Atlantic Computer
Practice Case
Please email me this completed worksheet at gvoss@smu.edu by 5:00pm on 9/13.
Name(s):
This practice case addresses how to price a bundle that includes a server and a software tool that enhances server performance. The case allows you to compare
four common approaches to pricing. To prepare for class discussion, please calculate the recommended price for the typical customer (i.e.,
DayTraderJournal.com) and 3-year revenue projections using the following four approaches to pricing.
Price for 2 Tronn Servers
Price for PESA
3-year Revenue
1. Status-quo pricing:
2. Competition-based pricing:
3. Cost-plus pricing:
Tronns sold (2001-2003)
Tronn+PESA bundles sold (50%)
Pesa R&D Costs
Unit Cost (PESA R&D/Bundles Sold)
X “30% markup above costs”
PESA Price (for 2 units) ≈
$2,000,000
4. Economic value based pricing:
Reference value:
+ Labor savings
+ Electricity savings
+ Application license savings
Total Economic Value
Capture 50% of Differentiation Value
(Neutral Pricing Objective)
Key Questions
1. As you set your prices using the four approaches, go back and review Text pp. 40-45, the 6 Steps for Value Based Segmentation. Be sure that your pricing
structure creates meaningful fences that effectively target the web server and file sharing customer segment.
2. According to Exhibit 1 (below), how should you configure your Tronn + PESA price offer? Should PESA be included in all offers, an option as a “costrecovery” add-on, a bundle in the premium offer only, an a la carte offering, free, a loss leader?
3. What is the price window for the Tronn + PESA?
4. How is the sales force likely to react to your recommendation? How do you win their support?
5. How are customers likely to react to your recommendation? What is the breakeven quantity percentage for each price change? What is the breakeven
elasticity? Will demand be relatively elastic or inelastic with respect to price? Why?
6. What type of benefits does Tronn + PESA offer – economic or psychological? Is it a search or experience good? What type of Value Communication
Strategy do you recommend?
7. How is Ontario likely to react? Are you vulnerable to its likely reaction?
A Note on Exhibits
Exhibits should be numbered consecutively and MUST be referenced in the text (i.e., in the one-page memo for this assignment); otherwise, they do not exist.
Exhibits should be completely self-explanatory. That means that the reader should understand the purpose of the exhibit by reading the title and should be able to
easily follow the flow of the table, chart or figure. If something is not evident, a note should appear at the side or bottom, cross-referenced by a number, letter, or
symbol, explaining the derivation of a particular number, the process, or the assumptions driving the process. Exhibits should NOT be structured as additional
text; they must be in table, chart or figure format.
Exhibit 1
Price Offer Configuration