Atlantic Computer - Business Case
Atlantic Computer – Business case
Case introduction
Atlantic Computer is a manufacturer of servers and other high-tech products. Following the growth of the internet there has been an increase of demand for cheaper, Basic Segment Servers. Atlantic Computer, currently having a 20% market share in the High Performance Server market, has decided to expand their product range and enter the Basic Segment market. Their response to the projected 36% compound annual growth in demand for Basic Servers has come in the form of the “Atlantic Bundle”. A Basic Segment server, called “Tronn”, with an innovative software tool. “Performance Enhancing Service Accelerator”, or PESA, which would allow the Tronn to perform up to four times faster than its standard speed. This case relates to the pricing of the Atlantic Bundle, focusing on the company DayTraderJournal.com.
Pricing Methods
In finding the optimal price for the Atlantic Bundle, we refer to four pricing methods, of which I shall name the benefits and disadvantages. These are status-quo pricing, competition-based pricing, cost-plus pricing and value-in-use pricing. Some basic figures:
Basic segment market demand in 2001 | 50.000 | Basic segment market share for 2001, 2002 and 2003 | 4 percent, 9 percent and 14 percent. | R&D investment required for PESA | $ 2.000.000,- | Market price Tronn | $ 2.000,- | Cost price Tronn | $ 1.538,- | Tronn performance compared to Zink (segment leader) | 4x faster (2x from a conservative point of view). |
It is stated that the target market is seeking four basic servers. For providing consistency in the following pricing overview, the pricing shall be following that of four basic servers. Making use of the conservative method, this equals two Atlantic Bundles. As it does not improve performance by four times on every application, I shall make use of the ‘conservative method’ (two Tronn servers equal four Zink servers).
Status quo pricing: software goes for free. |
Case introduction
Atlantic Computer is a manufacturer of servers and other high-tech products. Following the growth of the internet there has been an increase of demand for cheaper, Basic Segment Servers. Atlantic Computer, currently having a 20% market share in the High Performance Server market, has decided to expand their product range and enter the Basic Segment market. Their response to the projected 36% compound annual growth in demand for Basic Servers has come in the form of the “Atlantic Bundle”. A Basic Segment server, called “Tronn”, with an innovative software tool. “Performance Enhancing Service Accelerator”, or PESA, which would allow the Tronn to perform up to four times faster than its standard speed. This case relates to the pricing of the Atlantic Bundle, focusing on the company DayTraderJournal.com.
Pricing Methods
In finding the optimal price for the Atlantic Bundle, we refer to four pricing methods, of which I shall name the benefits and disadvantages. These are status-quo pricing, competition-based pricing, cost-plus pricing and value-in-use pricing. Some basic figures:
Basic segment market demand in 2001 | 50.000 | Basic segment market share for 2001, 2002 and 2003 | 4 percent, 9 percent and 14 percent. | R&D investment required for PESA | $ 2.000.000,- | Market price Tronn | $ 2.000,- | Cost price Tronn | $ 1.538,- | Tronn performance compared to Zink (segment leader) | 4x faster (2x from a conservative point of view). |
It is stated that the target market is seeking four basic servers. For providing consistency in the following pricing overview, the pricing shall be following that of four basic servers. Making use of the conservative method, this equals two Atlantic Bundles. As it does not improve performance by four times on every application, I shall make use of the ‘conservative method’ (two Tronn servers equal four Zink servers).
Status quo pricing: software goes for free. |