Question

Ashwin was a fashion designer. On losing his job, he decided to sell the designer clothes online under the brand name 'Kogue.' The garments were made of good quality fabric with intricate designs and skilled craftsmanship, making them expensive to produce. Realizing that the online market is very competitive, he decided to charge a reasonable price for the garments. The price would cover the cost of production and sale of garments as well as give him a 10\% margin over and above the cost.
Identify and explain two factors affecting the price determination discussed in the above case.

Hint:

Product cost sets the minimum price, while competition can push the price either up or down depending on the market environment.

Answer 1

The two factors affecting price determination are:
(i) Product cost:
The cost sets the minimum level or the floor price at which the product may be sold. Generally, all marketing firms strive to cover all their costs, at least in the long run, and aim to earn a profit margin over the costs.
(ii) Extent of competition in the market:
The price will tend to reach the upper limit when there is lesser competition. However, under conditions of free competition, the price will be set at the lowest level. Competitors’ prices, their anticipated reactions, quality, and features of the competitive products must be considered before fixing the price of a product.