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Atlantic computers case essay

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Atlantic Computer Case Introduction: Jason Jowers, who had recently been hired by the computer manufacturer, Atlantic Computer, needed to devise a pricing plan for the company’s newest products: The Atlantic Bundle. This bundle contained the Tronn server and its corresponding software, the PESA. After an initial marketing meeting with a few key players, Jowers had input from the head of the server division (Matzer), the director of the division’s R&D team (Jones), and the director of new product marketing (Fowler).

In addition, Jowers also needs to take into consideration the thoughts of the sales department, lead by Jairo Cadena. Atlantic’s biggest competitor is Ontario Computer, Inc, which is a cost cutter in the industry, and Atlantic Computer needs to bear in mind the customers and products that Ontario is after as well. External Analysis: The need for internet servers in America’s workplace is a growing market, with several different segments. First, there is the segment for High Performance Servers, which represents those who take on complex applications such as supply chain managements and business intelligence. On the other hand, there is need for servers to complete basic, repeatable tasks, such as browse the internet.

Both segments are expected to grow, but the segment needed basic computing capabilities is growing at a much faster rate. Ontario Computers has been the leading company for servers for a long time, mainly because of their ability to sell at low price. They cut costs because they only sell online and have mastered the supply chain process to minimize costs. They claim to not have the best product, but the “ most flexible and innovative supply chain possible”. This is both a threat and an opportunity because customer may be drawn to them because of the low price, but Atlantic can capture the ‘ best product’ reputation that hasn’t been dominated by Ontario Computers yet.

Customers looking for the basic server application are very concerned with price, as they are usually not the ones running the highly complex applications. However, a basic server runs up electricity bills and software license costs, which are known as possession costs. Minimizing these costs as well as the acquisition costs are important to customers in the basic server segment. Moreover, customers in this segment are interested in sales support and want their servers to be able to handle information requests from websites and have information readily available to the employees. This is an opportunity for Atlantic because the PESA software allows four servers to run simultaneously, lowering the procession costs significantly.

The software also helped administrators monitor the health of the systems and be more responsive regarding to repairs. Atlantic can leverage the benefits that the software brings to the customers that Ontario computers does not have. Internal Analysis: Atlantic company is the largest player in the overall industry and has been in the server market for over 30 years selling high end performance servers. They had captured the large enterprise customer segment and also captured the reputation for providing top-notch, reliable products. This corresponded with their reputation for providing quality and responsive sales assistance.

Their customer intimacy and product differentiation is what leads them in the market. A weakness in the company is the divergent opinions and goals internally. This was apparent in the initial meeting, where Jowers was bombarded with different ideas and suggestions as to how to view and therefore price the product. Matzer believed that the software tools should always be free because that is how the company has always done things.

This belief that the company should not stray from its traditional pricing strategy could be holding the company back. In addition, Jowers also knew that he had to keep the sales force in mind. The initial board meeting left the head of the sales division out, possibly because of his interest in sales commission. This indicates a possible lack of trust among the divisions because Cadena could probably provide insightful suggestions about the pricing strategy. In addition, Atlantic company was weaker than Ontario computers in supply chain strategy and in reducing overall costs. This made the pricing decision more difficult because in order to compete in price with Ontario, Atlantic would have to reduce profit margins as their overall costs were higher.

On the other hand, Atlantic’s PESA software is very powerful and can be seen as a competitive advantage over Ontario. The PESA software, while initially more expensive, helped decrease overall after purchase costs and was best suited for the web-server and file sharing segments, which were two segments in the basic server market. Alternative Courses of Action: Jowers can price the Atlantic bundle four different ways: 1. Stick with the company tradition by changing only for the hardware but giving the PESA software away for free 2. Charge a price equal to what the customer would pay for the comparable competitor’s product (Ontario’s Zinc).

3. Charge a price based on a cost-plus approach to pricing PESA( cased on the software tool’s development costs) 4. Charge a price based on value in use pricing,(Demonstrate the savings to the customer from purchasing the Atlantic Bundle vs. he Ontario Zinc) Recommendations: I think that Atlantic Computers needs to use a value-in use pricing and consider the price of the Bundle as receiving both the server and the software. The tradition in the company is to give away the software, so Atlantic needs to be very careful in making sure that charging for the software doesn’t pose as an issue for consumers. The key to doing this is making sure the sales force can effectively create a sales pitch that will emphasize the benefits and savings that the customer will receive when purchasing the bundle.

The pitch and sales approach needs to also emphasize how well Atlantic computers treat their customers through excellent sales assistance and support. The price of the Tronn is currently at $2000. I think this price can remain the same for the server because it maintains a good level of profit margin. Lowering the price to match that of the Zink would just decrease the profit margin. Unfortunately, Atlantic has not perfected the supply chain management process, therefore should leverage other core competencies that may cost the customer more, but will be worth it.

Moreover, the Atlantic also needs to charge for the PESA software. I think the software is a key selling point to the company, and not charging for the software undermines its value. Giving away the software may imply that the software is a nice added bonus, but by no means is crucial or significant in the bundle, which, in this case, is not true. The PESA software is makes the server nearly four times more effective (the software allows a customer to run four times as much work on a single Tronn).

The PESA software’s development cost the company about $2 million. The license for PESA is $750, which is normally given to the customer for free. Considering the significant cost of R&D and the importance of the software, I think Atlantic should charge for the software. This would make the total cost of the bundle $2, 750. While this may seem initially much more expensive than Ontario’s Zinc, the savings that the customer will see make the extra cost worthwhile.

The Electricity costs alone are $250 per server. If the Tronn can allow customers to use one server as opposed to four, this is a savings of $750 per year (3 servers x $250). One year of electricity savings makes up for the cost of the Software. Moreover, one administrator can manage up to 40 basic servers. Having more servers requires more administrators, so reducing the number of administrators needed will save the customer $80, 000 annually (per administrator).

The savings that the customer will see due to the efficiency of the PESA software are enormous, but to some customers only looking at the “ here and now” may not initially see the benefits of buying the bundle with the software. It is up to the sales force to communicate these savings by helping the customer realize how much they would save by buying fewer servers. Because the target markets for the Tronn and PESA are those who are interested in the Basic Servers, we need to analyze the number of projected sales the Basic Server. The projected sales from 2001-2003 are: 50, 000, 70, 000, and 92, 000; respectively. This means that in the next few years, Atlantic expects to see a market volume of 212, 000.

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