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 \( \text{₹} 60 \) 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 are available in the market priced between \( \text{₹} 80 \) to \( \text{₹} 120 \). To compete effectively, ‘Nat-Ayur’ decided to price the cream at \( \text{₹} 99 \) to attract the customers while offering better benefits.

To add value to the product ‘Nat-Ayur’ invested in eco-friendly packaging, free home delivery and on-line advertisements. This uniqueness gives ‘Nat-Ayur’ a competitive freedom in fixing 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:

Product cost sets the minimum price (floor), while utility and demand set the maximum price (ceiling). Differentiation through value-added services (like free delivery) allows for higher pricing flexibility. Market surveys help in understanding the 'price sensitivity' of the target audience.

Answer 1

Step 1: Identify the concept being tested.
The case is about the factors that determine the price of a product, and here it is Product Cost, one of the factors affecting Nat-Ayur's pricing of its new herbal face cream.
Step 2: Explain the concept.
Product cost is treated as the floor or minimum price of a product, since a firm cannot keep selling below its cost of production, packaging, distribution and selling for very long without running into losses.
Step 3: Apply the concept to the facts of the case.
Nat-Ayur worked out that producing, packaging, distributing and selling each tube of the herbal face cream cost ₹60, and the company decided this would be the minimum price it must charge just to cover that cost, before adding any profit margin on top.
Step 4: Final answer.
The factor identified is Product Cost. Since the total cost per tube came to ₹60, Nat-Ayur treated this as the floor price, the lowest price at which it could sell the cream while still covering its costs, and priced above this to also earn a fair profit.