Atlantic Computer: A Bundle of Pricing Options Case Solution

1. What price should Jowers charge DayTraderJournal.com for the Atlantic Bundle (i.e., Tronn servers + PESA software tool)?

The final bundle price for the combination of hardware and software can be computed from four different formats. Firstly, the price of the bundle can be calculated by using the status quo pricing. This pricing technique proposes that as per the tradition of Atlantic, the software (PESA) can be rendered as a free complimentary tool with the hardware. Therefore, the price of the software should not be charged to the end customer. This means that the cost of the bundle is only equal to the total hardware costs. As one TRONN server (hardware) costs $2000, therefore, the bundle should cost $2000.

The second pricing strategy encompasses the use of competitively based pricing. This pricing technique computes the price by making an equivalent cost comparison between the competitor's product and the company product. From a conservative perspective, two TRONN servers can are equivalent to 2 zink servers (competitor servers). As the cost of one zink server is $1700, hence, the cost of the bundle (TRONN+PESA) should be $3400. On the contrary, from an aggressive estimate, one TRONN server is equivalent to 4 zinc server. This implies that the overall costs come out to be $6800. The third strategy, cost-plus pricing, is the most commonly used pricing strategy. In this strategy, the cost of software is computed from the three-year sales horizon period. Afterward, per unit cost for PESA is calculated and added to the cost of TRONN. Above this, a 30% desired markup is also applied to reach the bundle price. The final price of the software comes out as $2245.

 The last pricing strategy is the value in pricing, measure the total price by distributing the overall cost savings (by buying the bundle) among the customer and the company; by applying a conservative approach (2 TRONN servers equal to 4 zink servers), the calculations show that the overall savings are $4800. The cost of two TRONN servers is $4000. This implies that, on a 50-50% cost savings sharing, the bundle price of two TRONN servers is $6800. This infers that price of one bundle is $3400. By taking into the cost structure of Ontario and Atlantic, this is feasible that Atlantic charges the value at price to customers as in that situation the product becomes more marketable. Moreover, the price war with Ontario can be detrimental as if it lowers the cost of zink servers; it can affect Atlantic's sales. Also, in the cost-plus strategy, it becomes very difficult to market the product without justifying the price hike. Moreover, by using the bundle or the package, all objectives of the daytaderjournal.com can be fulfilled.

2. Think broadly about the top-line revenue implications from each of the four alternative pricing strategies. Approximately how much money over the next three years will be "left on the table" if the firm were to give away the software tool for free (i.e., status quo pricing) versus utilizing one of the other pricing approaches?

In order to calculate the amount of money let on the table, one has to compute the profits and take their difference to reach a conclusion. The calculations show that the least amount of profit is generated by status quo pricing while the highest profit is generated by value in pricing. The following table summarizes the findings.