1. What price should Jowers charge DayTraderJournal.com for the Atlantic Bundle (i.e., Tronn servers + PESA software tool)? Be sure to evaluate status-quo pricing, competition-based pricing, cost-plus pricing, and value-in-use pricing. Based on an evaluation of the four pricing options—status-quo, competition-based, cost-plus and value-in-use—we recommend that Jowers charge DayTraderJournal.com a price of $2934.00 for the Atlantic Bundle. In order to provide the sales team with the most flexibility, we will also offer a standalone price for the Tronn server only at $2000.00. Our recommendations are based on an assessment of the # points of relative differentiation between the Atlantic Bundle and its next best alternative, Ontario Computer’s Zink Server: * First-order savings from $3866.00-$932.00 vs. the Zink server: one Atlantic Bundle (Tronn server optimized with the PESA software) performs at four-times the speed of a single Zink server. At this rate, a prospective Zink customer can potentially save as much as $3866.00 by purchasing the Atlantic Bundle. Jowers recognized the difficulty of selling the "one-to-four”. Even using his more conservative “two-to-four” selling proposition, the Atlantic Bundle still saves the prospective Zink customer $932.00.
* Second-order savings up to $6000.00 per year: because of the performance enhancements available with the Atlantic Bundle, prospective customers will benefit from significantly reduced costs for electricity (estimated at $500 per year vs. $1000.00 per year for the Zink), reduced software license fees ($1500 per year vs. $3000.00 per year for the Zink) and labor costs savings of ($2000 per year vs. $4000.00 for the Zink). We believe the first- and second-order effects present a powerful selling proposition for prospective Zink customers. However, it’s still vitally important that Jowers take additional steps to educate the market about these relative advantages and thus exercise a “show and tell” approach to marketing product. Key considerations in the decisions related to marketing and selling approach include: * Complexity: The basic server market is relatively commoditized with sharp price competition. Buyers typically expect that any software utilities associated with the management of basic servers will be provided free of charge. Jowers will have to demonstrate the unique benefits of the bundle approach through its marketing messages (sales scripts, advertising, case studies, etc.) * Trialability: While it’s not been discussed as part of the case, Jowers should consider conducting a “proof of concept” with pilot customers. This process will provide production-level data on system performance which will serve to booster Atlantic’s credibility as it seeks to convey the value of the PESA software as a utility worth paying for. * Observability: This will be a significant hurdle for Jowers. Because companies typically consider their network infrastructure confidential and proprietary information, Atlantic will need to negotiate case studies and endorsements as part of its pilot program to ensure that the performance results can be shared through its marketing efforts. 2. 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 choosing another pricing approach? We estimate that should Atlantic decide to offer the software tool for free, the firm will lose anywhere from $9.6 million to $22.7 million over three years. See complete calculations below:
| Lost Revenue due to Status Quo Pricing
Total Status Quo Revenue over 3 years
Total Competitor-based Pricing over 3 years
| Total Value-in Pricing over 3 years
| Total Cost-Plus Pricing over 3 years
3. How is Matzer likely to react to your recommendation?...
Please join StudyMode to read the full document