SITUATION
Paul Bowlin owns and operates a tree removal, pruning, and spraying business in a metropolitan area with a population of approximately 200,000. The business started in 1975 and has grown to the point where Bowlin uses one and sometimes two crews, with four or five employees on each crew.
Pricing has always been an important tool in gaining business, but Bowlin real-izes that there are ways to entice customers other than quoting the lowest price. For example, he provides care-ful cleanup of branches and leaves, takes out stumps below ground level, and waits until a customer is com-pletely satisfied before taking payment.
At the same time, he realizes his bids for tree removal jobs must cover his costs. In this industry, Bowlin faces Intense price competition from operators with more sophisti-cated wood-processing equipment, such as chip grind-ers. Therefore, he is always open to suggestions about pricing strategy.
1. What would the nature of this industry suggest about the elasticity of demand affecting Bowlin's pricing?
2. What types of costs should Bowlin evaluate when he is determining his break-even point?
3. What pricing strategies could Bowlin adopt to further his long-term success in this market?
4. How can the high quality of Bowlin's work be used to justify somewhat higher price quotes?