3. Case help (This summarises what you should do for each pricing calculation)

Status-quo pricing - Current pricing practice. Traditional pricing suggested by Matzer

Competitor pricing - Use competitor price as a reference. Match competitor (Ontario

Zink) price.

Cost-plus pricing - Consider variable cost and fixed costs per unit (total fixed cost

divided by expected unit sales). In this case, there is useful information to be used.

Unit sales for the basic segment (and its projection). Atlantic's share of the basic

segment will give the total unit sales figure for Atlantic. Note that only 50% of units

will have PESA.

No variable costs involved (simple installation)

Total Fixed cost: R&D cost.

Markup (%) = 30%

Combining the above information, you should be able to compute how much the

bundle should cost.

Value-in-use pricing - Compute savings, i.e., economic value, achieved by

purchasing Atlantic Tronn + PESA instead of Ontario Zink.

Less number of servers (2 Tronn servers versus 4 Ontario Zink)

Less labour for each server (each labour can manage 40 servers)

Less electricity

Less additional software application licenses.

Total savings are equal to the maximum value of PESA

50-50 value sharing between Atlantic and customers. So, the final pricing of PESA

equals 50% of the maximum economic value of PESA. This is the additional value-

added to hardware.

Answer the following questions

What price should Jowers charge DayTraderJournal.com for the Atlantic Bundle (i.e.,

Tronn servers +PESA software tool?

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?

How is Matzer likely to react to your recommendations?

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

What can Jowers recommend to get Cadena's hardware-oriented sales force to

understand and sell the value of the PESA software effectively?

How are customers in the firm's target market likely to react to your recommended

pricing strategy? What response can be provided to overcome any objections?