Pricing Capacity-on-Demand in IT Services An analysis of the development of unit pricing at Atos Origin

Abstract

The objective with this thesis is to assist Atos Origin in their work on implementing Capacity on Demand. Atos Origin will be the first one on the market to introduce complete capacity on Demand making a great leap towards customer satisfaction and tereby creating a strong competetive advantage. This now needs to be capitalized.

So far only one contract is using Capacity on Demand and that is the contract with Schenker. When pricing the contract Atos Origin needed a new way to create a list of unit prices for all of the services, a condition for Capacity on Demand to work. They chose to work with transfer pricing models with a mark up in order to price the contract due to the flexibility that that model allows for. To make things more complicated Schenker is a very large customer and the pricing of the contract were very demanding making the same process unfit for the pricing processes in the future.

Our work started with analysing their pricing of the Schenker contract. The problem is that Atos origin does not know if the model they used for the pricing is the most profitable one. We have helped Atos Origin by assembling a list of actions and advice that may increase their profitability and improve their competitive advantage as well as see to that Atos Origin makes the most of their competitive advantage and turn it in to profit.

Analysing the work we saw that they had mainly been focusing their attention to the costs induced by the customers needs. We therefore chose to introduce another way of thinking – value based pricing which can help Atos Origin to capitalize their innovation and increase profitability. Secondly we saw a need for customer segmentation and we developed a strategy for segmentation after company size and demand. Thirdly we saw that they could optimize utility of hardware and demand by adopting bundling to steer demand. This would also divert risk in times of volatile demand. This will answer the question we asked in the beginning of our work: what does AO need to consider when developing a pricing strategy for future contracts using CoD in order to maximize profit.