Atlantic Computer Case Study - 1

1092 Words May 24th, 2012 5 Pages
ATLANTIC COMPUTER

Atlantic Computer, a large manufacturer of servers and other high-tech products, has assigned Jason Jowers the responsibility of developing the pricing strategy for the new ‘Atlantic Bundle’. The bundle incorporates a new Tronn server and the Performance Enhancing Server Accelerator (PESA) software tool which allows the Tronn to perform up to four (4) times faster than its standard speed. The Tronn was specifically developed to meet an emerging U.S. marketplace opportunity and Jason Jowers has two weeks to develop a pricing structure to support an upcoming trade show at the beginning of November.

Jason has determined he can price the system one of four ways:

1. Stick with company tradition by charging only for
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One administrator can manage 40 basic servers; e Current consumer price for each Zinc basic server = $1,700; Tronn server = $2,000; f Assume a 50-50 sharing of the savings gain with the customer; VIUP = value-in-use price

For the cost-plus approach, some assumptions were made about the expected sales volume, the PESA attached rate, the time period, and the margin.
• Assume that the firm will be able to sell all the Tronn servers it can produce
• Atlantic’s resulting share of the basic server segment (in units) will be 4% in 2001, 9% in 2002 and 14% in 2003.
• Assume a 50% attach rate (i.e., half of all of their basic servers sold will be loaded with the PESA)
• Assume Atlantic’s software development costs for the PESA will be paid off over three (3) years
• Target a 30% markup above costs.
Other assumptions:
• 50,000 units in 2001, and register about a 36% compound annual growth rate through 2003 (50,000; 70,000; 92,000).
• Zink product line (Ontario Computer, Inc.) currently claimed 50% revenue market share in

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