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Handout: MKT1040Chapter 9 GRADED ACTIVITY #5CASE STUDY Washburn International, Inc. – PRICING ISSUES“The relationship between musicians and theirguitars is something really extraordinary—and isa fairly strange one,” says Brady Breen in acarefully understated tone of voice. Breen has theexperience to know. He’s production manager ofWashburn International (www.washburn.com),one of the most prestigious guitar manufacturersin the world. Washburn’s instruments range fromone-of-a-kind, custom-made acoustic and electricguitars and basses to less expensive, mass-produced ones.THE COMPANY AND ITS HISTORYThe modern Washburn International started in1977 when a small firm bought the century-oldWashburn brand name and a small inventory ofguitars, parts, and promotional supplies. At thattime annual revenues of the company were $300000 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 mostexperienced craftsmen, assuring the consistentquality and craftmanship for which they are known.At that time the North American guitar-makingcraft was at an all-time low. Guitars made byJapanese firms such as Ibane and Yamaha were inuse by an increasing number of professionals.Times have changed for Washburn. Today thecompany sells about 250 000 guitars a year.Annual sales exceed $50 million. All this resultedfrom Washburn’s aggressive marketing strategiesto develop product lines with different pricepoints targeted at musicians in distinctlydifferent market segments.THE PRODUCTS AND MARKET SEGMENTSArguably the most trendsetting guitar developedby the modern Washburn company appeared in1980. This was the Festival Series of cutaway,thin-bodied flattops, with built-in bridge pickupsand controls, which went on to become thevirtual standard for live performances. JohnLodge of the Moody Blues endorsed the 12-stringversion—his gleaming white guitar appeared inboth concerts and ads for years. In the time sincethe Festival Series appeared, countless rock andcountry stars have used these instrumentsincluding Bob Dylan, Dolly Parton, Greg Allman,John Jorgenson, and George Harrison.Until 1991 all Washburn guitars weremanufactured in Asia. That year Washburnstarted building its high-end guitars in NorthAmerica. Today Washburn marketing executivesdivide 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 manystars that use Washburn instruments. The mass-produced units targeted at first-time buyers arestill manufactured in Asian factories.PRICING ISSUESSetting prices for its various lines presents acontinuing challenge for Washburn. Not only dothe prices have to reflect the changing tastes of itsvarious segments of musicians, but the pricesmust also be competitive with the prices set forguitars manufactured and marketed globally. Infact, Washburn and other well-known guitarmanufacturers have a prestige-niche strategy. ForWashburn this involves endorsements byinternationally known musicians who play itsinstruments and lend their names to lines ofWashburn signature guitars. This has the effect ofreducing the price elasticity or price sensitivityfor these guitars. Stars playing Washburn guitarslike Nuno Bettencourt, David Gilmour of PinkFloyd, Joe Perry of Aerosmith, and Darryl Jones ofthe Rolling Stones have their own lines ofsignature guitars—the “batch-custom” unitsmentioned earlier.Joe Baksha, Washburn’s executive vice president,is responsible for reviewing and approving pricesfor the company’s lines of guitars. Setting a salestarget of 2000 units for a new line of guitars, he isconsidering a suggested retail price of $329 perunit for customers at one of the hundreds of retailoutlets carrying the Washburn line. For planningpurposes,Baksha estimates half of the final retailprice will be the price Washburn nets when itsells its guitar to the wholesalers and dealers inits channel of distribution.