How Pricing Too Low Hurts Your Business

Today we’d like to discuss a topic that not many businesses consider, i.e. how pricing too low hurts your business. At Tenato Strategy, business owners often tell us that pricing is one of the most difficult aspects of marketing strategy.  So we thought we would provide a few brief thoughts on why you should avoid pricing too low.  A lot of businesses, especially small businesses or start-up companies, think they should price below the competition to get going, but there distinct drawbacks to this.

Pricing Too Low Makes a Poor First Impression

If your price is too low, especially if it is more than 10% below the next lowest competitor, it can cause concern that you either a) aren’t doing something properly (i.e. cutting corners), or b) that you won’t be around next year to back up your product or service. 

Remember, when something is cheaper people ask, “Why is this so cheap?” which translates mentally into “What’s wrong with it? What might it be lacking?” On the other hand, asking “Why is the price so high?” makes them think about all the things that might be better about what you offer.

Pricing Too Low Can Hamper Later Expansion

Obviously, if you ask for less, you’ll get less.  But you might say, “we will make it up in volume!”  Really?

Over the months and years of pricing too low, this practice can result in “selling yourself into a corner” as we call it — i.e., you are ridiculously busy, serving clients, but for some reason, have nothing to show for it.  

That means that while your competitors are able to spend on branding and differentiating themselves, you can’t afford basic advertising, can’t get the profitable clients, and can’t afford some of the basics you need – better equipment, office space, or to hire necessary help. 

This can quickly become a serious stalling point, and will eventually put you out of business.

Low Pricing Traps You 

Once you start pricing too low, you have to “inch” yourself upward – because now the customer has valued your service at the original price, and will likely think you are getting greedy by raising prices too much at once. 

If you really want to offer a low introductory price, make it blatantly obvious that you are doing so as an introductory price only.  Say the actual price, starting next month will be $x, but for the first 30 days, we are offering it at x% off.  This way, you’ll stimulate some more urgent trial, and make it clear your service is NOT inferior in any way.

Is your Pricing Too Low? Time to Evaluate

The bottom line is, if you’ve been in business a little while, say even a year, and you aren’t seeing anything to show for it, it may be time to consider raising your prices. Key signs of pricing too low include the following:

• You’ve been very busy for a few months, but have nothing left in the bank.
• You’re so busy you’d love to hire some help, but affording this seems impossible.
• Your competitors are promoting themselves actively though all kinds of means – but these seem unaffordable to you.
• Your products and services are equal or better in quality to your competitors, yet somehow they continue to charge more than you do.
• Your customers tell you what a great deal you’re offering – and may even seem surprised by what they’re being charged.  For example, you sometimes hear little comments such as, “Oh, wow it that all?”   Or on the flip side, you may hear them say that your competitors are charging way more…which implies that indeed they are using your competitors occasionally.

It can be difficult to face the fact that your pricing has been too low…doing so takes courage.  But feel free to check out our article on How to Raise Prices as well.  

We welcome you to contact us for a free consultation today.