Atlantic Computer: A Bundle of Pricing Options

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- How is Matzer likely to react to your recommendation?

Matzer, a 20-year veteran of the computer business, would likely have some reservations about Jowers’ decision to use a value-in-use pricing model for the Tronn+PESA product. For years the industry pricing standard had been cost-plus pricing, with software tools generally provided for free. In fact, Matzer and many Atlantic executives had never viewed software as a differentiator for its server products. As such, they assumed they could not get customers to pay for the software in addition to the cost of the server. Secondly, Matzer was very familiar with Atlantic’s most prominent competitor in the basic server segment and knew that Ontario’s business model was based on operational excellence, which allowed it to be a price leader in the price-conscious basic server segment. Matzer may assume that Jowers’ value-in-use pricing model would only increase the price of the Tronn, leading to a serious competitive disadvantage in pricing.

- How is Cadena’s sales force likely to react to your recommendation?

Cadena’s sales force would be skeptical of the value-based pricing model. His sales team has extensive experience in cost-plus sales, which has long been the industry standard. Customers have come to expect software to be a free add in, which would make charging a premium for this extra difficult. The sales force at Atlantic’s compensation is made up of roughly 30% commission, which may be viewed as more difficult to earn based on this pricing strategy. Furthermore, Ontario Computer, the industry leader has gained market share by focusing on low cost.

It is important to present the potential advantages the value-in-use pricing strategy will have for the sales team when presenting this strategy. For example, highlighting the performance advantages the sales team can convey to customers when comparing the Atlantic bundle to the Ontario’s Zink product, particularly that the Atlantic bundle doubles file sharing performance and quadrupling web server performance. The premium price also means that each sale provides a larger commission, which can directly affect their personal bottom-line.

- How are customers in your target market likely to react to your recommended pricing strategy?

Customers will react positively to our pricing strategy. Our pricing strategy will signal confidence in our value proposition to our customers which in turn will make them feel confident when buying our bundle. The value of our bundle is in the savings. Our customers are getting the power and capacity of 4 basic servers in one server for less. Beyond the technical requirement, our target customers want to reduce cost. A least one out of the top three requirements for our target exemplary customer is about minimizing cost of some sort. Therefore, our customer will value the savings that our bundle offers. However, the challenge will be portraying this message to the customers. Because the stated price of our bundle is higher than the competition, Atlantic will have to emphasize on the savings and educate customers about the long term benefit of their investment. The message of the company will need to be tailored in order to address the customer’s needs. Choosing a pricing strategy that is based on the savings offered by the “Atlantic Bundle” will help portray this message to customers and the SME will be a good opportunity for that.

- What response can be provided to overcome any objections?

To overcome objections Jowers needs to address customer’s requirements. They should capitalize on PESA allowing the server to perform up to 4 times faster. The PESA allows customers to “maximize speed for mathematical computations in complex model simulation” with its increased performance and will significantly cut down on the number of servers needed and the long term operational and maintenance costs. Buying 1 Tronn server with PESA is the same as buying 4 basic serves. When buying a server, customers need to realize that it is not just a onetime cost. Long term you have annual operations, maintenance and soft hands (technicians paid to work on the server if the server is located in a remote data center) costs. Additional, there is a licensing and software, power, cooling and storage cost per server. On average you can spend $12,000 annually per server long term just to keep the server running.

Item

Unit

Annual Cost

Accenture Silver Server Support

Server

$ 3,143.41

Accenture SAN Support (storage)

TB

$ 2,086.08

Snare

Server

$ 8.54

Tripwire

Server

$ 82.94

Vormetric Prod

Server

$ 1,333.33

Trend Micro

Server

$ 5.83

Windows License

Socket

$ 2,013.84

SQL License

Core

$ 3,401.58

Total

$ 12,075.56

With the PESA software that would allow you to save roughly $36,000 a year. In addition to longer term savings and increased performance the sales team will need to promote “availability of top not sales support” and “outstanding customer support (24x7)” to overcome any objections and meet customer’s requirements.