Case Synopsis

The management at Atlantic Computer had the problem of formulating a pricing strategy for product bundling. This had to be a unique pricing strategy because they were breaking away from the industry practice which was to offer software tools for free.

However in this case, the management had decided against this strategy as the use of the software tool would lead to considerable savings on the part of the customer. Therefore the management believed that if new product marketing and sales did their job right, customers could be persuaded to pay an additional percentage for the PESA software tool.

Therefore the center of the problem was clearly to develop the right pricing strategy which would take into consideration the product’s benefits and the current competitive pressures in the market. This was the task given to Jason Jowers, the youngest product manager at Atlantic Computer. The strategy that Jason developed would be tested at the SME trade show. Depending on the test results, the pricing structure could be put into practice.
Company overview
Atlantic Computer has a long record of operating in the high-end performance servers market. It had been selling Radia to large enterprise consumer servers for the last thirty years. However the management had shifted the strategic focus to basic servers because of the popularity of the Internet technology.
This was the reason that Atlantic Computer was introducing Tronn. The head of the server division believed that customers would no longer consider high performance servers and basic servers as substitutes. Therefore, the market had considerable growth potential in terms of basic servers. Atlantic Computer already had a considerable brand reputation in the market from selling high performance servers and the company would be able to capitalize upon this reputation by selling basic servers.
The company also had a reputation for responsive post-sales assistance. This was based on customer relationship management and product differentiation. Therefore, the company had a substantial existing customer list which could be capitalized upon to enter the market for basic servers. In this respect the strategy of product differentiation was being implemented in the form of bundling hardware with software.
Product overview
Atlantic Computer had been selling high performance servers for the last 30 years. Now it was entering a new market with basic servers the functionalities of which were expanded by bundling the hardware with the PESA software tool. The industry practice was that software tools were given away for free.
However the management at Atlantic Computer had decided against this strategy because the customers would be able to reduce their operating expenses considerably by using the PESA software tool. Basic servers are used to perform simple, repeatable functions while software tools are used to monitor the health of a server or to enhance the performance of the server. Customers in the web-server and file sharing applications segment would benefit most from the suggested product bundling