Atlantic Computer
M&L 752
May 3, 2010
Erica Brandt
Jill Burnip
Elizabeth Hazel
Justin Jeffries
Ashley Martina
Katie Motz
Atlantic Computer is in the process of determining the best way to introduce the “Atlantic
Bundle”, which is the new Tronn server and the PESA software tool bundled together. The
marketing problem Atlantic faces is deciding how to price this bundle. In the past Atlantic has
always given away the software for free; however, the PESA software is different from the
standard software because it will allow customers to purchase fewer servers and would also
lower operating costs such as electricity, labor, and software license fees. Atlantic Computer
needs to find the correct pricing strategy and ensure that customers can see the benefits of the
PESA software when included in the Atlantic Bundle.
Atlantic Computer can pride itself in being able to be recognized for their strengths rather
than their weaknesses. Atlantic Computer has been in the computer business for nearly 30 years.
This translates into the strength of having experience in providing superior products as well as a
strength in knowing the customer and giving them what they demand. Atlantic Computer is
currently the largest player in the overall computer industry and also carries the positive Atlantic
name which is known for delivering products that are high quality and reliable and for providing
dependable assistance in service.
Atlantic Computer hopes to offer the Tronn server and PESA software together as the
“Atlantic Bundle” which will allow low-end servers to perform twice as fast as the standard
speed. Business customers will require only one Tronn server as opposed to two basic servers,
which will then help them acknowledge savings in electricity costs, license fees, and labor costs.
This innovative product is a determinable strength for Atlantic in the sense that its prime
competitor, Ontario, does not offer a product that is as fast as the Atlantic Bundle.
The pricing strategy will be extremely crucial for the promotion of this new package as
Atlantic seeks to compete against Ontario who has claimed 50% of the low-end basic server
2
market. A weakness can be seen in determining this strategy due to the numerous opinions that
are being proposed by employees in differing positions and levels of seniority as well as the fact
that some employees see a portion of their income in commission. An objective plan will be
difficult to create with the large number of perspectives. It will be necessary to sift through each
proposal and eliminate as much bias as possible.
Additionally, the firm may experience a lack of trust and synergy due to the fact that the
initial meeting to discuss the Tronn and PESA included the head of the server division, director
of the R&D division, director of new product marketing, and the product manager but did not
include the director of sales. This could also lead to miscommunication within the company
when certain necessary employees are not aware of the strategy. While it may have been an
informed decision to avoid the opinion of an employee who sees earnings from commission, this
leads to a lack of cohesion in the firm. The commission aspect of the director of sales may need
to be eliminated in order to acknowledge his informed opinions and create synergies among the
leaders of this project.
All consumers tend to migrate towards a brand that is well-known for its reliable products
and services; however, business consumers will be most likely to seek the Tronn and PESA
because they will have a need for a server that allows them to keep their employees on a
network, which also allows them to cut operating costs. The individual consumer will see the
benefits, but not as vividly as the business consumer. As they move forward with the promotion
of the Tronn and PESA they should use their superior brand image and experience in the industry
to best attract their target consumer, the business customer.
Atlantic Computer faces threats from the external environment. Traditionally, the Server
Division has placed limited emphasis on developing and selling software tools like PESA that
3
enhance the performance of their servers. Designing a software tool is not viewed as a
differentiator to win deals because the sales force historically provided software tools at no
charge. If customers expect to receive software tools for free, it poses a threat to marketing the
Tronn loaded with PESA at a higher price. Consumers may not recognize the importance of the
PESA software and opt to purchase basic servers at a lower price from a competitor. This
emphasizes the importance of conveying the cost savings through purchasing the “Atlantic
Bundle” allowing a consumer to purchase fewer servers, from the effects of lower operating
costs, and the fact that PESA is worth the cost of paying for the software.
Aside from consumer reaction, Atlantic’s Tronn will compete directly against Ontario’s
Zink. Ontario’s Zink servers perform at approximately the same level as Atlantic’s Tronn.
However, Ontario Computer, Inc. concentrates its efforts on operational excellence and the
company has been able to drive out many non value-added costs, which allows them to compete
largely on price. This puts increased pressure on Atlantic to implement an effective marketing
strategy and clarify the value in purchasing PESA software.
Another threat related to competition with Ontario is that if the “Atlantic Bundle” is a
success Ontario may try to copy it. In the event that this occurs, the market will revert back to its
current position in which Ontario has an advantage and the companies have almost identical
products and compete largely on price. With Ontario’s focus on operational efficiency and cost
cutting, Ontario will likely win a price war.
In order to avoid these threats, Atlantic Computer needs a strong sales pitch that conveys
the benefits to customers and the cost savings resulting from the need to purchase fewer servers.
It is necessary to clarify why the customer is not receiving the PESA software for free and why
the higher price is justifiable. The SME trade show is the perfect opportunity to discuss the new
4
server and software tool and gain information by talking to prospective customers. The
information will allow the sales force to develop a sales script and decide on other appropriate
marketing tools to use when offering the servers to business customers. Atlantic Computer needs
to determine which businesses are most likely to benefit from the “Atlantic Bundle”, how
customers are likely to react, and how competitors are likely to respond to the recommended
pricing strategy in order to move forward.
PESA is a powerful software application that should not be overlooked as a bonus add-on
when combined with the Tronn server. Moreover, Atlantic Computer has traditionally given
away the software license to customers for free, but with this new product launch the “Atlantic
Bundle” is the sale that Atlantic hopes to secure. A bundle should mean a package of items that
is being sold for one solid price without free attachments. Therefore, the Tronn server and PESA
software tool offered as a unified bundle form a great opportunity for Atlantic to use as their
main marketing pitch to attract prospective clients.
There are several opportunities that Atlantic Computer can use to their advantage in
overpowering Ontario’s marketing strategies. Ontario has been known as the leading company
for providing servers to corporations and organizations for quite some time, but the strategies
they had been using did not focus on their products, but on their supply chain management
techniques. Ontario Computer does not claim to be the leading innovator in product technology
but rather that they possess the “most flexible and innovative supply chain strategy possible”. As
a result, this can be seen as an opportunity for Atlantic to emphasize having the best product
available on the market.
Additionally, because the target market for Tronn and PESA is the customers who are
interested in basic servers, these people will be very concerned with the pricing of the product
5
package and the technical support that is available and beneficial to their usage. This is an
opportunity for Atlantic in the sense that the PESA software allows four servers to run at the
same time as well as monitor the health of the systems. Nevertheless, Atlantic is conservative
and compares two basic servers with PESA to four basic servers. Therefore, Atlantic has the
opportunity to exploit the benefits that the new software tool brings to users as a competitive
advantage that Ontario computer does not offer.
There are many strengths that will help Atlantic Computer to successfully exploit these
external opportunities to their prospective customers. Again, PESA allows four servers to run
simultaneously, which minimizes initial purchase and possession costs. Possession costs include
electricity bills for running the server on a daily basis; a price that can rise exponentially if a
company is running multiple servers at one time. Overall, a Value-In-Use Pricing strategy should
be used to capture a portion of what a customer would save by buying “Atlantic’s Bundle” and
not purchasing through Ontario. As a result, Atlantic Computer has the strength to market this
pricing strategy to potential clients by informing Zink customers that they will be saving about
$3,724/year by switching over to the “Atlantic Bundle” (two servers vs. four servers).
Based on the aforementioned attributes of Atlantic Computer and their product offerings,
the best pricing strategy to implement for the new Tronn server and PESA software is a value-inuse pricing plan that bundles the two items together and includes the price of the PESA in the
price of the bundle.
Atlantic Computer has prided itself on a strong brand image and holds one fifth of the
market share, and should continue to build the brand. Because of their power in the marketplace
as a leading supplier of servers, Atlantic can move forward with a unique pricing strategy that
6
goes against tradition by charging for the software, but carries the assurance of the Atlantic
Computer name.
Not only does Atlantic Computer have the power in the market to make diverse pricing
strategies, its positive brand image also carries reassurance in the market. Although the pricing
strategy may lead to an increase in price compared to what customers are familiar paying, they
know what to expect when buying the Atlantic brand. Atlantic will be able to charge for the
PESA software because of the understanding that they unlike Ontario, who focuses on price
instead of innovation, and because the Atlantic brand stands for quality. Companies who will
appreciate this are those who are focused on superiority and longevity of products that will save
them money in the long run instead of those who are looking for a quick bargain. This pricing
strategy also differentiates Atlantic from Ontario by further elevating Atlantic’s brand name in
the event that Ontario creates software similar to PESA and includes it for free; Ontario will be
perceived as a runner-up in the market, as well as a lower quality, cheaper version.
Along with the bundle, Atlantic customers can expect to receive the technical support and
customer intimacy they expect from this brand. Customers need to have the guarantee that if a
technical issue arises, the producer of their hardware and software will be easily accessible and
helpful. Technology becomes useless to customers when problems arise and there is no easy fix
for them. Ontario might have the operational efficiency to lower prices, but Atlantic can offer
superior customer service when it matters.
Another crucial benefit to consumers is the power of the bundle and the opportunities it
can provide. Marketed as premier software that is not the lowest in price but the highest in
quality, corporations who purchase the bundle can also expect an eventual cost saving. These
cost savings will derive from needing to buy fewer servers, using less electricity, cutting back on
7
labor costs, and securing fewer software licenses. Lowering labor costs is not only a cost-saving
realization, but also a Kaizen benefit as employees can generate higher quality work in less time.
These realizations need to be repeatedly conveyed at the trade show to emphasize what the
customer is receiving in return for their money.
Besides the numerous benefits offered to consumers, there are benefits for Atlantic
Computer as well. Atlantic Computer can improve its brand image as the premier supplier and
make a profit while doing so. Although there has been internal resistance to charge for the server,
the above-mentioned benefits to the customer, the profitability for Atlantic as a whole, and the
added commissions to the sales team are sufficient reasons to charge for the PESA software.
Research and development did require time and resources for both the hardware and software
and can be recovered through this pricing strategy. If Atlantic Computer decided not to charge
for the PESA software, it would be a revenue loss (See table 1.3). The value-in-use pricing
strategy is also the strategy in which Atlantic makes the most profit, while creating savings for
the customer (See table 4.2 and 4.3)
Should Atlantic decide not to move forward with the value-in-pricing strategy, the
previously mentioned benefits cannot be realized. If Atlantic were to give away the PESA
software for free, it would be a loss in revenue (See table 1.3), which is just one of the
implications. Also, if the software is given away free of charge, Atlantic cannot market
themselves as a premier supplier and therefore lose their market niche. Being the lowest-cost
provider is an easy strategy to imitate, which will allow Ontario to start a price war resulting in a
trend that can continue indefinitely. Cost-plus-pricing was another option that saves the customer
money as well; however, it cuts into Atlantic’s profits (See tables 3.2 and 3.3) so it is not the best
option for Atlantic Computer.
8
Atlantic Computer has a unique opportunity to generate a large profit, change the
traditional way of thinking, and break into a completely new era of software pricing. While
Atlantic Computer is generating revenues, and maintains the upper hand over competitors,
customers are cutting costs, becoming more efficient, and generating brand loyalty for the
premier brand that is Atlantic. The value-in-pricing strategy is clearly the best option for both
Atlantic Computer and their valued customers.
WORD COUNT: 2350
9
Appendix Exhibit 1: Traditional Pricing Strategy
Chart 1.1: Cost Information
Chart 1.2: Customer Expenses
Chart 1.3: Atlantic Expenses
10
Exhibit 2: Zink Pricing Strategy
Chart 2.1: Cost Information
Chart 2.2: Customer Expenses
Chart 2.3: Atlantic Expenses
11
Exhibit 3: Cost-Plus Pricing Strategy
Chart 3.1: Cost Information
Chart 3.2: Customer Expenses
Chart 3.3: Atlantic Expenses
12
Exhibit 4: Value-In-Price Strategy
Chart 4.1: Cost Information
Chart 4.2: Customer Expenses
Chart 4.3: Atlantic Expenses
13
Exhibit 5: 2001-2003 Profits
14