2. Situation analysis * External Analysis
Since the basic server market had 36% compound annual growth rate through 2003, significantly higher than around 3% of high performance market, Atlantic Computer decided to penetrate the basic server market with its "Atlantic Bundle". But Atlantic Computer had no competitive market share in the basic market and had to fight against a strong competitor Ontario Computer which only focused on the basic server market with 50% revenue market share. In addition, for the business model of Ontario Computer that possessed “the most flexible and innovative supply chain strategy” was based on operational excellence, the company had been able to drive out many non-value-added costs and compete largely on price. For example, its major sales were generated online, saving lots of selling expenses.
However, Atlantic Computer had already been a strong player with 20% of the revenue market share in high performance market, the largest market in servers industry and had also been the largest player in the overall server industry for 30 years, thus Atlantic Computer was able to support its competition in the new basic market with its financial advantages, technical advantages and any relevant successful experience derived from the high performance market. What’s more, Atlantic Computer didn’t need to be worried that its basic servers would compete with its high performance servers, because customers didn’t view these two kinds of servers as substitutes. Atlantic Computer had also targeted the web-server and file-sharing application segments benefited most from the tool. Beyond that, “The Small and Medium-Size Enterprise Systems Solutions Trade Show” was coming, so Atlantic Computer could take advantage of the show to collect immediate feedback, allowing Cadena to eventually develop a sales script and other marketing collateral. Additionally, value-in-use pricing prevailed in the United States and Europe and this pricing could increase the company’s revenue, compared with its traditional pricing. * Internal Analysis
Atlantic Computer was famous for providing top-notch, highly reliable products and high quality, responsive post-sales assistance, which could be a substantial buttress supporting "Atlantic Bundle" in the new market. PESA would allow the Tronn to perform up to four times faster than its standard speed and Zink servers performed at approximately the same level as Atlantic’s Tronn, which meant "Atlantic Bundle" performed up to four times faster than Zink servers did, leading to first-order savings effects from purchasing and second-order savings effects from operating expenses such as annual electricity charges, software license fees, and labor costs. But Jason Jowers might ignore the big picture by a professor saying and Jason hadn’t still decided the pricing strategy yet. The greatest weakness concentrated on selling activities of the company. First, Sales force had historically given away software tools, since the company put limited emphasis on developing and selling software tools that helped to enhance the performance of their servers. Second, traditionally, the Server Division had relied upon a high-touch direct sales channel at a higher cost than that of online sales. Third, the sales force compensation structure of 70% salary and a 30% commission was not so reasonable that it could spur the sales force to achieve excellent sales performance.
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5. Recommendation
The value-in-use pricing was generally welcomed in U.S. and Europe, because it was able to tell customers how much they could save on purchasing. Based on my calculation, purchasing one “Atlantic Bundle” could save $8,371.42 annually, thus it was reasonable for Atlantic Computer to share the savings gain with customers by fifty to fifty. Meanwhile the price $4,185.71 exceeded the cost-plus price $2,612.61including software tool cost. But calculating the savings depended on annual operating costs