Unit 5: Discussion
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Pricing Strategy for Products and Services
Firms successful at creating customer value with the other marketing mix activities must capture this value in the prices they earn; price being the sum of all the values that customers exchange to gain the benefits of having or using a particular product or service. A company does not set a single price, but rather a pricing structure that covers different items in its line. This pricing structure changes over time as products move through their life cycles. The company adjusts its prices to reflect changes in costs and demand and to account for variations in buyers and situations.
Pricing structures are also determined by how a firm might view itself as an integral partner in a value network. It may be thought of as an overall system of formal and informal relationship within which the firm participates to procure, transform, enhance, and ultimately supply its offering in final form within a market space. This value network is a strategic approach to cut costs and maximize process efficiencies, in the pursuit of the ultimate objective; to co-create value, a most important component of the pricing structure.
Washburn Guitars: Using Break Even Points to Make Pricing Decisions
Washburn Guitar manufactures instruments in four categories—one-of-a-kind, batch custom, mass customized, and mass produced—and must set prices in each category that enable it to stay in business. Bill Abel, Washburn’s VP of sales, is responsible for setting the prices for the firm’s guitar lines. Looking at a new line whose suggested retail price is $349, Abel estimates elements of Washburn’s fixed and variable costs to project the likely break-even point and profit. You should calculate break-even points and profits under various conditions and assess the effects of moving two production facilities to a single new location.
To do this, you must first understand how to calculate the following:
Key terms and equations defined and explained in Chapter 13: Price (P), Total Revenue (TR), Total Cost (TC), Fixed Costs (FC), Variable Costs (VC), Unit Variable Costs (UVC), and Break-Even Point (BEP). Also, ask the following questions:
· How do you compute Unit Variable Cost (UVC)?
· How do you compute total cost (TC)?
· What is a break-even point? How do you calculate it?
· What is the profit equation?
Once you understand these cost equations, compute the break-even point for the new line of guitars if the retail price is (a) $349; (b) $389; and (c) $309. Also, (d) if Washburn achieves the sales target of 2,000 units at the $349 retail price, what will its profit be?
Assume that the merger with Parker leads to the cost reductions projected in the case. Show the (a) new break-even point at a $349 retail price for this line of guitars and (b) new profit if it sells 2,000 units.
Also consider the overall guitar market and any challenges you can identify regarding Washburn’s position in this market in the future. How will the company’s pricing structure help or hurt this strategy? Use concepts and terms from your textbook (as well as external market data) to support your viewpoints.
Kerin, R. A. & Hartley, S. W. (2017). Marketing. (13th ed.). New York, New York: McGraw-Hill Education.
Please review the following information about the pricing considerations for Washburn Guitars:
Background on Washburn Guitars
· Read the video case in the textbook on pages 367-368.
· Review the following online websites and articles:
Based on the information provided, put yourself in the position of a marketing consultant brought in to the company to critically examine the campaign’s ability to meet its’ pricing objectives, and then formulate a set of well-developed and supported recommendations to the company’s senior leadership team. The recommendation should be logically presented, well-supported, and thoroughly vetted.
IMPORTANT! Your grade for each weekly thread discussion will be determined by your analytical, integrative, problem-solving and critical thinking skills demonstrated by your posts and by your positive responses to the posts of your classmates.There is no minimum or maximum in terms of the word count; however, the response should explicitly address all required components of this discussion assignment. Your response should integrate external resources, which should be consistent with APA writing style and format (6th edition) and reflect higher level cognitive processing (analysis, synthesis and or evaluation).
Pricing is a multifunctional process; it determines the strategic approach to target markets, positioning strategies, product and distribution strategies (from which promotional strategies are created), product quality and features, etc. Price can also be used as an external competitive tool, and not just for a company to be the low cost competitor.
Pricing serves 4 major functions:
-signal the buyer (remember the value perception of the consumer)
-a competitive tool (‘signaling’ – to entice competitors to react)
-a method to achieve a set level of financial performance (based on economic situations)
-a substitute for other marketing program functions (spending on advertising and promotions may not be necessary if pricing strategy is successful)
Many in the retail environment, particularly during high volume buying seasons such as the holidays, must adjust pricing levels as buying patterns start to waver. In fact, thousands of prices are changed on a daily basis! This week, Washburn Guitars, not one of the most recognizable brands, is trying to determine its marketing strategy with price being just one factor.
I offer for your consideration:
Loeb, Walter (2014). Amazon’s Pricing Strategy makes Life Miserable for the Competition. Forbes. Retrieved from:
Pricing strategy can be used in a variety of ways and for a variety of purposes. We, as consumers, may be insensitive to the price depending on a number of factors, including brand equity.
However, in most cases consumers are very price sensitive and marketers need to identify opportunities to attract additional consumers by adding ‘value’ in some way. Keep in mind that many pricing strategies are short term in nature, as the competition can easily replicate and match any price adjustments a company may make.
Below, Philip Kotler, a world renowned expert on marketing, discusses how price reductions impact the market.