Q.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 10% margin over and above the cost. Identify and explain two factors affecting the price determination discussed in the above case.
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Start your 14-day free trial to unlock the full solution →The two factors affecting Ashwin's price determination for 'Kogue' are cost of production (covering fabric, design, and craftsmanship expenses plus a 10% margin) and competition (the highly competitive online market forcing him to charge a "reasonable" price rather than a premium).
When Ashwin launched Kogue, he faced the classic dilemma every business confronts: what price will let him survive in the market while covering his expenses? The case gives us a window into two powerful forces that shape pricing decisions, both rooted in the realities of running a business in a crowded marketplace.
The first factor is straightforward but non-negotiable: cost of production. Ashwin's garments aren't mass-market fast fashion. They use good quality fabric, intricate designs, and skilled craftsmanship—all of which cost money. Every rupee spent on sourcing that fabric, paying the artisans, managing the design process, and handling the logistics of sale must be recovered through the selling price. If he prices below cost, he bleeds money with every transaction and the business collapses. So Ashwin builds his price on a cost-plus basis: he calculates the total cost of producing and selling each garment, then adds a 10% margin on top. That margin isn't greed—it's the reward for his effort, the buffer for unforeseen expenses, and the seed capital for growth. This approach ensures financial viability. Cost acts as the floor below which price cannot fall without inviting losses.
The second factor is equally powerful but comes from outside the business: competition. Ashwin isn't selling in a vacuum. The online fashion market is crowded with players—established brands, new entrants, discount sellers, and marketplaces offering endless choice. Customers can compare prices with a few clicks. In such an environment, Ashwin cannot simply charge whatever he wants based on his costs and desired margin. He must charge a "reasonable" price, one that customers perceive as fair given the alternatives available. If he prices too high—say, adding a 50% margin because his craftsmanship is superior—he risks losing customers to competitors who offer similar perceived value at lower prices. Competition acts as the ceiling, capping how much the market will bear. It forces Ashwin to balance his cost recovery with market realities, ensuring his price is competitive enough to attract buyers while still covering his expenses and margin. …
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