Atlantic Computer M&L 752 May 3, 2010 Erica Brandt Jill Burnip Elizabeth Hazel Justin Jeffries Ashley Martina Katie Motz 2 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 3 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 4 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, Atlantics Tronn will compete directly against Ontarios Zink. Ontarios Zink servers perform at approximately the same level as Atlantics 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 Ontarios 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 5 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 Ontarios 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 6 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 Atlantics 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-in-use 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 7 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 Atlantics 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 8 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 Atlantics profits (See tables 3.2 and 3.3) so it is not the best option for Atlantic Computer. 9 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 10 !""#$%&' Exhibit 1: Traditional Pricing Strategy Chart 1.1: Cost Information Chart 1.2: Customer Expenses Chart 1.3: Atlantic Expenses 11 Exhibit 2: Zink Pricing Strategy Chart 2.1: Cost Information Chart 2.2: Customer Expenses Chart 2.3: Atlantic Expenses 12 Exhibit 3: Cost-Plus Pricing Strategy Chart 3.1: Cost Information Chart 3.2: Customer Expenses Chart 3.3: Atlantic Expenses 13 Exhibit 4: Value-In-Price Strategy Chart 4.1: Cost Information Chart 4.2: Customer Expenses Chart 4.3: Atlantic Expenses 14 Exhibit 5: 2001-2003 Profits