Pricing assignment

Pricing assignment

Assignment

For this assignment, you will be using the “Atlantic Computer: A Bundle of Pricing Options” case information. In the case, Jason Jowers identifies four pricing options: status-quo, competition-based, cost-plus, and value-in-use (pp. 5-6 of the case). Jowers has also identified a potential new customer, DayTraderJournal.com (DTJ), that would provide a good illustration of the impact of these pricing options.

Your pricing assignment is to calculate the total price Jowers should charge DTJ for each option, using an Excel spreadsheet. Be sure to carefully consider all the information given you in the case, along with the class discussion, notes, and hints below, in calculating each option.

Hints:

· All your pricing should be in terms of what DTJ would pay in total. As part of this, you may have to calculate the individual prices first.

· Tronn is Atlantic’s entry into the Basic Server market; Atlantic serves the High Performance market with their Radia model.

· Ontario’s Zink is the primary competitor for this business.

· Conservatively, 2 Tronns with PESA equals 4 Zinks. Use this assumption in your calculations.

· Assume that Tronn’s basic unit price is the direct and indirect cost of the Tronn plus the 30% profit margin, and does not include the cost of PESA.

· Footnote 5 on page 6 of the case includes valuable information for your cost-plus pricing analysis. Note that you will need to calculate the size of Atlantic’s market over three years as part of calculating the cost of PESA. Total market size, Atlantic’s assumed market share, attach rates (how many of the Basic they’ll sell with PESA vs. without), profit margin, and PESA development costs are provided in the case/footnote.

· Footnote 6 on page 6 provides valuable information for calculating the value-in-use price. Note that the number of years you will be using is different than the cost-plus analysis.

· Your value-in-use calculation should start with the maximum you could charge DTJ for the hardware plus customer savings. In making a price recommendation, however, you may wish to consider sharing the savings and not charging DTJ the maximum value-in-use price.

Format

You will submit your Excel spreadsheet using the Pricing Assignment link in the Assignments folder on Blackboard. The usual requirements for an Excel spreadsheet apply: it must be a “working” spreadsheet with formulas in any cells requiring calculations (no credit will be given if it’s not), and must be clearly laid out in an easy-to-understand format. Any assumptions or data that is not clear from the case should be annotated so the source of your data and calculations is clear.

Grading

The pricing assignment will be graded on Blackboard using the point distribution below. Your spreadsheet must demonstrate correct use of provided information, appropriate formulas, annotations of anything that might not be clear, and a readable and easy-to-understand format. Point values for each price calculation are:

· Status-quo – 10 points

· Competitive – 15 points

· Cost-plus – 30 points

· Value-in-use – 35 points

· Mechanics (clear, easy-to-read, properly annotated, with appropriate formulas) – 10 points

(S19)

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