* 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| $34,955,291 | |
Total Competitor-based Pricing over 3 years| $44,567,996 | $9,612,705 | Total Value-in Pricing over 3 years| $57,676,230.76| $22,720,939.39| Total Cost-Plus Pricing over 3 years| $39,047,811.24| $4,092,519.88|
3. How is Matzer likely to react to your recommendation?...