Atlantic Computer_Pricing Alternatives__

Pricing technique

1. Atlantic Computer A Bundle of Pricing Options

2. Agenda Situation Analysis About Atlantic Computers Products and Market Share Competitors About “Atlantic Bundle” Problem Statement Pricing Options Evaluation Criteria Evaluating Options Recommendations Contingency Plan Conclusion

3. Price some thing which is free? (Industry Practice) Reference Price = 0 COGS Ref Price Max Retail Price Atlantic Software =0 Bundle = $ 1700 Atlantic TEC Post Sales Assistance Atlantic Offline Online

4. Existing NEw New, New Diversification Existing. Existing New Existing Product Market New Existing

5. About Atlantic Computer Manufacturer of servers and high-tech products Largest player in the computer industry for 30 years Provides top-notch, highly reliable products High-quality and responsive post-sales assistance Products High-end performance servers Radia servers | 20% market share Basic servers Entering a new and emerging market with newly developed Tronn and PESA (Performance Enhancing Server Accelerator) software tool

6. Marketing at Atlantic Computers Given away software tools for free since company put limited emphasis on developing and selling software tools High-touch direct sales channel. No online channel. Sales force compensation structure of 70% salary and 30% commission 70 (Fixed ) 30 (V) 80 (Fixed ) 20 (V) 60 (Fixed ) 40 (V) 50 (Fixed ) 50 (V)

7. What is Atlantic Bundle Consists of a Tronn server and the PESA software tool Products developed for emerging basic server market PESA software enables the Tronn server to perform up to 4 times faster than its standard speed File Sharing: 2x faster Web Servers: 4x faster Other applications (high performance workloads, graphics, enterprise, email): almost similar performance PESA is not effective with high-end servers

8. Competitors Ontario Computers Inc. Market leader in basic server market with 50% market share Focus only on basic server market Zink product line Business Model Operational excellence (Not on product development) Competes on price (Serving to price sensitive consumers) Majority of sales generated online Other small vendors 50% market share

9. Problem Statement Jason Jowers, newly appointed Product Manager, has to formulate the pricing strategy for “Atlantic Bundle” (the new Tronn server and the PESA software tool) Which businesses are most likely to benefit from “Atlantic Bundle” Address the main competitor’s reaction What will be the reactions of consumers What would be the reaction of (Higher Professional/ Sales Team)

10. Evaluation Criteria Price and performance per unit should be comparable with similar products available in the market Savings in the chosen pricing option should be the maximum Invoke least negative reactions from the buyers Acceptable by Sr. Management

11. Pricing Options Status Quo Pricing Charge only for Tronn server and give PESA software tool for free Competition Based Pricing Charge a price equal to that of 4 Zink / 2 zink / 01 zink servers Cost-plus Pricing Calculate a price by adding a fixed margin to development cost Value Based Pricing Demonstrate the saving from first-order (upfront) and second-order (electricity, software licensing fee etc.)

12. Status-quo Pricing

13. Atlantic Tronn Servers (2) + Free PESA = $ 4000 $ 4000 for two Tronn Servers and Stick with tradition by not charging for PESA software tool

14. Competition Based Pricing

15. Two Atlantic Bundles will be = Ontario Zinc Servers(4*1700) + Not Applicable 2 * 1400 = 3400 = $ 6800 $ 4000 for two Tronn Servers and $ 2800 for PESA ($ 1400 per PESAServer) $ 2000 + $ 1400 = $ 3400

16. Cost Plus Pricing

17. PESA cost per server Share units 2001 2002 2003 Total Basic Segment 2000 6300 12880 21180 PESA Shipments (@50 % attach) 1000 3150 6440 10590 Per Unit PESA Cost PESA R&D 2000000 Total Units 10590 Unit Cost 188.8574 PESA unit Price with 30 % Margin Unit Cost*30 % Margin 188.8574 PESA Price 245.5146 Total Price for 2 Servers with PESA Two Servers 4000 2* PESA 491.03 Total Price $ 4491 = $ 4491 Two Zink 1700*2 = 3400, or 2245

18. Value in Use Pricing

19. Source of Savings Savings to Buyers VS Buying 4 Ontario Zinks 50 % Share Saving with Customer Only Two Tronn Servers (6800-4000) 2800 1400 Less Labour 4000 2000 Less Electricity 500 250 Less Additional Software Application Licenses 1500 750 Total Savings 8800 4400 Price for PESA ($ 4400 per Machine) 8800 4400 Price for Two Tronn Servers 4000 4000 Total Price Based on Maximum Value (2 machines) 12800 (2 Machine) 8400 Two Zink 1700*2 = 3400, or 6400 Two Zink 1700*2 = 3400, or 4200

20. Assuming 10590 Tronn Servers + PESA sold over 3 years Money left on the table would be??

21. Option a Status Quo Pricing 3400 2000 Option b Competition Based Pricing (Zink) 3400 3400 Option c Cost Plus Pricing 3400 2245 Option d Value in use Pricing (Maximum Value) 3400 6400 Option e Value in Use Pricing (Shared Value) 3400 4200/3900

22. Option a Status Quo Pricing 42360000 Option b Competition Based Pricing (Zink) 72012000 Option c Cost Plus Pricing 47560000 Option d Value in use Pricing (Maximum Value) 135552000 Option e Value in Use Pricing (Shared Value) 88956000

23. How is Matzer likely to react to your recommendations?

24. Initial Resist Special Bid for Special Customer

25. How is Cadena’s sales force likely to react to your recommendations?

26. Compensation Plan 70 % + 30 % 10 Compensation $10 per unit = 10 15………………15*15= 225 15 20………………22*20 = 440 22

27. What can Jowers recommend to get Cadena’s hardware-oriented sales force to understand and sell the value of the PESA software effectively?

28. 1. Educate the Sales force 2. Get early customer references 3. Establish an ‘overlay’ Sales team 4. Communication Planning 5. Sales force Incentives

29. How are customers in your target market likely to react to your recommended pricing strategy?

30. What response can be provided to overcome any objections?

31. Likely Objections We do not have the cash flow to substantiate such a large initial outlay, so we think that the cheaper Ontario Zinks are better for us Response The savings by year end will more than offset the price, so you will actually be paying less

32. Likely Objections Can you guarantee that we will achieve the 4X savings results? What if we do not Response We have generated a conservative estimate of the savings of 2 X, although the preliminary tests suggest that the savings can be even higher

33. Likely Objections Ontario says that they are willing to lower the price to 1,214 Response Our Pricing plans are already in place to share the savings with you. Even with Ontario cutting their price to cost, you will save with Atlantic in one year

34. Likely Objections What happens if one of the two servers I buy breaks down? Is not there a great risk of having only one remaining operational server? Response As long as you have one server, you will still be functional at least at 50 %. Restoration time is quick from the very reputable Atlantic. So the likelihood that you will experience any long term performance is very low. In more than 2 server configurations, this is a non issue

35. Ontario's Reactions ?

36. Ontario's Business Model Operational Excellence: so can not develop directly against PESA Will not reduce the price, as demand is increasing Size of the pie is increasing

37. Recommendations & Conclusions

38. Conclusion Ideal World Price Sensitivity Demand Curve Other factors influencing pricing Quality of after sale service Halo effect from mother brand Transaction costs (Preferred Vendor) Do I need to push Zink to a price war ?

39. Thank you!