Question

Washburn Guitar has been a maker of fine musical instruments since the company's founding in Chicago in 1883. The company promises that "each guitar [it produces] represents the finest quality at the best possible price." Washburn has four price points: (1) entry level at $349 and below; (2) intermediate level at $1,000 and below; (3) professional level at $1,000 to $3,000; and (4) collectors level at $3,000 and above. Amid the evolving perception that lower prices indicate lower quality, Washburn has taken steps to ensure the quality of its products at all price points. Interestingly, guitars made in the United States typically are of better quality and workmanship than are guitars made offshore — and consequently U.S. made guitars command higher prices. Indeed, most musical artists demand U.S. made guitars. Washburn uses a Manufacturers Suggested Retail Price (MSRP) as the pricing guideline for retailers selling Washburn guitars. If discount and online retailers offer Washburn guitars for sale at below a Minimum Advertised Price (MAP) that is set by Washburn, these distributors are warned to cease the practice. If the practice of violating the set MAP continues, these retailers lose their distribution rights for Washburn products.

Among professional musicians, Washburn Guitar has a reputation for producing excellent electric and acoustic guitars. These professionals need reliable, high-quality equipment because their livelihood depends on having nothing less than the best musical instruments; they tend to stick with Washburn and do not mind paying a premium price for a quality instrument. As such, this market segment could be described as being __________ and __________.

a.Deal-prone … price elastic.

b.Deal-prone … price inelastic.

c.Brand-loyal … price elastic.

d.Brand-loyal … price inelastic.

Washburn produces signature series guitars that strengthen the company's relationships with specific artists and their fans. The various signature series guitars are very pricey, reflecting the popularity and stature of the artists. Which one of the following statements is the most logical conclusion that a prospective customer can draw regarding the high price point for signature series guitars?

a.Signature series prices are high because Washburn charges the highest price the market will bear.

b.Signature series prices are high because of their exceptional level of quality.

c.Signature series prices are high because Washburn has determined the price that customers are willing to pay, and then the company sets the price slightly below that sensitivity point.

d.Signature series prices are high in order to extract as much revenue as possible from a product at the end of its life cycle.

Answer 1

For the first question,

As such this market segment could be described as Brand Loyal and Price inelastic.

It does not matter how much the prices rise. The musicians have a trust and loyalty with the brand and its quality. Its not a question of money for them. They are willing to pay as high as the company charges. Hence the market is price price inelastic.

For the second question,

A prospective customer can think that - Signature series prices are high because of their exceptional level of quality.

This is called as brand value. No man would consider such a brand doing any silly practice. And hence will try to relate a reason to why the company is doing so. Hence a prospective customer will think that the signature series guitars are of exceptional quality