Essay About Status-Quo Pricing And Pricing Use

Atlantic Computers Case Study
Under the status-quo pricing, Jowers should charge 2,000 per server. The price takes into consideration just the cost per server plus a 30% mark up. Software is provided without any charge. Competition based pricing use as a reference the price of the Zink basic server, so Jowers should charge 1,700. A cost plus pricing method takes in to consideration the cost in developing the software and those costs are paid off over three years. The price is 2,245; calculations can be seen in table 1. A value in use pricing takes in to consideration a conservative approach in which the Tronn server together with the PESA software replace two basic servers (Matzer conservative approach). In addition, the company will charge just 50% of the savings to the clients. The price is 4,050; calculations can be seen in table 2. The different pricing approaches have different prices and therefore the demanded quantity for servers could change. Assuming that all pricing alternatives have the same demanded quantity (inelastic demand) showed in table 1, the cost plus pricing and value in use pricing would generate more money than the status quo alternative. In not the case for the competition based pricing. See calculations on table 3.Matzer is against charging for software and therefore he will probably not agree with the cost-plus or value in use pricing. In addition, Matzer is really conservative so probably he would be more incline to choose the cost plus pricing instead of the value in use pricing, because the price of the last one (4,050) is almost the double of the first one (2,245). The cost plus pricing is just 12% higher than the price Matzer initially calculated and given the fact that the Tronn server together with PESA software has a performance that is four time higher than a basic server, for the use that DayTraderJournal.com wants, he will probably end up accepting this pricing.Cadena´s team will prefer to sell the Atlantic bundle at the higher price due to the fact that 30% of their salary depends on commissions (assuming that the demand does not change with the price). In addition, the Atlantic bundle in the long term will meant that less volume will be sold because one server with the PESA software perform as 4 basic servers and this is going to directly affect the commission of Cadena´s team. Jowers should explain to Cadena´s team that selling the Atlantic bundle will allow them to gain more market share every year given the high performance, meaning that the volume of selling is going to be so high that the commissions of them are not going to be affected. In addition, Jower could change the sales force compensation structure for the Atlantic Bundle, increasing the commissions. This change would encourage the team in to understand the new product and make an effort in selling it to the clients.This is a new product, which no other clients have tested and nobody knows if it actually performs 4 times better than basic servers in web servers and 2 times better in file sharing. Even more, the expression “we can save you money¨ had become a generic blanket statement, that everybody was using it. To combat these prejudices, the company could offer a refund of money if the server plus the software do not fulfill the promised performance. At the beginning, the company should price the Atlantic bundle with the cost plus pricing because that price is more similar to the competition price. People will be more willing to purchase the Atlantic bundle if they see a price that is 32% higher than the Zink basic server and not 138% as is the case in the value in use pricing method.AppendixTable 1Year 200120022003Basic Servers Market Size in Units50.00070.00092.000Atlantic market share4%9%14%Unit sold by Atlantic2.0006.30012.880Attach rate50%50%50%Unit sold with PESA by Atlantic1.0003.1506.440R&D Costs PESA2.000.000Units sold with PESA the next 3 years10.590Cost PESA per unit189Cost per Server1.538Total Cost1.727Mark up30%Cost-plus pricing2.245Table 2Reference ValueFewer ServerSharing savingsSavingsCost per server1.700150%850Electricity savings per sever250150%125Software licensing fee savings per server750150%375Labor cost saving per server2.000150%1.000Total Savings2.350Reference Value per server1.700Total Savings2.350Value in use pricing4.050Administrator´s annual salary80.000Number of servers an administrator can manage40Labor cost saving per server2.000Table 3 Status QuoCompetition basedCost plus pricingValue in usePrice2.0001.7002.2454.050Quantity10.59010.59010.59010.590Sales21.180.00018.003.00023.773.64642.889.500Difference-3.177.0002.593.64621.709.500