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atlantic computer

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Maya Kabbara

on 22 November 2012

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Transcript of atlantic computer

Computer: PRODUCTS The Problem Stages in Setting the Price EXECUTIVE RESPONSE Atlantic COMPETITORS IN BASIC SERVER MARKET Product analysis: MARKETING STRATEGY A bundle of pricing options - Manufacturer of servers and other high-tech products
- Largest player in overall computer industry

- Competing for 30 years in server market,
high end – Radia to enterprise customers
- High-touch direct sales channel

- Structure 70% salary. 30% commission
- Sales agents primarily generated demand, fulfilled demand and provided sales assistance

High Quality
Post Sales
developed to specifically meet an emerging US market place opportunity
key to success in selling this product is to bundle it with the new software tool
performs at the same level as the Zinc Servers
Performance Enhancing Server Accelerator
allows Tronn to perform up to 4X faster than its standard speed
specifically designed to make frequent requested information extremely accessible Atlantic Bundle:
-1 Tronn loaded with PESA as compared to buying 4 basic servers Image:
known to provide
top-notch, highly reliable
products Strategy:
Based on customer
intimacy and product
differentiation Consumer Buying Process 1. Problem Recognition
2. Information Search
3. Evaluation of Alternatives
4. Purchase Decision
5. Post-Purchase Behaviour 1. Ontario Computer Inc.

concentrated solely on the low end server market-Zinc Product line
50% of market share of low-end server market-majority of sales generated online-business model – operational excellence
compete largely on price
CEO notes "business model is to provide leading technology via the most flexible and innovative supply chain strategy as possible" 2. Remaining 50% of market made up of smaller vendors 1. Selecting the Pricing Objectives
2. Determining Demand
3. Estimating Cost
4. Analyzing Competitors Costs, Prices and Offers
5. Selecting Pricing Method
6. Selecting Final Price Pricing Options 4 MAIN PRICING STRATEGIES TO CHOOSE FROM

4. VALUE IN USE PRICING Pricing the Tronn Servers based on price of competitor server (Zink by Ontario) and PESA for free. Consumer Response Competitor Response cont'd
companies assess 3 or fewer options
don’t look forward more than 2 years
1/2 don’t examine more than 1 round of counter-moves
significant number of companies rely on intuition or what
they have done in the past
companies most frequently respond with most obvious counteraction
i.e. answering a price cut with a price cut
majority of competitors react to either a price change or innovation shortly after it hits the market
1. Lowering Prices
2. Me-too Product
3. Increasing Advertising
4. Offer a compliment for free Tronn loaded with PESA = 4 Basic Servers

Conservative Estimate:
Tronn loaded with PESA = 2 Basic Server

need to buy fewer servers
lower annual electricity chargers
less software license fees
lower labor costs charge only for hardware, give PESA away for free or would require agenda for sales force if not given away for free

Atlantic Bundle = Price of TRONN + Free PESA
= $2,000

Bundle price = 4 times Cost of Zink
Zink = $1,700
Bundle = $6,800

2001 2002 2003 Total
Estimated Sales 2,000 6,300 12,880 21,180
Only with PESA 1,000 3,150 6,440 10,590

R&D Cost over 3 year $2,000,000

Additional Cost of PESA $189
With 30% Mark-Up $245.52

Cost of Tronn $1538
With 30% Mark-Up $1999.4

Bundle Price with PESA $2,245 For 2 Basic For 1 Atlantic
Electric $500 $250
Admin $4,000 $2,000 Software $1,500 $750
Server $3,400 $2,000
Total $9,400 $5,000

Savings $4,400
50-50 Split $2,200

Final Price $4,200 OPTION 1: STATUS-QUO PRICING Option 2: Competitive Based Pricing Option 3: Cost-Plus Pricing Option 4: Value-in-Use Pricing attempts to capture a portion of what a customer would save by buying the firm’s product
50-50 sharing of the savings gain with the customer Competitor Response McKinsey Quartely -Summary
“How do companies respond to competitors” The Tronn PESA Low Acquisition Costs
Low Possession Costs
Website Processing
File Sharing Processing
Top Notch Post-Sales CONSUMER CRITERIA Option 1 Option 2 Option 3 Option 4 X
X BREAKEVEN ANALYSIS REVENUE FORECAST Develop a pricing strategy for Atlantic bundle - the new Tronn server and the PESA(Performance Enhancing Server Accelerator) software tool before SME trade show Which Segment Benefits Most The sales force needs to be trained to sell products on the basis of the following points:

1. Communicate the savings and gains to customers
2. Performance of Tronn with PESA software tool
3. Emphasize on the lower acquisition and
possession costs
4. Ensure excellent after sales service for customers

PS: 30 % of sales personnel is commissions. although new method of pricing. higher price gives incentive to sell Recommendations to Sales Force REVENUE FORECAST cont'd ATLANTIC BUNDLE Strengths
Bundle: Four times faster than the competitor
Responsive post sales assistance
Strategy based on customer intimacy and product differentiation
First order savings effects from buying few servers
Second order savings effects from lower annual electricity, software
license fees, labor costs
Largest in overall computer industry (name and market presence)
has 20% of the revenue market share in HPS market which is the
largest server market
Bundle is suitable for file sharing and web servers applications
Basic server: 36% compound annual growth rate through 2003
HPS and basic servers are not viewed as substitutes by customers Matzer- head of the server division key success of the
product is our ability to sell the server with our new software tool

relied on matzer's
comments, Savings:
1st) need to purchase fewer
2cnd) lower electricity cost/ software
license fees and labor cost
Limited emphasis on developing and selling software tools
Sales force had historically given away software tools
Relied upon a high-touch direct sales channel
Less experience in basic server segment
No sales were generated online Matzer believed that software tools should be provided for free.
Matzer was a force to be reckoned with.
Matzer has used the cost plus pricing analysis. (Standard approach in the industry) customers in
the web server and
file sharing application
segments are the main
beneficiaries of the tool Summary Online sales to match the competition
Advertising, targeting the web-server/ file sharing focused companies, emphasizing on the value added by PESA and the savings ( Mainly energy savings and possession cost) (Atlantic Bundle)
Advertising the Tronn as a comparable to the ZINK at the same price level to target the other players.
Try to get support from the government, for being energy efficient
Provide warranty, after sale support, customer service.

we are not
really charging for the
software. (price is
not software + hardware).
It captures the long-term benefits
provided to the customers With cost plus, our margin is just based on historical industry practices
or target margins (arbitrary)

With value- added we can earn more profit by capturing the actual value
perceived by customers (the margin is based on quantifying the benefits) Option 1 : A lot of value that the bundle can deliver is lost. the price is too low. Choice is option 4 as it captures some of the savings that the customer would get from buying the product

Offer TRONN at the same price as Zink The Atlantic bundle will target only a specific segment of the market.
we will follow the value- based pricing approach
Tronn will still be sold as a server like ZinK. Option 2: Not all customers will capture a value equal to 4 times a ZINK. It's only SME's that are focused on web and file sharing(irrelevant for others). customer psychology (why would i pay 6,800 to get one when I can get four?) Option 3: price is not justified from customer point of view. (using a set margin, factoring PESA development cost might not seem relevant to some players, + sunk cost) option 4 : The benefits captured by customers in specific segments are quantified and communicated. They could see what they are paying for. Thank you We are giving customers a product that was tested to be 4 times more performing as a standard server.
especially that our target market will be those who rely on web server and file sharing, they will all perceive the benefits.
the will be easily convinced to buy our product
we already have a strong image in the HPS market.
Customer will perceive the value and will be willing to pay. 1) very probable because their main competitive advantage is in a cost efficient supply chain management.
(tronn cost= 1200, lowest they can offer is a bit beyond that point, our price is still lower than 4*ZINK)
2) they do not have the resources to develop a software like PESA.
3) probable.
4) they could have other products that they could bundle with their servers (not enough info)
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