4. Atlantic Computer has spent $5,000,000 developing a new software application.

Question

4. Atlantic Computer has spent $5,000,000 developing a new software application. It plans to offer its sales team a commission of 30% of the final price to sell the software and also make a 30% profit. The sales team works just on commission. Atlantic believes that it can sell 12,500 units. a. How will you price the software using a cost-plus approach? b. It was assessed, and can be demonstrated, that the software creates customer-value to the tune of $10,000. With that information, how will you price the product? Why?

Explanation / Answer

Cost =5000000 Expected sales=12500

hence unit cost=5000000/12500=400

now lets assum 100 as initial cost price, the company wants toearn 30% profit hence distribution pice =130

now the company wants to offer 30% commission to distributor on sales price hence sales price = 130/0.7=185.71

i.e the SP should be 1.8571 times of CP

hence SP=1.8571*400=742.84

b) since the percieved value for software is $10000 it should be price <=$10000, The customer will be anyways willing to pay this price as it matches the percieved value for him and the pricing will also indirectly symbolise the quality delievered.

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