Principles of Marketing

MGT3006-02

Atlantic Computer Case

Case Study

Professor: 박경도

Submitted by:
20230965 KAN NIKOLAY

November 17, 2024

Sogang University
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C Somware 22
Principles of Marketing | Atlantic Computers Case
__________________________________________________________________________________

1. What price should Jowers charge DayTraderJournal.com for the Atlantic

Bundle (i.e. Tronn servers + PESA software tool)?

Status-quo pricing would be 2 Atlantic Tronn servers + Free PESA = $4,000.

You have to calculate the prices of:

a. competition-based pricing

b. cost-plus pricing

c. value-in-use (value based) pricing approaches.

Solution: There are 4 options of price charging approaches that Atlantic Computers can

leverage. These four include:

● Status-quo pricing. Status-quo pricing basically means that the company will stick to

its traditional pricing strategy, which is charging only for hardware and give the PESA

software tool for free. This is an industry norm to set up the pricing strategy. If

Atlantic Computers will implement this pricing strategy, they would charge:

Tronn Price: $2,000

PESA Price: $0 (provided for free)

___

Total for Atlantic Bundle: $2,000

However, it is not that simple. The R&D cost for PESA software is estimated to be

$2,000,000, which means that given for free, PESA automatically creates loss of

-$2,000,000.
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● Competition-based pricing: Competition-based pricing means that the company will

charge a price equal to what the customer would pay for the competitor’s offering. In

the case, the competition-based pricing means the price of four Ontario Zink servers,

2
Principles of Marketing | Atlantic Computers Case
__________________________________________________________________________________

therefore:

Price of competitor’s product (1 server of Ontario Zink): $1,700

Since 2 Tronn servers with PESA software are the same performance level as 4 Zink

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Price of Atlantic Bundle (2 Tronn + PESA): $1,700 * 4 = $6,800 D
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● Cost-plus pricing: Cost-plus pricing means that the company will charge the price,
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based on a cost-plus approach to pricing PESA (based on software tool’s development

costs). This approaches is determined by adding the direct, indirect and fixed costs

that are associated with a product and converting it into a per-unit cost for the product.

a predetermined percentage is then added to these costs to provide a profit margin.

The cost of Tronn server: $1,538

The price of Tronn server: $2,000

The additional markup: ~30% n

PESA cost per server: $188.9

PESA price per server: $245

The additional markup: ~30%

____

The price of Tronn with PESA: $2,245

The price of Zink Server: $1,700

The difference b/w Atlantic bundle and Zink Server: $545

____

Assuming 2 Tronns + 2PESA = 4 Zink Servers:

3
Principles of Marketing | Atlantic Computers Case
__________________________________________________________________________________

4 Zink Servers: $1,700 * 4 = $6,800

2 Tronns + 2 PESA: $2,245 * 2 = $4,490

___

However, from customers’ perspective it is more likely to purchase 2 Zink Servers for

$3,400 than purchase 2Tronns + 2 PESA for $4,490, which is more expensive by

$1,090.

vamue consumers enjoy

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● Value-in-use (value based) pricing: This approach determines the value that each
-

customer would realize from the purchase of the product.

For this case, we assume a 50-50 sharing of the savings gain with the customer. Also,

we base our calculations on one year of savings (e.g., annual electricity savings equal

$250 (Exhibit 3)). Although the average life of an Atlantic basic server is estimated to

be three years, we use the conservative per annum estimate.

2 Atlantic Bundles (2 Tronn + 2 PESA): $2,000 *29

= $4,000

e
Д
Electricity: $250 * 2 = $500
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Application Software Licenses: $750 * 2 = $1,500

Total Cost: $500 + $1,500 = $2,000

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Application Software Licenses: $3,000

Total Cost: $4,000

Total Price: $10,800

___

4
 58

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Principles of Marketing | Atlantic Computers Case
__________________________________________________________________________________

Total Saving: $10,800 - $6,000 = $4,800

Final Price (Total Price + 50% savings: $4,000 + $2,400 = $6,400.

____

So, overall, for this method it is easier to convince customer that they save $2,400

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2. For the pricing of the Atlantic Tronn server and PESA software bundle product,

what pricing approach you will pursue out of status-quo pricing,

competition-based pricing, cost-plus pricing and value based pricing

approaches? Justify your decision. To implement your pricing approach, what

additional measures do you think are necessary.

I personally believe that the best pricing strategy is Value-In Use Pricing Approach. It is the

most optimal approach when setting up the price in the beginning stages of entering a new

market without an established company’s presence. In the beginning stages it is important to

gain customer value and loyalty. One of the ways of doing it is to show the customers the

value of the purchasing product through quantifiable measurements such as saving and costs

in the long-run. Therefore. the ultimate solution in the pricing strategy is to use the Value-In

Use pricing strategy.

3. What action do you expect from Ontario Computer, Inc. if you pursue the

pricing strategy chosen in question 2? How do you react to their action?

It becomes evident from the case that Atlantic Computer has a market share of 45 in

its first year, therefore, ONtario Computing is not really likely to seriously consider

5
Principles of Marketing | Atlantic Computers Case
__________________________________________________________________________________

Atlkanr=tic Computer as their rival. So, Ontario Computing will less likely to reduce the

price they charge for Zink server since reducing the price will impact their profitability for

short-term run. Also price cut will have minimum impact on Ontario Computing benefits in

the long run in terms of increasing their market share. In the short run it may be quite

challenging for Atlantic Computers to enter the new market due to new market environment

with established dominance of existing competitors (Ontario Computing), however, the

ability of Atlantic Computer’s Atlantic Bundle to outperform the Ontario Computing Zink

server, in the long run Atlantic Computer will become a serious threat for Ontario

Computing.

However, it becomes clear from the exhibits that in 3 years Atlantic Computers plan

to gain 14% market share, therefore presenting a threat to Ontario Computing. So in the

long-run after realizing the real competition that they face from Atlantic Computers, Ontario

Computing will invest their resources in working on their technologies in order to fill the gap

between their Zink servers and Atlantic Computers’ Atlantic Bundle. Particularly they will

try to improve the quantity of servers necessary to meet the performance of Atlantic Bundle.