulting contribution margin would be $462 per server. However, given the PESA’s R&D fixed costs of $2,000,000, it would take 4,329 server sales to break-even on the bundle. Given Atlantic’s new entrance into the basic server segment, there is a significant chance this price structure could result in a gross loss instead of profit.

Route 2: Charging 4x the price of its competitor Zink based on the premise that one Tronn+PESA server can operate at the same capacity as four Zink servers would result in a price of $6,800 per server. This would produce a contribution of $5,262 and a break-even (including $2,000,000 of R&D costs) of only 380 servers. However, at 4x the price of the basic server market leader, customers would likely push back on the high-priced-for-the-segment Tronn server.

Route 3: In Cost-plus pricing, expected sales for 3 years will be: =0.04*50,000+0.09*70,000+14*92,000=21,180 units

This strategy will generate profit of $ 10,971,240 in 3 years’ time frame. But this strategy will not have power to increase profits gradually every year as opposed to value and cost saving Atlantic computers provides. Because with strategy that involves profit sharing based on cost savings by customers will produce more profits for Atlantic.

Route 4: To be conservative, we will consider 2 Tronn basic servers + PESA equal to 4 Zinc servers. Below is an analysis of the potential savings to customers by choosing Tronn+PESA. In terms of savings, customers will save a lot of cost of administrator which is fixed cost.  Because per unit cost of administrating a server is $2000.  By opting Tronn’s servers, customers will save $6000 by in admin cost. But for the customer savings evaluation of alternatives, we have not included fixed costs instead we have focused on variable costs.  

Distinctive Value Proposition of Tronn including Admin cost:

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