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Atlantic Student Excel Sheet - Group Assignment

The document outlines four pricing strategies for Jowers to charge DayTraderJournal.com for the Atlantic Bundle, which includes Tronn servers and PESA software. The options include Status Quo Pricing at $4,000, Competition-Based Pricing at $6,800, Cost-Plus Pricing at $4,491.03, and Value in Use Pricing at $8,400. Each option is calculated based on different methodologies, with the Value in Use Pricing being recommended due to its potential to capture savings for the customer while ensuring profitability.

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amitmishra110063
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3 views

Atlantic Student Excel Sheet - Group Assignment

The document outlines four pricing strategies for Jowers to charge DayTraderJournal.com for the Atlantic Bundle, which includes Tronn servers and PESA software. The options include Status Quo Pricing at $4,000, Competition-Based Pricing at $6,800, Cost-Plus Pricing at $4,491.03, and Value in Use Pricing at $8,400. Each option is calculated based on different methodologies, with the Value in Use Pricing being recommended due to its potential to capture savings for the customer while ensuring profitability.

Uploaded by

amitmishra110063
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Please answer the questions and show all calculations.

What price should Jowers charge DayTraderJournal.com for the Atlantic Bundle (i.e., Tronn Servers plus PESA softw

There are four ways to answer this question – each is worksheet 1-4.
Please do the calculations for each of the four options and then suggest your preferred option. Justify your preference

For all calculations we assume that one Tronn server is same as two Zink servers.

Names Sahil Shah


onn Servers plus PESA software tools)? Please carry out the calculations to price two Tronn servers.

ion. Justify your preference for the question in worksheet 5.


Option (a): Status Quo Pricing – the way things were when software is given free. So for this option the price will s

Price: $4,000 3-points

Put in price of 2 trons with free software


Source: exhibit 3, pg 10
or this option the price will simple be the price for hardware.
Option (b): Competition-Based Pricing (Ontario Zink servers as competitors). Break up the price as price for hardw
Points

Price $6,800 2 trons = 4 zinc. Put price of 4 zincs 3

Break-Up of Price
Hardware $4,000 2 trons hardware price 2
Software $2,800 remaining price = price of software 2

Total Points 7

Hint: Software price should be whaever that is left after accouting for price of hardware.

Source: exhibit 3, pg 10
price as price for hardware and software.
Option (c): Cost-plus pricing (see footnote 5, planning horizon from 2001-2003 to allocate software development co

Allocation of Software Development Cost 2001 2002 2003 Total


Basic Segment Demand 50000 70000 92000 212000
Basic Segment Unit Sales 2000 6300 12880 21180
PESA Shipments for Basic Segment Unit Sales 1000 3150 6440 10590

PESA Costs
PESA R&D $2,000,000
PESA Unit Sales 10590
PESA Unit Cost $188.86

PESA Mark-Up 30%


PESA Per Unit Price with Mark-Up $245.51

Price of Two Units Hardware $4,000.00


Price of Two Units Software $491.03
Total Price for Two Units $4,491.03

For the cost-plus approach, some assumptions will need to be made about the expected sales volume, the
PESA attach rate, the time period, and the margin. Given Atlantic’s production constraints, the firm will only
be able to produce a limited number of basic servers in the near term. Assume that the firm will be able to
sell all of the Tronn servers it can produce, and that Atlantic’s resulting share of the basic server segment (in
units) will be 4% in 2001, 9% in 2002, and 14% in 2003. On these shipments, assume a 50% attach rate (i.e.,
half of all of their basic servers sold will be loaded with the PESA) since this is an entirely new concept and
some basic servers are used for applications that will not benefit from PESA. Assume that Atlantic’s
software development costs for the PESA will be paid off over three years. Last, target a 30% markup above
costs.
software development costs).

Source Points
pg 13 & 15 1
2
2

1
1
1

1
2

1
1
2

Total Points 15
Option (d): Value in Use Pricing (for definition see Exhibit 2, footnote b and footnote 6). Instead of four Zink’s, cus
Hints: You would need to consider spending\savings in labor, electricity, and software.

Costs 4 Atlantic 4 Ontario


without Tronn Zink 2 Tronn Saving
PESA Servers Servers
Hardware (price to customer) $8,000.0 $6,800.0 4000 2,800.0
Labor per year $8,000.0 $8,000.0 4000 4,000.0
Electricity per year $1,000.0 $1,000.0 500 500.0
Cost of application software license per year $3,000.0 $3,000.0 1500 1,500.0
TOTAL $20,000.0 $18,800.0

Source of Savings Savings 2 atlantic = 4 zink So divide Atlantic numbers by 2


Two Tronn for 4 Zink $2,800
Labor $4,000
Electricity $500
Application Software $1,500
Total Saving $8,800

Based on the above calculation of total Saving and assuming Atlantic appropriates all savings do the following calculations:
Price of PESA (i.e., saving) $8,800
Price for two Tronns $4,000
Total Value and Price $12,800
Total Points

Hint: Assume that labor is perfectly divisible.

Value-in-use pricing is a method of setting prices in which an attempt is made to


capture a portion of what a customer would save by buying a firm's product. For this
case, please assume a 50-50 sharing of the savings gain with the customer. Also,
please base your calculations on one year of savings (e.g., annual electricity savings
equal $250 (Exhibit 3)). Although the
average life of an Atlantic basic server is estimated to be three years, please use the
conservative per annum estimate.
. Instead of four Zink’s, customer buys two Tronn’s loaded with PESA.

Points

1 1 admin can manage 40 servers. 0.1 admin can


2 manage 4 servers (labour is divisible)
2
2
2

1
1
1
1
2

o the following calculations:


2
1
2
20
Based on the price points in problems 1-4, please recommend your price and present the reasons for the recommended price
Note for value pricing, you can use the split (50:50, 100:0) that makes sense and can be defended.

8400. 50:50 split of the savings gain with the customer. Convey all the savings generated from hardware, labour, electricity an
application software to the consumer

Value-in-use pricing is a method of setting prices in which an attempt is made to capture a portion of what a customer would
save by buying a firm's product. For this case, please assume a 50-50 sharing of the savings gain with the customer. Also, pleas
base your calculations on one year of savings (e.g., annual electricity savings equal $250 (Exhibit 3)). Although the
average life of an Atlantic basic server is estimated to be three years, please use the conservative per annum estimate.
Points
5

Source:
Pg 13,
footnote
6

Source of Savings Savings


Two Tronn for 4 Zink $2,800
Labor $4,000
Electricity $500
Application Software $1,500
Total Saving $8,800
Split 50:50 4400
Price of 2 tron $4,000
Total price 8400

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