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Atlantic Computer Case Study: A Bundle of Pricing Options

Atlantic Computer is considering pricing options for its new basic server, Tronn, and the accompanying software, PESA. Two options are evaluated: 1) Charge a price equal to four comparable servers to match Tronn's capabilities. This yields a price of $3,400 per unit and positive net present value of $27.7 million. 2) Charge a cost-plus price of $2,245 per unit based on Tronn and PESA development costs plus a 30% markup, yielding a positive net present value of $6.3 million. Both options are financially viable but the first option provides higher revenue and net present value.

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Raihan Muflihhamim
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56 views7 pages

Atlantic Computer Case Study: A Bundle of Pricing Options

Atlantic Computer is considering pricing options for its new basic server, Tronn, and the accompanying software, PESA. Two options are evaluated: 1) Charge a price equal to four comparable servers to match Tronn's capabilities. This yields a price of $3,400 per unit and positive net present value of $27.7 million. 2) Charge a cost-plus price of $2,245 per unit based on Tronn and PESA development costs plus a 30% markup, yielding a positive net present value of $6.3 million. Both options are financially viable but the first option provides higher revenue and net present value.

Uploaded by

Raihan Muflihhamim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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MM5003 –

Atlantic Computer Case Study :


A Bundle of Pricing Options
- Arief Wibowo
- Alfons B. Naen
- Muhammad Ilham Syarif
- Ongky Elisman
Market Targeted
Market Segments,
• High Performance Server Markets
Atlantic with a premier product ‘Radia’
branded, is a market leader in tranditional Benefical Review base on PESA performances
market. test result on Tronn Server
Tronn with Tronn without
• Basic Server Markets Aplication Tested
PESA PESA
Ratio
High Performance 180 187 0.96
In these new and fast growing market, Graphics Applications 280 281 1.00
Atlantic has developed a server tronn and Enterprice Aplications 264 254 1.04
a software tool PESA, performance e-Mail Applications 341 300 1.14
Enhancing Servers Eccelerator. File Sharing 812 404 2.01
Web Sharing 2222 541 4.11

Atlantic should target the companies that do web hosting and file sharing by utilize the
Basic Server that will achieve the maximum benefit from PESA software.
By showing the beneficial review, make these companies become attractive and become
the customers, and will be most beneficial for Atlantic as well
Market Targeted
• High Performance Servers
• Basic Servers
General Assumption for Price
Calculation
General Assumption - Selling Volume
No Item Unit Amount Remark
1 Basic Segment Volume (all market)
y 2001 Units 50,000
y 2002 Units 70,000
y 2003 Units 92,000
Total Units 212,000
2 Share Market Atlantic at Basic Segment
y 2001 Units 2,000 4%
y 2002 Units 6,300 9%
y 2003 Units 12,880 14%
Total Units 21,180
3 % of PESA % 50%
y 2001 Units 1,000
y 2002 Units 3,150
y 2003 Units 6,440
Total Units 10,590
Competition Based Price
Competition Based Price
based on options 2 : charge a price equal to what the customer would pay for four Ontario Zink servers

No Item Unit Amount Remark


1 Price per server $/Units 1,700 Tronn Price refer to Zink (p. 9, Exhb. 3)
2 Server Ability Comparison 2:4 Tronn (With PESA) vs Basic Server (p.5, pgrph 5)

Atlantic Bundle Price Calculation


1 Unit Price = 4 x Price per Server $/Units 6,800 price equal to 2 Tronn Server
2 Unit Price 1 Unit Tronn $/Units 3,400
3 Tronn Cost per Server $/Units 1,538
4 Profit per Server $/Units 1,862

Simple Financial Analysis


No Description Units Y-1 Y-2 Y-3
1 Option 2
2 Sales volume Units 2,000 6,300 12,880
3 Price $/Unit 3,400 3,400 3,400
4 Revenue $ 6,800,000 21,420,000 43,792,000
5 Cost $ (3,076,000) (9,689,400) (19,809,440)
6 Margin $ 3,724,000 11,730,600 23,982,560
7 Investment $ (2,000,000)

NET FREE CASHFLOW / PROJECTED CASH FLOW $ (2,000,000) 3,724,000 11,730,600 23,982,560
Accumulated Freecashflow $ (2,000,000) 1,724,000 13,454,600 37,437,160
NPV $ 27,746,875
Competition Cost Plus Based
Price
Competition Cost Plus Based Price
based on options 3 : charge a price based on cost-plus approach to pricing PESA (base on software tools development costs)

No Item Unit Amount Remark


1 PESA Cost Development $ 2,000,000
Cost per unit PESA $/Units 189 cost distribute during 3 years selling
2 Markup Cost % 30%
3 Tronn (Basic) Cost $/Units 1,538

Atlantic Bundle Price Calculation


1 Unit Price = ((PESA Cost + Tronn Cost)) x (1 + Markup Cost) $/Units 2,245
2 Total Cost (Tronn Cost + PESA Cost) $/Units 1,727
3 Profit per Server $/Units 518

Simple Financial Analysis


No Description Units Y-1 Y-2 Y-3
1 Option 3
2 Sales volume Units 2,000 6,300 12,880
3 Price $/Unit 2,245 2,245 2,245
4 Revenue $ 4,489,829 14,142,962 28,914,501
5 Cost $ (3,453,715) (10,879,202) (22,241,923)
6 Margin $ 1,036,114 3,263,761 6,672,577
7 Investment $ (2,000,000)

NET FREE CASHFLOW / PROJECTED CASH FLOW $ (2,000,000) 1,036,114 3,263,761 6,672,577
Accumulated Freecashflow $ (2,000,000) (963,886) 2,299,875 8,972,452
NPV $ 6,276,361

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