The High Cost of Low Prices
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The High Cost of Low Prices
You're killing your business before it even starts.
Not with poor execution. Not with bad marketing. Not even with a subpar product.
You're killing it with your prices.
That "reasonable" price point you're so proud of? That discount you offer early customers because you're "still building the business"? The rates you keep "competitive" because you're "not established yet"?
They're not acts of humility. They're acts of self-sabotage.
Your early pricing doesn't just determine your initial revenue. It defines your entire business trajectory.
Most founders learn this lesson too late – after they've trapped themselves in a low-value position that's nearly impossible to escape.
I want to save you from this fate.
The Psychology You're Ignoring
We've been conditioned to believe that lower prices attract more customers.
This isn't just oversimplified – it's fundamentally backward for anything that's not a pure commodity.
Humans don't value what comes easily. We don't trust what costs too little. And we certainly don't respect what everyone can afford.
The research is clear: Higher prices don't just increase profits – they increase perceived value.
When Tiffany's sells a silver bracelet for $500 that uses the same materials as a $50 bracelet from the mall, they're not just capturing more margin. They're changing how customers experience the product.
That exact same bracelet feels different on your wrist when it cost $500. You notice the craftsmanship more. You appreciate the design details. You take better care of it.
The price doesn't just reflect value. It creates it.
This psychological principle affects every aspect of your customer relationship:
How carefully they evaluate your offering
How seriously they implement your solutions
How committed they remain when challenges arise
How enthusiastically they refer others
Your price isn't just a number. It's a message about how you value your own work – and customers will never value it more than you do.
The Doom Loop of Low Pricing
When you undercharge early customers, you're not just leaving money on the table. You're creating a downward spiral that becomes increasingly difficult to escape.
It starts innocently enough: "I'll charge less until I build a track record."
Here's what actually happens:
Low prices attract price-sensitive customers
Price-sensitive customers are more demanding and less loyal
Their success stories carry less weight with ideal customers
Your positioning is damaged by association with the bargain market
You're forced to handle more clients to make ends meet
Quality suffers as you spread yourself too thin
You have no resources to improve your offering
You're trapped serving the wrong market with the wrong offering at the wrong price
This isn't theoretical. I've watched countless talented founders get caught in this doom loop.
A developer builds custom websites for $1,500 when they should charge $15,000. A consultant offers strategy sessions for $200 when they should charge $2,000. A coach sells packages for $500 per month when they should charge $5,000.
They think they're being realistic. They're actually writing their own failure story.
The hardest business pivot isn't changing your product or your marketing. It's raising your prices after establishing a low anchor.
Your early pricing decisions don't just affect your early revenue. They determine the entire trajectory of your business for years to come.
The Value Reversal You Never See Coming
Here's what makes the pricing trap so insidious: The customers you think you're helping with low prices are actually the ones you're hurting most.
When Thomas Nagle studied buyer psychology for his book "The Strategy and Tactics of Pricing," he made a discovery that contradicts everything most founders believe about pricing.
Higher prices don't just increase profit margins. They increase customer commitment and satisfaction.
When people pay premium prices, they:
Take the purchase decision more seriously
Invest more energy in using what they've bought
Justify their purchase by focusing on positive aspects
Commit more fully to implementation
Think about your own behavior. When you buy the cheap option, you're quicker to abandon it when problems arise. When you invest significantly, you work through challenges to validate your decision.
Lower prices don't create better customer experiences. They create worse ones.
The wedding photographer charging $500 deals with clients who argue over every detail, show up late, and ghost after the event.
The photographer charging $5,000 works with clients who value their expertise, follow their guidance, and refer their friends.
Same service. Completely different experience – determined almost entirely by price.
Your pricing strategy doesn't just affect your bank account. It fundamentally shapes how customers experience your offering.
The Compounding Mistake of Discount Culture
Most founders compound their pricing errors by offering "special discounts" to early customers.
This approach is catastrophic for multiple reasons:
1. You anchor all future pricing conversations to the discounted rate
Once customers know you were willing to charge $X, they'll forever see $2X as "the inflated price" rather than your actual value.
2. You train customers to wait for discounts rather than value your offering
Every sale, special offer, or discount teaches customers that your stated prices aren't real. They learn to wait rather than buy.
3. You attract discount-hunters rather than value-seekers
People responding to discounts are fundamentally different from those purchasing based on value. You fill your business with the wrong customers.
4. You position your offering as a commodity
Commodities compete on price. Valuable solutions compete on results. Your discounting places you firmly in the commodity category.
5. You create impossible customer success situations
The smaller the investment, the less skin in the game. Discount customers invest less effort, achieve fewer results, and produce weaker testimonials.
The pattern isn't coincidental. It's causal.
This same pattern played out when Marie Forleo launched her first B-School program. Unlike many course creators who start with low prices to "build an audience," Forleo priced her digital course at $2,000 in 2010 – a premium price point for online education at that time.
The higher price attracted serious entrepreneurs who implemented the material, created success stories, and became vocal advocates. This led to B-School becoming one of the most successful online business programs, now having graduated over 60,000 students.
When later asked about her pricing strategy, Forleo explained: "The price is part of the transformation. When people invest significantly, they show up differently."
The Strategic Power of Premium Positioning
When you position your offering at premium prices from the beginning, you create a completely different business trajectory.
This isn't about greed. It's about creating the conditions for excellence.
Premium pricing enables:
Delivering exceptional value (because you have the resources)
Working with fewer, better clients (who value quality over savings)
Continuous improvement (because you can reinvest in your offering)
Attracting top collaborators and team members (who want to do excellent work)
Creating dramatic customer results (with clients who fully commit)
Premium positioning isn't just about capturing more value. It's about creating more value.
Neil French turned around failing advertising agency Batey Ads in Singapore by systematically doubling their prices.
Clients objected initially, but French stood firm, saying: "We're not twice as good as we were yesterday. But we'll use the additional revenue to become five times better within six months."
The agency lost some accounts but attracted better ones. The increased revenue allowed them to hire top talent. Within two years, Batey became Singapore's leading agency, producing work for prestigious global brands.
The premium price didn't just reflect their value. It created the conditions that made extraordinary value possible.
The Practical Guide to Proper Pricing
Pricing correctly from the beginning requires mental fortitude. Here's how to approach it:
1. Price for your ideal future customer, not your current situation
Don't price based on what the market is currently willing to pay you. Price based on the value you deliver to the right customer.
2. Calculate real economic value, not your costs
Your costs are irrelevant to customers. They care about the economic value you create (increased revenue, reduced costs, mitigated risks). Price as a percentage of that value.
3. Create pricing tiers that allow for segmentation
Not everyone can afford premium prices. Create different service tiers rather than discounting your main offering.
4. Build the offering to match the price, not vice versa
If your current offering doesn't justify premium prices, improve it until it does. Add components, enhance delivery, strengthen guarantees.
5. Maintain absolute price integrity
Once you set prices, maintain them without exception. Special circumstances require special offerings, not discounted prices.
When Rory Sutherland revamped Ogilvy's pricing strategy, he implemented a brilliant alternative to discounting. When clients pushed back on price, instead of lowering it, he would say:
"The price is the price. But if budget is a concern, we can discuss reducing the scope while maintaining quality."
This stance preserved the value perception while still accommodating budget constraints.
The approach works across industries. Whether you're selling consulting, courses, software, or services, price integrity creates a foundation for sustainable growth.
The Authentic Exceptions (When Lower Prices Actually Make Sense)
Truth demands nuance. While premium pricing is the right strategy for most businesses, there are specific scenarios where strategic lower pricing makes sense:
1. True network effect businesses
If your product's value increases dramatically with each new user (like social platforms or marketplaces), prioritizing growth through lower pricing can create a moat competitors can't cross. Facebook couldn't have charged premium prices early on - its value was directly tied to widespread adoption.
2. Legitimate scale economics
If your unit economics improve dramatically at scale and your business can sustain temporary losses, strategic lower pricing can block competitors. Amazon used this approach in specific categories where they could see a clear path to profitability through scale.
3. "From zero to one" scenarios
When creating an entirely new category, sometimes lower friction to trial matters more than price perception. Dropbox's freemium model made sense because the concept of cloud storage needed to be experienced to be understood.
Note what these exceptions have in common: They're all strategic decisions with clear paths to higher value capture later, not fear-based underpricing.
And they're rare. If you think you're the exception, you probably aren't.
The Decision That Defines Your Future
Every business decision sends ripples through your future. None more so than your pricing strategy.
Low initial prices don't just cost you early revenue. They define the trajectory, clients, positioning, resources, and potential of your entire business.
Your first customers don't just pay you money. They set expectations for every aspect of your business model.
Choose these customers carefully by choosing your prices strategically.
The question isn't whether you can afford to charge premium prices when starting out.
The question is whether you can afford not to.
The Repricing Redemption Story
What if you've already made the underpricing mistake? Is it too late?
Patrick Campbell faced this exact dilemma. As founder of ProfitWell (formerly Price Intelligently), he ironically underpriced his own pricing strategy consulting when launching.
"We were charging $4,000 for our pricing strategy services when we should have been charging $40,000," Campbell admits. "We thought we were being smart by making it 'accessible,' but we were actually making it worthless in the eyes of our ideal customers."
The problem became obvious when clients wouldn't implement their recommendations. The low price had signaled low value.
Campbell took a radical approach to fixing the mistake:
He immediately stopped taking new clients at the old price
He created a completely repackaged offering at 10x the price
He was transparent with existing clients about the mistake
He offered existing clients a one-time opportunity to upgrade to the new service at 2x their current price (still a 5x discount from new clients)
He let non-upgrading clients finish their current engagements but didn't renew them
The results were dramatic. Not only did they quickly secure clients at the new $40,000 price point, but implementation rates of their recommendations jumped from 30% to over 80%.
Most surprising? Several of their original clients later came back and paid the full $40,000 price after seeing the results others were getting.
Campbell's advice is simple but powerful: "The faster you correct a pricing mistake, the less painful it is. Time only makes it harder."
The price reset isn't just about charging more. It's about respecting your work enough to demand what it's worth. It's about giving clients the opportunity to value you properly. It's about building a business that can sustain excellence rather than just survival.
You haven't started too small to charge premium rates. You aren't too new to work with great clients. You don't need more testimonials to justify higher prices.
What you need is the courage to price based on where you're going, not where you've been.
Your price isn't just a number on an invoice. It's a declaration about who you are and what you stand for. Make it a declaration worth living up to.
Thank you for reading.
– Scott
Any deviations from this perspective for physical products?