Different brands within a company's product line generally have different profit margins; for example,items with higher price lines have higher profit margins.Nike Variety tennis shoes have variable costs of $6 and sell for $24,whereas 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 the different product lines (Variety and Wimbledon) have different price points and profit margins based on their features, design, and targeted market segment. The unprofitability of the Wimbledon line despite a higher selling price indicates that Nike is willing to sacrifice profit margins for the sake of offering a premium, aspirational brand image to customers who are willing to pay more for perceived quality and status. The demand for each shoe line may be related to factors other than price, such as design, reputation, and endorsement, which is common in the sports apparel industry. Cost-plus pricing and unrelated pricing are less relevant to this scenario since the pricing decision is driven by product differentiation rather than production cost or market demand alone.

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