The right pricing strategy…priceless!

To understand a pricing matrix, let's do a quick arts and crafts project. Grab a black sheet of paper. Draw a large square on the page. Now dissect that square in half with a vertical line down the middle of the square. Now bisect that square in half with a horizontal line down the middle of the square. You should now have four squares on you page. Label the x axis (horizontal line) as quality. Label the y axis (vertical line) as price. Label the square in the upper right hand corner as "Penetration". Label the square in the lower right hand corner as "Premium". Label the upper left hand corner as "Economy". Label the lower left hand corner as "Skimming". You have now created your very own pricing matrix.Economy pricing: Low quality and low price. This would be the no-frills pricing, think of Wal-Mart or Southwest Airlines. Compare this to Nordstrom and first class on Virgin Airlines.Penetration pricing: High quality and low price. This strategy entails initially setting a lower than market price to gain entry into the market. Think back to when the Japanese initially introduced cars into the U.S. market. They were cheaper cars, but […]

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