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 are available in the market priced between ` 80 to ` 120. To compete effectively, ‘Nat-Ayur’ decided to price the cream at ` 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:

Pricing factor identification cues: - Total expenditures, fixed/variable costs, profit margins $\rightarrow$ Product Cost - Buyer preferences, willingness to pay, unique utility $\rightarrow$ Utility and Demand - Competitor products, alternative substitutes, market price ranges $\rightarrow$ Extent of Competition

Answer 1

Step 1: Identify the concept.
Pricing decisions depend on several factors, and this case is checking whether we can identify two of them from how Nat-Ayur priced its herbal face cream.
Step 2: First factor, cost of the product.
The passage states the cost of producing, packaging, distributing and selling the cream was ₹60 per tube, and the company decided this would be the minimum price, showing that Product Cost is a key factor in fixing the price.
Step 3: Second factor, demand for the product.
Nat-Ayur's survey found strong expected demand and customers willing to pay more for herbal, chemical-free products, showing that the Extent of Demand and customers' willingness to pay is another factor influencing the price decision.
Step 4: Final answer.
Two factors affecting the price of Nat-Ayur's cream are the cost of the product, which set the minimum price at ₹60 per tube, and the extent of demand, since the survey showed strong customer willingness to pay a premium for herbal products.