The title of this post may surprise you because we all enjoy getting a good deal. After all, giving a customer a cheaper price is what a nice business owner does, correct? Well, maybe or maybe not. There definitely are times when giving a customer a good deal is the right decision, but over the years I’ve come to believe that regularly undercharging your customer isn’t just bad business... it is evil.
Why is regularly undercharging a customer evil? There are 3 core reasons.
You become under-valued. When you regularly undercharge your customer, it sets up an incorrect perception of low value. In the customer’s mind, you have defined the worth of your service by the price you set. If you are giving a one-time or limited-time deal, that is a different story. When you set a price that is below-market for a long, maybe even infinite, period of time though, you create the perception that your service must only be worth the low price.
You create unrealistic expectations. In addition to creating a situation where you personally are undervalued, you also create the unrealistic expectation that the low pricing will continue for a long time. Ultimately their price will go up, either because you realize that you have to raise their price or you are unable to continue and they look elsewhere only to find that prices are actually much higher in the open market. Unrealistic expectations lead to unhappiness on both sides. You may grow to resent their expectation of continued low prices, and they will likely resent it later when they have to pay more... even if it is to someone else.
You help perpetuate bad behavior! Particularly in the business-to-business market, when a customer expects a low rate for services performed, it’s generally because they believe they can’t afford a higher price. Their lack of being able to afford more is usually because they aren’t charging enough for their own services as well. By giving in to a long-term discount or below-market rate on your own services, you are helping them perpetuate their own bad behavior... not fixing their own pricing issues. If instead you charge a reasonable market price for the services you perform, and give excellent service of course, you actually help them by giving them reason and motivation to move their own pricing more in line with the market. Allowing them to pay you below-market, which usually makes you have to cut corners or provide less service as well, becomes a disservice to you both.
Calling undercharging “evil” may sound a little overboard; however, when you consider that the reasons above all point to treating both ourselves and our customers as ‘less than’ the people we were created to be, I think you will understand my use of the word. It isn’t overkill when you look at the big picture.
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Until next time, I wish you the best in your business.
Mark Goldman
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