Different brands within a company's product line generally have different profit margins; for example, items with higher price lines have higher profit margins. Assume that Nike Variety tennis shoes have variable costs of $6 and sell for $24. Also assume that Nike Wimbledon tennis shoes have variable costs of $38 and sell for $48, but when fixed overhead is added, the shoe is unprofitable by $2 per pair. Which statement is most accurate regarding Nike's pricing approach with these two product lines?
A)Demand for each shoe line is unrelated to price.
B)Nike is using a cost-plus-percentage-of-cost pricing strategy.
C)Nike is using a product-line pricing strategy.
D)Demand for each shoe line is unrelated to product quality.
E)Consumers do not use price as an indication of quality.

Question

Quizplus · Accepted Answer

Nike is using a product-line pricing strategy, where different product lines within the same brand have different prices and profit margins. The higher priced line, Wimbledon, has a higher profit margin to compensate for its higher costs and the lower priced line, Variety, has a lower profit margin. This approach allows Nike to cater to different segments of the market with different price sensitivities and willingness to pay.

Different Brands Within a Company's Product Line Generally Have Different