Washburn International, Inc. – Pricing Issues: A Case Study
Added on -2019-09-19
This case study discusses Washburn International, Inc. and its pricing issues. It covers the company's history, products, market segments, and pricing strategies. The study also includes questions related to demand, pricing decisions, break-even point, and profit.
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Handout: MKT1040 Chapter 9 GRADED ACTIVITY #5CASE STUDY Washburn International, Inc. – PRICING ISSUES“The relationship between musicians and their guitars is something really extraordinary—and is a fairly strange one,” says Brady Breen in a carefully understated tone of voice. Breen has theexperience to know. He’s production manager of Washburn International (www.washburn.com), one of the most prestigious guitar manufacturers in the world. Washburn’s instruments range fromone-of-a-kind, custom-made acoustic and electric guitars and basses to less expensive, mass-produced ones. THE COMPANY AND ITS HISTORYThe modern Washburn International started in 1977 when a small firm bought the century-old Washburn brand name and a small inventory of guitars, parts, and promotional supplies. At that time annual revenues of the company were $300 000 for the sale of about 2500 guitars. Washburn’s first catalogue, appearing in 1978, told a frightening truth: Our designs are translated by Japan’s most experienced craftsmen, assuring the consistent quality and craftmanship for which they are known.At that time the North American guitar-making craft was at an all-time low. Guitars made by Japanese firms such as Ibane and Yamaha were inuse by an increasing number of professionals. Times have changed for Washburn. Today the company sells about 250 000 guitars a year. Annual sales exceed $50 million. All this resulted from Washburn’s aggressive marketing strategiesto develop product lines with different price points targeted at musicians in distinctly different market segments. THE PRODUCTS AND MARKET SEGMENTSArguably the most trendsetting guitar developed by the modern Washburn company appeared in 1980. This was the Festival Series of cutaway, thin-bodied flattops, with built-in bridge pickups and controls, which went on to become the virtual standard for live performances. John Lodge of the Moody Blues endorsed the 12-string version—his gleaming white guitar appeared in both concerts and ads for years. In the time since the Festival Series appeared, countless rock and country stars have used these instruments including Bob Dylan, Dolly Parton, Greg Allman, John Jorgenson, and George Harrison. Until 1991 all Washburn guitars were manufactured in Asia. That year Washburn started building its high-end guitars in North America. Today Washburn marketing executives divide its product line into four levels. From high-end to low-end, these are: One-of-a-kind, custom units. Batch-custom units. Mass-customized units. Mass-produced units. The one-of-a-kind custom units are for the many stars that use Washburn instruments. The mass-produced units targeted at first-time buyers are still manufactured in Asian factories. PRICING ISSUESSetting prices for its various lines presents a continuing challenge for Washburn. Not only do the prices have to reflect the changing tastes of itsvarious segments of musicians, but the prices must also be competitive with the prices set for guitars manufactured and marketed globally. In fact, Washburn and other well-known guitar manufacturers have a prestige-niche strategy. ForWashburn this involves endorsements by internationally known musicians who play its instruments and lend their names to lines of Washburn signature guitars. This has the effect ofreducing the price elasticity or price sensitivity for these guitars. Stars playing Washburn guitars like Nuno Bettencourt, David Gilmour of Pink Floyd, Joe Perry of Aerosmith, and Darryl Jones ofthe Rolling Stones have their own lines of signature guitars—the “batch-custom” units mentioned earlier. Joe Baksha, Washburn’s executive vice president, is responsible for reviewing and approving pricesfor the company’s lines of guitars. Setting a sales target of 2000 units for a new line of guitars, he isconsidering a suggested retail price of $329 per unit for customers at one of the hundreds of retailoutlets carrying the Washburn line. For planning purposes, Baksha estimates half of the final retail price will be the price Washburn nets when it sells its guitar to the wholesalers and dealers in its channel of distribution.
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