I...wouldn't it make more sense to sell more product at a slightly lower profit margin rather than less product at a higher margin? ...The basic idea is...lower prices will make more money from sales volume.
Partially correct, and in general a "good enough explanation"
In most Accounting 101 courses, the second thing you learn is "fixed costs" and "variable costs." Most people know "fixed" as "overhead," eg, what it costs to power up the factory each day, etc. Variable is the incremental cost for each unit - that piece of wood, those two pickups, etc. Commonly held notion is that if you recover all fixed and variable costs you'll make money. However, in actual practice, it's
extremely hard to figure out what those costs are and how to apportion them to each unit. The next challenge of course is pricing, which then takes you from accounting to economics involving calculus. The presumption there is that well run companies generate a surplus in good times and bank it for bad times, and are smart enough to know when to make major capital investments in PP&E (property plan & equipment), human capital, etc., incurring long term fixed costs to reduce per-unit costs. In this case, we're all trying to guess what the demand curve is for Fender products - eg, at what price points will people stop buying... sales, rebates & incentives are all marketing trickery to fine tune the pricing model in order to get back to the sweet spot on the demand curve. But to give you a typical economist's answer, "heck, I dunno?? Let the market figure it out?"
If they guessed right, we'll all moan but pay anyway (consumer auto fuel has a fairly inelastic curve..we're still buying the stuff...) but if they guessed wrong, look forward to some wicked good sales later in Fender's fiscal year as they try to push sales back up. Note the return to "employee pricing" with automakers - they're trying to at least cover costs, particularly on the unpopular models, and as we all know, they're really not making any money at all.
Dislaimer: I do have a Master's in Economics
