Need for Pricing Decisions
One of the most significant operating decisions that a management must make is the pricing decision. Pricing refers to the assignment of a selling price to a product or service provided by the company. A company's long range survival depends on its pricing decision. In the long run, the firm's prices must be sufficient to cover all costs and leave a profit margin, adequate to reward the investors. If the firm's revenue consistently fails to cover costs and provide a satisfactory profit, the investors will seek new opportunities and the firm will fail.
Pricing activities are more extensive than many people realize. It is easy to visualize the need to price each product in a department store or electrical goods store, but all organizations that provide a service for a fee or sell a product must decide on the amount to charge for each service or product. Thus, the number of products and services to be priced is quite large. Besides that, pricing does not end with a single pricing decision for each product or service. Prices must be continuously updated to ensure that they reflect management's desires in light of current costs, market conditions, and competitor actions.
Some prices may remain unchanged for a year or more. But some prices like the food prices fluctuate throughout the year. Thus, pricing decisions are not static but become a part of continuing activity.
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