Undervaluing your product or service creates two potential problems for a new business. You are losing potential revenues that are critical to a start-up operation, and a product priced too low can negatively impact the way a product is perceived in the marketplace by consumers. A customer may look at a product and base judgments of quality strictly on price relative to other competitors. This is more likely to happen when a customer has difficulty assessing the real value of your product or service, either because of the complexity of the product, i.e., sophisticated electronics, or because they don’t have the opportunity to see and evaluate the product or service before the sale such as with online shopping or contract work. Price then becomes a primary indicator of quality.
If you’re a business owner who has underpriced your product, you’ll know in one of two ways. If your orders are always running way ahead of available inventory such that production never seems to keep up, you may be undervaluing your product. If sales are brisk but you are still losing money, especially if you are operating at full capacity, then you have undervalued your product.
Increasing the price of your product or service without alienating customers is doable but should be done carefully. Modest incremental price increases over a period of time can usually be done with little resistance from customers. If a large one-time price increase is necessary, a good strategy would be to offer enhanced service or value to accompany the increase in price. An example might be a product or service warranty or free delivery. Customers will be more accepting of the price increase if they feel it is driven in part by an improved product.
