Our recommendations are based on an assessment of the # points of relative differentiation between the Atlantic Bundle and its next best alternative, Ontario Computer’s Zink Server: * First-order savings from $3866. 00-$932. 00 vs. the Zink server: one Atlantic Bundle (Tronn server optimized with the PESA software) performs at four-times the speed of a single Zink server. At this rate, a prospective Zink customer can potentially save as much as $3866. 00 by purchasing the Atlantic Bundle. Jowers recognized the difficulty of selling the “one-to-four”.
Even using his more conservative “two-to-four” selling proposition, the Atlantic Bundle still saves the prospective Zink customer $932. 00. * Second-order savings up to $6000. 00 per year: because of the performance enhancements available with the Atlantic Bundle, prospective customers will benefit from significantly reduced costs for electricity (estimated at $500 per year vs. $1000. 00 per year for the Zink), reduced software license fees ($1500 per year vs. $3000. 00 per year for the Zink) and labor costs savings of ($2000 per year vs. $4000. 00 for the Zink).
We believe the first- and second-order effects present a powerful selling proposition for prospective Zink customers. However, it’s still vitally important that Jowers take additional steps to educate the market about these relative advantages and thus exercise a “show and tell” approach to marketing product. Key considerations in the decisions related to marketing and selling approach include: * Complexity: The basic server market is relatively commoditized with sharp price competition. Buyers typically expect that any software utilities associated with the management of basic servers will be provided free of charge.
Jowers will have to demonstrate the unique benefits of the bundle approach through its marketing messages (sales scripts, advertising, case studies, etc. ) * Trialability: While it’s not been discussed as part of the case, Jowers should consider conducting a “proof of concept” with pilot customers. This process will provide production-level data on system performance which will serve to booster Atlantic’s credibility as it seeks to convey the value of the PESA software as a utility worth paying for. Observability: This will be a significant hurdle for Jowers. Because companies typically consider their network infrastructure confidential and proprietary information, Atlantic will need to negotiate case studies and endorsements as part of its pilot program to ensure that the performance results can be shared through its marketing efforts. 2. Approximately how much money over the next three years will be “left on the table” if the firm were to give away the software tool for free (i. e. , status quo pricing) versus choosing another pricing approach?
We believe Matzer is likely to respond positively to the $2934. 00 pricing strategy we have recommended for the following reasons: * The price point recoups Atlantic’s development costs of $2 million within the first three years * Atlantic has established a recognizable brand reputation for top-notch, highly reliable products and superior post-sales support. The premium price is consistent with these “intangibles” and further differentiates Atlantic from the Ontario in the basic server market since Ontario has chosen to compete exclusively on price. This price point will generate an estimated $ $51,279,412. 44 in additional revenue within the first three years, a portion of which could be dedicated to supporting Atlantic in extending and solidifying its brand in the basic server market. * Jowers has developed an identifiable target customer profile, businesses in the web-server and file-sharing application segments whose business model and technology requirements are a perfect fit for the PESA’s server performance optimization approach.
With this segmentation in hand, Jowers will be able to target marketing messages to the unique needs of this target audience, gaining greater credibility and traction with the market as Atlantic looks to build its brand. 4. How is Cadena’s sales force likely to react to your recommendation? Cadena’s sales team will likely be skeptical about the line extension as well as the extent to which selling the Atlantic Bundle will impact them from a revenue and bonus perspective. Today, the team is exclusively dedicated to selling high-end Radia servers to enterprise clients.
Their typical price point is more than four times the price we are recommending – averaging $11,000 per Radia server. The sales team will need to be convinced that there’s a benefit to them to invest time in selling the Tronn/PESA bundle. The team will likely react positively to the effort Jowers has invested in identifying the unique problem that the Atlantic Bundle solves for prospects and that he has taken the additional effort to research and profile the ideal target customer.
This will allow them to save time and focus their efforts on clients for whom the Atlantic Bundle has a persuasive story, and will also allow them the flexibility to offer the Tronn server as a standalone product without the PESA product. The sales team is accustomed to offering software tools for free, so this flexibility will likely provide a level of comfort within the team about the new offering and new markets that Atlantic is looking for them to penetrate. 5. What can Jowers do to get Cadena’s hardware-oriented sales force to understand and sell the value of the PESA software effectively?
Jowers has a number of options when considering how to warm the sales team to the concept of selling the value of the PESA software: * Because 30 percent of the sales team’s compensation is incentive-based, Jowers could offer a bonus for all Atlantic Bundle sales for the first year after product introduction. The incentive will need to be structured in a way that provides a compelling up-side, above the current total compensation the team is eligible to receive. Otherwise, if the team believes that the pie isn’t getting bigger, just being sliced a different way, the team will not sell the bundle.
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