Washburn

The external factors that Washburn mainly has to consider about are the demand of consumers and the actions of their competitors.

The demand for guitars is the consumers’ willingness and ability to buy, and demand will be higher if customers perceive the value of the guitars to be higher for every unit price that they are paying, and this perception sets the price ceiling which they are willing to pay. To increase customers’ perceived value, Washburn emphasized on their catalogue in 1978 that their guitars are crafted by Japanese craftsman. As American craftsman for guitar-making were perceived to be poor at that time, informing customers that their guitars were made by the Japanese increased the perceived value. Another tactic used by Washburn was using celebrities to endorse their guitars, which will cause some consumers to believe that the guitars are of better value if their favourite celebrities use the guitars too.

As guitars are likely to be viewed as luxury goods to most consumers, the demand is likely to be price elastic. A decrease in the price of the guitars is likely to result in an increase in total sales revenue. To make up for this decrease in profit margin of each individual guitar due to the lower sales price, Washburn can seek to lower their cost of production, which they have been actively doing through methods like the acquisition of Parker Guitar. Also, the guitars with higher prices like the one-of-the-kind custom guitars are likely to have even more price elastic demand than the mass-produced guitars, as they will require a larger cash outlay, causing consumers to be more price sensitive.

The industry for guitars is likely to be oligopolistic. As such, any actions that Washburn chooses to take will likely be taken into consideration by its competitors. A decrease in price in an attempt to increase sales may trigger a price war among all its competitors, which will cause Washburn to lose the anticipated increase in sales. Therefore,...