1. Cost based
"It's easy and doesn't require research," says Kyle Jensen, director of entrepreneurship at the Yale School of Management. "People figure, 'I know what it costs to make this widget, so I'll just tack on another 20 percent and feel good about myself.'" But what if that widget changes someone's life a thousand bucks' worth? In that case, says Jensen, you've created a lot of value and failed to capture it. But Scott Gabrielson, founder and owner of Oliver Cabell of Minneapolis, which designs and produces high-end travel bags, used transparency to establish pricing yet still capture value. How? By listing online the exact product costs, including materials, labor, and shipping, as well as a 2.25-times markup. "We found this builds trust with our customers and keeps us authentic," he says.
2. Comparables based
If you charge more than competitors do, any other advantage you have can be undercut. Robert Ellis, founder and owner of Bavarian Clockworks, in Chicago, an online seller of Black Forest cuckoo clocks, was losing out to discounters. "People used our website as an educational resource but bought their clocks from competitors with a better price point," he says. Matching the lower prices rewarded the company for being a resource.
3. Value based
Mitch Goldstone, co-founder and CEO of ScanMyPhotos.com, in Irvine, California, started his service on a pay-per-photo basis, which offered little value for either party. "We'd get mailed several thousand images per order; individual pricing wasn't cost-effective. So we switched to prepaid boxes--the price included scanning and shipping--that could hold 1,800 photos." Freed from counting, customers began sending multiple boxes per order. "Our extreme simplification of pricing has been enormously successful," Goldstone says.