
Why Undervaluing Your Product or Service Can Hurt Your Startup
In the early stages of a startup, the urge to offer products or services at lower prices to attract customers and gain experience is strong. However, this strategy often backfires, negatively impacting your brand’s perceived value and long-term success. Let’s explore why undervaluing your offering can be detrimental and how you can avoid these pitfalls.
The Psychological Pitfall of Undervaluation
When starting out, it’s tempting to lower your prices to secure clients or customers. While this may seem like a strategy to build credibility and gain experience, it can create a detrimental association. Customers might begin to perceive your brand as low-value, making it challenging to increase prices later without losing them.
Example: Service-Based Startups
Imagine you launch a consulting firm without a portfolio. To attract clients, you offer your services at a lower rate than established competitors. Initially, this may bring in customers, but over time, when you attempt to raise your fees to build a sustainable business, clients might resist. They’ve become accustomed to paying less, even if they know the same service costs more with competitors. This price sensitivity can undermine your revenue potential and market positioning.
The Discount Trap in Product Sales
Offering steep discounts or promotions like buy-one-get-one-free can quickly attract customers, but it carries risks. Over time, customers may start to expect these discounts and associate them with your product’s value. This can lead to difficulties when you try to sell at regular prices.

Case: UBNIC Cookies
In 2017, UBNIC cookies aggressively discounted their products, reducing prices from ₹30 to as low as ₹5. This strategy initially increased their market share to 10% in the cookie segment. However, when they raised prices in 2018, their market share dropped to 8%. Consumers had become accustomed to the lower prices and associated the cookies with frequent discounts. When prices increased, they viewed the product as overpriced compared to its discounted past, resulting in decreased sales and market share.
Case: Swiggy and Zomato Discounts
On food delivery platforms like Swiggy and Zomato, many consumers have a set of favorite restaurants they order from due to ongoing discounts. For instance, a restaurant offering ₹100 off on orders frequently may become a go-to choice for budget-conscious customers. However, when these discounts are no longer available, customers often switch to other outlets offering similar discounts. This dependency on discounts leads to a situation where restaurants struggle to attract customers at regular prices, as consumers have been conditioned to expect lower costs.
But if you have millions of dollars or a substantial margin to actually shift consumer behavior, then it may be feasible to employ this strategy.
Frequent Discounts: Worst Mistake Made by Startup Founders
Frequent discounts can alter consumer behavior, making them expect and rely on these promotions. This creates challenges for new entrants or established brands trying to offer competitive pricing without discounts.
Case: Tissue Box Market
The tissue box market is dominated by brands offering “buy-one-get-one-free” deals. This promotional strategy has created a standard expectation among consumers. When a new tissue brand enters the market with a lower regular price but no discounts, consumers are often drawn to the established brands with promotions. The new entrant struggles to compete because the perceived value of the product is overshadowed by the established discount expectations.
Case: Dukes Wafers
Dukes wafers are known for their consistent discounting practices. They frequently offer promotions such as “buy one, get one free” or substantial discounts. This heavy discounting creates an expectation among consumers that wafers should be bought at reduced prices. New competitors find it difficult to break into the market without offering similar discounts or struggling to convince consumers to switch to their products at regular prices.

But if you don’t have millions of dollars in investor funds to burn and only have a limited budget, use it to identify your ideal customers. Offer them promotions just once or twice to see who returns as repeat customers even without the discount. Understand their characteristics and use your budget to target this audience more effectively. Similarly, in a service-based business, offer your services for free initially to demonstrate your value, but avoid undervaluing them through lower pricing.
The Value of Understanding Your Customer
Instead of relying on discounts, focus on understanding and targeting the right customer segment who genuinely values your product or service. These customers are willing to pay a fair price for the value you provide, rather than opting for discounts.
Example: Organic Products
Organic products often come with a premium price tag compared to their non-organic counterparts. Despite the higher cost, many consumers are willing to pay more for organic items due to the perceived value and health benefits. The higher price reinforces the product’s value, and consumers who are motivated by health and sustainability are willing to invest in these products.
Strategies for Building Perceived Value
1. Focus on Quality Over Discounts
Ensure your product or service delivers exceptional quality. High-quality offerings build a reputation for value, which is crucial for long-term success. For example, premium chocolate brands like Lindt focus on delivering superior quality rather than relying on discounts.
2. Use Free Trials or Samples
Offer free trials or samples instead of discounts. This allows potential customers to experience the quality of your offering without setting a low price expectation. Many software companies use free trials to showcase their product’s value.
3.Highlight Unique Selling Points
Emphasize what sets your product or service apart from the competition. Clear, compelling messaging about your unique value can justify higher prices. For example, Apple’s marketing focuses on the unique features and superior design of their products, justifying their premium pricing.
4.Build a Strong Brand Identity
Create a strong brand identity that communicates value. A well-positioned brand is less likely to be affected by price changes. Brands like Nike and Rolex maintain a premium image through consistent branding and quality.
5.Segment Your Market
Identify and target customers who are willing to pay for the value you provide. Tailor your marketing strategies to these segments to maximize your revenue potential. Luxury brands like Ferrari target high-net-worth individuals who value exclusivity and are willing to pay a premium.
NOTE: Undervaluing your product or service to attract customers may provide short-term gains but often leads to long-term issues with brand perception and pricing flexibility. By focusing on delivering true value and targeting the right customers, you can create a sustainable business model that supports growth and profitability. Avoid discount traps and build a brand that stands out for its quality and unique value.
Discover the worst mistake made by startup founders: undervaluing their products. Learn how this common error impacts market positioning and brand perception, and find strategies to build value and attract customers effectively.
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