Atlantic Computer: a Bundle of Pricing Options
[Case Write-Up #5, 2011-11-14] Case 6. Atlantic Computer Group 11 2010123281 Lim, Min A 2010123380 Lee, Yoon Ji 2010101026 Na, Hyeon Jung 2010123031 Park, Jae Eon ?. Executive Summary At the present, with the growth of the Internet, the basic server market is growing rapidly and the Atlantic computer, which is aimed at producing the high performance server, is ready to sell the basic server. It launches the Tronn loaded with PESA. PESA, the software increases the speed of file sharing and web servers, two of the most used application for the consumers, so it should be sold with the Tronn, the hardware.
At first year, if we assume that the firm will be able to sell all of the Tronn servers it can produce, Atlantic’s resulting share of the basic server segment will be 4%. We suggest that possibility as our goal to pursue. But the basic market is already full with the competitor, Ontario with the Zink and the company has a tendency to stick to the traditional marketing approach. To overcome these impediments, we suggest to set the price based on the calculation of cost-based pricing and to abandon the original direct marketing methods and accept the indirect ways like online-marketing and the advertisement through diverse media. . Problem Analysis (Goal & Impediments) Goal As new-comer of the basic server market, Atlantic’s computer begins from the scratch. If Atlantic’s computer can sell all of its product, the Tronn, it can occupy 4% in basic server market. But the thing is, it is a ground stone to enlarge the market share in the long run, so it would better not to harm the revenue to reach that figure. The targeted consumers is people who have demand for basic server, especially who are interested in one application, especially either of file sharing and web servers, and who seeks the way to inimize the initial purchase costs and subsequent possession costs. Impediments We have two main impediments for our goal, strong competitor and Atlantic computer’s traditional marketing strategy. Our strong competitor, Ontario, has already half of the market share in basic server segment. Also their product Zink has similar spec with Tronn. So we have to compete with Zink in price or innovative supply chain strategy. It is hard to appeal to consumers that we have not technological superiority but fall behind Zink in market share very much. Another main impediment is Atlantic Computer’s existing traditional marketing strategy.
Atlantic Computer already won success in high performance segment, so many people in the company tend to think that it’s just right to apply existing marketing strategy to basic segment. Atlantic’s computer is interested in making intimate relationship with customers and maintaining its post-sales assistance service level in high performance segment. But situation in basic segment and high performance segment is different, we have to apply different marketing strategy each other. As mentioned above, there is specific situation where Zink and Tronn is very similar in technological aspect.
Therefore, there should be some unique marketing strategy in basic segment. ?. Solution Analysis Solution To boost market share in basic segment, Atlantic Company should develop proper the pricing strategy. The company should consider four strategies: status-quo pricing, competition-based pricing, cost-based pricing and value-based pricing. ? Status-quo pricing cost of Server only and PESA for free Price of one Tronn Server = $2000 2 Tronn Servers + PESA software free = 2*2000 = $4000 Total Price of 2 Atlantic Bundles to Daytradejournal. com = $4000 Price of 1 Atlantic Bundle = $2000 ? Competition-based pricing
Pricing the Tronn servers based on price of competitor server (Zink by Ontario) and PESA for free. Since 2 Tronn Server with PESA software is equivalent to 4 Zink servers Price of one Zink Server = $1700 / 2 Tronn Servers + PESA software free=4*1700= $6800 Total Price of 2 Atlantic Bundles = $6800 Price of 1 Atlantic Bundle = $3400 ? Cost-based pricing (figure1, figure2) Cost incurred in PESA software development = $2000000 / Cost of Tronn Server = $1538 Price of 1 Atlantic Bundle = $ 2245 ?Value-based Pricing (figure3) Considering 4 Zink server is equivalent to 2 Tronn server and 2 PESA software. Price of 1 Atlantic Bundle = $ 4200
Above diagram, we can know that fourth pricing strategy get high profit, but price is also high. If price is too high, customers are reluctant to buy Atlantic Bundle, and this harms the market share. So, the company should avoid to select Value-based pricing and Competition-based pricing. Status-quo pricing could be an effective way for increasing market share because of its cheap price, but it will not give benefit in the long-run. Cost-based pricing is the best choice for Atlantic Company, because its moderate price makes company get high market share in the beginning and moderate profit for first year.
There could be an argument that status-quo pricing is more appropriate way to reach our goal of reaching the 4% of the market share in basic server field. But as mentioned above our goal is a ground stone to grow in the long run, it is better to choose the price making more profit with similar figure market share basis. Moreover to boost market share in basic segment the company should use indirect mass marketing. In high performance server market, it was efficient to use expensive direct marketing to the giant and few consumers. But it is non-matching to basic segment where the company should put its great effort to lower the price.
So the company should use the indirect and comparatively cheaper way to connect with the smaller and much consumers of the basic server market. The Atlantic’s computer can use online-marketing like its competitor, Ontario, or it can use mass market advertising through mass media. It could affect to more consumers easily. Although this method the product could affect each consumer less, the total quantity of influence on the targeted consumers should increase assuming the number of the customers in this market, figure 1 figure 2 figure 3
