Atlantic-Computer---A-Bundle-Of-Pricing-Options

________________________________________________________________________________________________________________NeerajBharadwaj,VisitingAssistantProfessorofMarketing,UniversityofChicagoGraduateSchoolofBusiness,andJohnB.Gordon,DirectorofChannelsMarketingforIBMSOAandWebSphereSoftware,preparedthiscasesolelyasabasisforclassdiscussion.Thiscaseisnotintendedtoserveasanendorsement,asourceofprimarydata,oranillustrationofeffectiveorineffectivemanagement.TheauthorsthankMikeDeRocco,DianeBadame,GregBonner,DerrickBoone,CraigChapman,H.Sujan,andMikeHanssensfortheirinsightfulfeedback.Thiscase,thoughbasedonrealevents,isfictionalized,andanyresemblancetoactualpersonsorentitiesiscoincidental.Thereareoccasionalreferencestoactualcompaniesinthenarration.Copyright©2007HarvardBusinessSchoolPublishing.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessPublishing,Boston,MA02163,orgoto—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessPublishing.HarvardBusinessPublishingisanaffiliateofHarvardBusinessSchool.NEERAJBHARADWAJJOHNB.GORDONAtlanticComputer:ABundleofPricingOptionsI.OverviewOnanunseasonablycoldafternooninAmberville,NewYork,inearlyOctober2000,JasonJowersleanedforwardinhischair,impatientforthemeetingtoend,sothathecouldgetstarted.TheyoungestproductmanageratAtlanticComputer,alargemanufacturerofserversandotherhigh-techproducts,JowershadjoinedthecompanyjustfourmonthsagoasanewlymintedMBA.Now,freshfromamanagementrotationthathadincludedprojectsinproductmanagement,strategy,andbusinessdevelopment,Jowerswasgettinghisfirstshotatsomerealresponsibility.HewouldberesponsiblefordevelopingthepricingstrategyfortheAtlanticBundle(i.e.,thenewTronnserverandthePESAsoftwaretool).Jowersknewthatitwouldnotbeeasytofindthesweetspot,buthewasconfidentandeagerforthechallenge.Therewerejustfourofthematthismarketingkick-offmeeting:Jowers;ChrisMatzer,headoftheserverdivision;EmilyJones,directorofthedivision’sR&Dteam;andHarryFowler,directorofnewproductmarketing.Matzerhadstartedthemeetingwithabriefoverviewofthenewserver.TheTronn,heexplained,hadbeendevelopedspecificallytomeetanemergingU.S.marketplaceopportunity.“But,”hehadsaid,“Wereallyfeelthatthekeytomakingthisproductasuccessisgoingtobeourabilitytoselltheserverwithournewsoftwaretool.”Joneshadtakenitfromthere.Thetool,calledthe“PerformanceEnhancingServerAccelerator,”orPESA,wouldallowtheTronntoperformuptofourtimesfasterthanitsstandardspeed,sheexplained.Itwasspecificallydesignedtomakefrequentlyrequestedinformation(e.g.,files,data,pictures,etc.)extremelyaccessible.“The‘AtlanticBundle’isthesalewewant.”Next,Fowlerwentthroughaslidepresentation,reviewingkeyindustrycharacteristicsandprojectingsalesfortheserver(seeExhibit1forprojectedsales).“Ultimately,therearetwomainmarketsegmentsintheserverindustry,”hesaid,clickingtoanewslide.“Thelargestsegment,High2078MAY28,20072078|AtlanticComputer:ABundleofPricingOptions2BRIEFCASES|HARVARDBUSINESSPUBLISHINGPerformanceServers,representsthetraditionaluseofserverstoruncomplexapplications.We’retalkingsupplychainmanagement,enterpriseresourceplanning,businessintelligence,thatilk.Thissegmentisexpectedtodemandapproximately200,000unitsnextyearandisprojectedtogrowaround3%annuallythefollowingtwoyears.”Heclickedovertoanotherslide.“Atlantichasbeenastrongplayerinthissegmentandhascaptured20%oftherevenuemarketshare.EmergingwiththegrowthoftheInternet,however,isanewersegmentforBasicServers.”Hepaused,lookingatJones.“It’snotallthebundle,Em;weallknowthat.”Fowlerlookedbackattheslideandcontinuedhispresentation.“Companiesincreasinglyneedbasiccomputingcapabilitytoperformsimple,repeatabletasks,suchasshowingwebsiteinformationontheInternet.Thismarketshoulddemandabout50,000unitsin2001,andregisterabouta36%compoundannualgrowthratethrough2003.”1Jowersnodded,takingnotesonthehardcopyoftheslidedeckhehadinfrontofhim.HewishedthatFowlerwouldwrapitup;thankfully,heappearedtobewindingdown.Matzerclearedhisthroatandjumpedin.“Thanks,Harry.Sothat’swherewestand.Thiswasausefulreview.It’sgoodtoknowthatwe’reallonthesamepageaswegoforward.”HeturnedtoJowers.“Jason,youhaveanopportunitytomakeabigsplashhere.Ournewserver,theTronn,andthePESAsoftwaretoolaregoingtohelpusenteranewmarket—onethathasbeendominatedbyOntarioComputerforlongerthanIcaretoremember.“Butweneedtogetourpricingrightforthe‘AtlanticBundle.’You'regoingtohavetofigureoutwhichbusinessesaremostlikelytobenefitfromournewoffering.Youwillalsoneedtotakeintoconsiderationhowcustomersarelikelytoreactandhowcompetitorsarelikelytorespondtoyourrecommendedpricingstrategy.”HelookedtoJonesandFowlerforagreement,andseeingtheirnods,continuedtalkingtoJason.“Let’ssetadeadlinetwoweeksout.I’dliketoseeapricingstructureinplaceforthetradeshowatthebeginningofNovember.”Jowersnoddedaswell.HeknewthatMatzerwouldwanthimtobereadyforthatshow.Officiallycalled“TheSmallandMedium-SizeEnterpriseSyst