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Atlantic Computer Case Study

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Atlantic Computer is known for providing top-notch, highly reliable products and had developed a reputation for providing high quality, responsive post-sales assistance. Atlantic Computer has produced the ‘Atlantic Bundle’ (Tronn+ PESA), 4 times faster, to compete against Ontario’s Zink in the basic server market. The challenge is to get the right pricing strategy for the Atlantic bundle keeping in mind consumer behavior as well as reaction of competitors in the same market especially Ontario.
Competition Analysis
Ontario is a firm focused on the low-end server market with its Zink Product line. It currently claims 50% of the basic server market share. Performance of the Zink is approximately equivalent to that of the Tronn without PESA. Ontario’s mode of sales is mostly done online as their business model aims at providing leading technology to customers by way of the most flexible and innovative supply chain strategy possible. This has led to Ontario being able to drive out non value added costs and compete on price ($1,700) since it is able to produce at a lower cost ($1,214), indicating operational efficiency.
Pricing Strategy for Atlantic Bundle
After careful observations of the facts surrounding our competitor as well as consumer behavior in the target market segment (refer to Appendix 1), we hereby propose for Jower to give a price of $2,436 to Day Trader Journal.com using the Value –in-use pricing strategy which is a method of setting prices in which an attempt is made to capture a portion of what a customer would save by buying Atlantic Bundle (refer to Appendix 2 for calculations). Atlantic Bundle at this Price would lead to a cost saving of $3,591.14 for DayTraderJournal.com should they purchase 2 Atlantic Bundles as against 4 basic web servers (Zink).
The basic assumptions made for this pricing strategy are as follows:
• A 50-50 sharing of the savings gains with Day Trader Journal.com
• Calculations are based on one year of savings.
• Utilizing the conservative per annum estimate of the average life of an Atlantic basic server.
• Also that the server administrator charges per annum is constant ($80,000 per annum) notwithstanding the amount of purchases made by Day Trader Journal.com since 1 administrator can cater to 40 basic servers.
• The share of Atlantic basic server will be 4% in 2001, 9% in 2002 and 14% in 2003.
• 2 Atlantic Bundle (Tronn with PESA) is equivalent to 4 basic servers in performance.
Recommendations: For this pricing strategy to be effective, the following should be done:
• Variable pay for Sales staff: Sales staff salaries can be further pushed into commissions in the ratio 60:40 so as to motivate staff to push the Atlantic Bundle more effectively to customers in order to meet their targets.
• Training of Sales Staff: Sales staff would be re-oriented on the sales strategy of the new Atlantic Bundle and equipped with information on the potential cost saving benefits this bundle have in the mid to long term for the customers.
• Promoting competitive advantage: The performance of two Atlantic bundles is equivalent with four basic servers (cost-saving incentive for buyers).

APPENDIX 1
Segmentation
We focus on the Web Server market segment (Target focus- Day Trader Journal.com).
Characteristics/ Need of Target
• An online platform that provides training information and tips to prospective day traders.
• Due to its online marketing and training business, it wants to purchase web servers to host company’s website where traders can review articles amongst others.
Key buying considerations for Day Trade Jorunal.com
• Minimizing acquisition cost
• Minimizing possession cost
• Ability to process many information requests on the website.

APPENDIX 2
Value -in-use pricing Zink (Basic) Atlantic Bundle Cost ($) Cost ($)
Calculations 1,214.00 1,538.00
Electricity 250.00 250.00
Licenses 750.00 750.00 2,214.00 2,538.00
Zink - 4 servers 8,856.00
Atlantic - 2 servers (including PESA) 5,264.86 Cost savings 3,591.14 PESA
For one product of Atlantic 1,795.57 2001 2,000.00 2002 6,300.00
50-50 (company-consumer) 897.79 2003 12,880.00 21,180.00
Final price of Atlantic Bundle 2,435.79 Final cost 94.43

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