Why Underpricing Hurts Your Business

Setting a low price can seem like a smart way to attract customers — especially for new businesses that want attention fast.

But underpricing often leads to bigger problems later: lost profits, damaged brand image, and long-term instability.

In today’s post, you’ll learn what underpricing means, why it can be risky, and how successful companies protect their value instead of racing to the bottom.

🧠 Vocabulary Builder

• Underpricing – setting prices lower than the real market value.
  Example: Many startups underprice their services to gain customers quickly.

• Profit margin – the percentage of revenue left after all costs are paid.
  Example: A company with a small profit margin needs to sell many products to make money.

• Perceived value – how much customers think a product is worth.
  Example: Luxury brands use design and marketing to increase perceived value.

• Unsustainable – impossible to continue for a long time.
  Example: Selling products below cost is unsustainable.

• Reputation – the public opinion people have about a brand or person.
  Example: Underpricing can hurt a company’s reputation for quality.

• Premium pricing – setting a higher price to create an image of exclusivity.
  Example: Apple uses premium pricing to emphasize design and performance.

• Discount strategy – offering lower prices for a short period.
  Example: Black Friday is a common discount strategy to boost sales.

📘 The Hidden Cost of Cheap

When businesses start out, it’s tempting to believe that a lower price will automatically lead to more customers.

However, price is more than just a number — it tells a story about quality, confidence, and value.

1️⃣ The MoviePass Mistake

In 2017, the company MoviePass offered a dream deal: unlimited cinema tickets for a flat monthly fee of $9.99. The idea was exciting — thousands of users signed up in just weeks. But the math didn’t work. Each ticket cost more than what customers were paying, so every sale created a loss.

Within two years, MoviePass collapsed. Their low price attracted people, but it also destroyed their profit margin. This became one of the most famous examples of how underpricing can destroy a promising business.

2️⃣ The Illusion of Volume

Some owners believe they can make up for low prices with large sales volume — “We’ll sell more to make up the difference.” But without enough margin, more sales can actually mean more losses.

Imagine selling a product for $10 when it costs $9 to produce. You earn only $1 per item. If your competitor earns $3 per item, they can spend more on advertising, better materials, and customer service — and eventually, they’ll win the market.

3️⃣ When Cheap Damages Your Brand

Price affects perception. When something is too cheap, people often assume it’s poor quality. In the luxury, tech, and education sectors, customers often trust higher prices because they signal professionalism and reliability.

For example, a language school offering lessons for $2 an hour might get quick attention online — but students may doubt the teacher’s skill or commitment. Underpricing can unintentionally communicate low confidence in your own value.

4️⃣ The Discount Dilemma

If you already charge the lowest price, you have no space for promotions later. Imagine launching a new marketing campaign or running a Black Friday sale — you can’t go lower without losing money.

Companies that underprice early often find themselves trapped: they can’t raise prices later without losing the customers they attracted with low rates.

5️⃣ How Smart Brands Protect Value

Successful companies use value-based pricing — charging according to how much benefit customers get, not just production cost.

Luxury car makers, tech companies, and high-end service providers all protect their pricing structure carefully. They prefer to add value (better design, stronger warranty, premium support) instead of cutting prices.

Regularly reviewing your prices — especially after inflation, new competitors, or economic changes — helps you stay competitive without falling into the underpricing trap.

📝 Reading Comprehension

Choose the correct answer (a, b, or c):

1. What happened to MoviePass after setting prices too low?

a) They increased their profit.

b) They lost money and closed.

c) They sold to Netflix.

2. What does a low price often make customers think about a product?

a) It’s high quality.

b) It’s unreliable or cheap.

c) It’s more sustainable.

3. Why is it risky to offer discounts if your price is already very low?

a) You might run out of stock.

b) You can’t reduce the price any further without losing money.

c) Customers prefer higher prices.

4. What is the main advantage of value-based pricing?

a) It ignores customer needs.

b) It sets prices based on competitors.

c) It focuses on the benefits customers receive.

5. What should a company do instead of constantly lowering prices?

a) Add more value and review prices regularly.

b) Reduce product quality.

c) Copy competitors’ discounts.

✅ Answer Key: 1) b, 2) b, 3) b, 4) c, 5) a

💬 Discussion Prompts

• Why do some companies lower prices too much when they start out?

• Can you think of an example where a low price made you doubt the quality?

• What products or services do you associate with premium pricing?

• If you had to raise your prices, how would you explain it to customers?

🌱 Reflection

Underpricing might feel like an easy way to compete, but it often leads to exhaustion, stress, and financial loss. True confidence comes from understanding your worth and communicating it clearly.

When you focus on value, quality, and long-term trust, customers don’t buy because you’re cheap — they buy because you’re worth it.

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