Atlantic Computer Case Study - 1
ATLANTIC COMPUTER
Atlantic Computer, a large manufacturer of servers and other high-tech products, has assigned Jason Jowers the responsibility of developing the pricing strategy for the new ‘Atlantic Bundle’. The bundle incorporates a new Tronn server and the Performance Enhancing Server Accelerator (PESA) software tool which allows the Tronn to perform up to four (4) times faster than its standard speed. The Tronn was specifically developed to meet an emerging U.S. marketplace opportunity and Jason Jowers has two weeks to develop a pricing structure to support an upcoming trade show at the beginning of November.
Jason has determined he can price the system one of four ways:
1. Stick with company tradition by charging only for hardware and give the PESA software tool away for free
2. Charge a price equal to what the customers would pay for four (4) 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
Details regarding the pricing strategy that was derived and our methods can be found below and on subsequent pages.
1. The first strategy would be status quo pricing of 2 Tronn servers plus free PESA (software) for a price of $4,000.
2. With respect to competitive-based pricing, Jason Jowers makes a conservative estimate that 2 Tronn servers plus a PESA is the same as four (4) Ontario servers (p.3). Therefore, competition based pricing would be the cost of four (4) Ontario servers at $1,700 per server or $6,800.
3. Cost-plus pricing is a method of determining the price of a product or service that uses direct costs, indirect costs and fixed costs whether related to the production and sales of product or service or not. These costs are converted to per-unit costs for the product, and then a predetermined percentage of these costs is added to provide a profit margin. The resulting price is cost per unit plus the
Atlantic Computer, a large manufacturer of servers and other high-tech products, has assigned Jason Jowers the responsibility of developing the pricing strategy for the new ‘Atlantic Bundle’. The bundle incorporates a new Tronn server and the Performance Enhancing Server Accelerator (PESA) software tool which allows the Tronn to perform up to four (4) times faster than its standard speed. The Tronn was specifically developed to meet an emerging U.S. marketplace opportunity and Jason Jowers has two weeks to develop a pricing structure to support an upcoming trade show at the beginning of November.
Jason has determined he can price the system one of four ways:
1. Stick with company tradition by charging only for hardware and give the PESA software tool away for free
2. Charge a price equal to what the customers would pay for four (4) 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
Details regarding the pricing strategy that was derived and our methods can be found below and on subsequent pages.
1. The first strategy would be status quo pricing of 2 Tronn servers plus free PESA (software) for a price of $4,000.
2. With respect to competitive-based pricing, Jason Jowers makes a conservative estimate that 2 Tronn servers plus a PESA is the same as four (4) Ontario servers (p.3). Therefore, competition based pricing would be the cost of four (4) Ontario servers at $1,700 per server or $6,800.
3. Cost-plus pricing is a method of determining the price of a product or service that uses direct costs, indirect costs and fixed costs whether related to the production and sales of product or service or not. These costs are converted to per-unit costs for the product, and then a predetermined percentage of these costs is added to provide a profit margin. The resulting price is cost per unit plus the