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What Is Underpricing and How It Hurts Your Brand Strategy ⛓️‍💥


 

As a small business owner, lowering your prices to boost sales is tempting, especially when you’re trying to attract more customers or compete with larger businesses. But what is underpricing, and how can it harm your business in the long run? Setting prices too low may seem like a quick fix, but it can have serious consequences. Underpricing can hurt your brand’s reputation, shrink your profit margins, and make it harder for your business to thrive. 

 

Take Emily, for example. She owns a small clothing store in Brisbane called Chic Threads. As her business grows, Emily notices that sales slow down toward the end of the month. To attract more customers, she offers a “Payday Sale,” where everything in the store is 50% off monthly. 

 


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Initially, it works wonders. Customers flock to her store, excited by the discounts, and sales spike. But after a few months, Emily starts to notice a problem. The same customers keep coming back, but only for the discounts. They’ve become accustomed to the lower prices and are now hesitant to pay full price for the high-quality pieces Emily once sold.

 

This is the core of the underpricing problem. The moment your customers expect discounted prices, it becomes difficult to sell at your original price point. Over time, this undermines your brand’s value, leading customers to associate your products with “cheapness” rather than quality. So, while underpricing might help in the short term, it can harm your business’s identity and future sales.

 

Why Branding Matters and How Pricing Can Make or Break It

 

Branding is at the heart of every small business. It defines who you are and how your customers perceive your products or services. If you’ve spent time building a brand based on quality and uniqueness, underpricing can cause that brand to lose its integrity. When you lower your prices too much, you risk sending the message that your products aren’t worth the original price, leading to decreased trust in your brand.

 

For Emily at Chic Threads, offering regular discounts like her 50% payday sale sends a clear message to customers: the clothing isn’t worth the full price. This can erode the premium reputation she’s built, replacing it with the idea that her store is always a bargain basement, not a place for quality, stylish clothing. This perception can be hard to shake, even after the discounts are gone.

 

What is Underpricing? What are its Risks?

 

So, what exactly is underpricing? Underpricing occurs when you set your prices lower than the value of the product or service you’re offering. It’s a common tactic small business owners use to draw in customers, but it can be risky. The problem with underpricing is that it often leads to lower profit margins, which can make it harder to sustain your business. Worse, it can cheapen your brand’s reputation. Customers start to expect discounts, and when they can’t get them, they might look elsewhere for a better deal.

 

Let’s go back to Emily. After a few months of constant 50% off sales, she begins to struggle. Her regular customers now only shop when there’s a discount, and even worse, new customers aren’t willing to pay full price. Emily finds herself in a cycle where the sale prices are now expected, and she’s stuck trying to convince people her clothing is worth its original price. This is a classic case of underpricing’s harmful effects.

 

What Pricing Products Too Low Means for Your Small Business Brand Strategy

 

When you underprice, you risk eroding the value of your products or services. Customers often associate price with quality. If your prices are too low, they may start to wonder if your products are subpar, even if they’re not. This can be especially damaging for small businesses, where your brand and reputation are everything. If customers don’t see value in your offerings, they may not return even when you raise the price.

 

Emily’s experience at Chic Threads shows how underpricing can quickly turn into a brand issue. Her clothing, once seen as stylish and high-quality, now feels like it’s only worth a fraction of the original price. Customers are less likely to buy from her unless there’s a deep discount, and this puts her brand at risk.

 

Avoiding the Pitfalls of Underpricing and Discount Fatigue

 

The key to avoiding the dangers of underpricing is to focus on value. Your prices should reflect the true worth of your products or services, and they should align with the brand you’re trying to build. Instead of lowering your prices, find ways to create value that isn’t tied to discounting. Build customer loyalty through exceptional service or unique offerings that keep customers coming back for more.

 

If you’ve been relying on frequent sales or discounts, start by assessing your pricing strategy. What is underpricing doing to your business? Is it helping or hindering your long-term success? Consider alternatives like loyalty programs, product bundles, or creating a sense of exclusivity around your brand. This allows you to retain your pricing integrity while still offering value to your customers.

 

How to Protect Your Brand from Underpricing

 

To protect your brand from underpricing, set value-based prices reflecting your product’s quality and uniqueness. Use discounts sparingly, opting for occasional promotions to create urgency without devaluing your brand. Introduce loyalty programs to reward repeat customers and build long-term relationships. Offer an exceptional customer experience, ensuring service justifies your pricing.

 

Lastly, educate your customers about the value behind your products, whether through materials, design, or sustainability. When customers understand the worth of your offerings, they’re more likely to perceive them as valuable, making it easier to maintain your brand’s integrity and price.

 


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Don’t Let Undepriced Products Undermine Your Business

 

Underpricing might seem like a quick solution to boost sales, but it’s a tactic that comes with serious risks. It can devalue your brand, harm your reputation, and erode customer trust. Now that you have a clearer understanding of how underpricing can impact your brand, it’s time to take action. 

 

Start by reviewing your pricing strategy and consider how it aligns with the value you offer. If you need guidance or want to explore your options further, don’t hesitate to reach out. We’re here to help you. Let’s work together to protect your brand, boost customer loyalty, and drive long-term success. 

 


For a comprehensive view of ensuring the continuous growth of your business, Download a complimentary brochure on How To Drive Pricing Strategy To Accelerate Sales & EBIT Growth.

 

Are you a small or medium-sized business in need of help aligning your pricing strategy, people and operations to deliver an immediate impact on profit?

If so, please call (+61) 2 8607 7001.

You can also email us at team@valueculture.com if you have any further questions.

 

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