Washburn Guitars

The modern Washburn Guitars Company started in 1977 when a smallChicago firm bought the century-old Washburn brand name and a smallinventory of guitars, parts, and promotional supplies. At thattime, annual company sales of about 2,500 guitars generatedrevenues of $300,000. Washburn's first catalog, appearing in 1978,told a frightening truth:

"Our designs are translated by Japan's most experiencedcraftsmen, assuring the consistent quality and craftsmanship forwhich they are known. At that time, the American guitar-makingcraft was at an all-time low. Guitars made by Japanese firms, suchas Ibanez and Yamaha, were in use by an increasing number ofprofessionals."

"We offer a guitar at every price point for every skill level,"explains Kevin Lello, vice president of marketing at WashburnGuitars. Washburn is one of the most prestigious guitarmanufacturers in the world, offering instruments that range fromone-of-a-kind, custom-made acoustic and electric guitars and bassesto less-expensive, mass-produced guitars.

Lello has responsibility for marketing Washburn's products andensuring that the price of each product matches the company'sobjectives related to sales, profit, and market share. "We do payattention to break-even points," adds Lello. "We need to knowexactly how much a guitar costs us, and how much the overhead isfor each guitar."

With that statement in mind, watch the video describing howWashburn prices its guitars and how it uses the pricing variable asa strategic tool for positioning its various guitars in the marketplace.

1. If Washburn Guitars were to lower the price of the MayaPro DD75 to $2,499 from $2,699, sales of the guitar would increase30%. This illustrates

an increase in the unit variable cost.

A. a product with inelastic demand.

B. a product with elastic demand.

C. a shift in the demand curve.

2. Washburn Guitars makes signature series guitars toenhance the credibility of the Washburn brand. Creating signatureseries guitars would have a positive effect on all of thefollowing except:

A. demand

B. brand awareness

C. brand loyalty

D. unit variable cost

3. If the mass-produced guitar sells 100,000 unitsannually at $175 per guitar, what is the total revenue?

A. $1,750,000

B. $175,000

C. $17,500,000

D. $6,175,000

4. Washburn has four distinct price points for its guitarlines: entry, intermediate, professional, and collectors basedon the fact that each line has very different production costs,market demand, and sales level. Thus, Washburn has implemented a_______ pricing objective.

A. unit volume

B. survival

C. market share

D. social responsibility

5. Washburn’s fixed costs for producing mass-producedguitars are $500,000. Its variable costs are $150 per guitar. If itprices these guitars at $250, what is the break-even quantity forthis line?

A. 2,500 guitars

B. 1,500 guitars

C. 1,000 guitars

5,000 guitars

6.With the typical downward sloping demand curve like the oneshown for Washburn, as price per unit falls, demand

A. remains unchanged.

B. increases.

C. decreases.

C. is minimized.