Question

Aditya owned a skincare company named ‘Nat-Ayur’. In July, 2025, he decided to launch a new herbal face cream in the market using traditional herbs like turmeric, sandalwood, neem, aloe vera, saffron, etc. The total cost of producing, packaging, distributing and selling the cream came to ` 60 per tube. ‘Nat-Ayur’ decided that this would be the minimum price to cover the cost. They wanted to earn a fair margin of profit too. For this, ‘Nat-Ayur’ conducted a survey and found that the expected demand would be high. Customers were ready to pay more for herbal and chemical-free products. They also found that many face creams with similar features were available in the market priced between ` 80 and ` 120. To compete effectively, ‘Nat-Ayur’ decided to price the cream at ` 99 to attract customers while offering better benefits. To add value to the product, ‘Nat-Ayur’ invested in eco-friendly packaging, free home delivery and online advertisements. This uniqueness gave ‘Nat-Ayur’ competitive freedom in fixing the price of its cream. Identify and explain any two factors that were taken into consideration by ‘Nat-Ayur’ for determining the price of their herbal face cream.

Hint:

Remember: Product cost sets the minimum price floor (lowest boundary) , while the degree of utility, demand, and market competition sets the ceiling (highest boundary).

Answer 1

Correct Answer: 4

Step 1: Recall factors affecting price determination.
The price of a product is not set arbitrarily - it is determined by carefully evaluating multiple internal cost and external market factors. The case of 'Nat-Ayur' highlights two such factors clearly.
Step 2: Identify and explain Factor 1 - Product Cost.
The total cost of producing, packaging, distributing, and selling the herbal cream came to Rs. 60 per tube. This cost forms the absolute floor for pricing - the minimum price below which no profit can be earned. The company explicitly stated that Rs. 60 would be the minimum price to cover costs, confirming that product cost was a primary factor in their pricing decision.
Step 3: Explain why Product Cost matters.
A business cannot survive in the long run if it sells below its total cost. Product cost (covering material, labor, packaging, logistics, and overhead) sets the lower boundary of the feasible price range. A fair margin of profit is then added above this floor.
Step 4: Identify and explain Factor 2 - Extent of Competition in the Market.
The company surveyed the market and found that many face creams with similar features were priced between Rs. 80 and Rs. 120. To compete effectively within this range, they priced their cream at Rs. 99 - competitive enough to attract customers, yet profitable above their Rs. 60 cost base.
Step 5: Explain why Competition matters in pricing.
When the market has many substitutes at similar price points, a firm cannot price too high (losing customers to competitors) or too low (triggering a damaging price war). Competitor pricing acts as a critical reference range that guides the final pricing decision.
Step 6: Conclude.
The two factors considered by 'Nat-Ayur' for pricing their herbal face cream were: (1) Product Cost - setting a minimum floor of Rs. 60; and (2) Extent of Competition - benchmarking against competitors priced between Rs. 80 and Rs. 120 to set a final price of Rs. 99.
\[ \boxed{ \text{Pricing factors: Product Cost (floor = Rs. 60) and Extent of Competition (range Rs. 80 to Rs. 120, final price Rs. 99)} } \]