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Why Low Prices Can Scare Off Customers

Brandi Calero-Holmes
Brandi Calero-Holmes
Business News Daily Contributing Writer
Updated Dec 10, 2021

Retailers beware: For customers, inexpensive often translates to … cheap.

  • While everyone loves a good bargain, low prices can often harm how your product is viewed.
  • Instead of getting a product for a great deal, customers often believe that you get what you pay for.
  • Though everyday low-pricing strategies can work for some companies, they’re not a great idea for some lines of business.
  • This article is for business owners who want to understand how customers view pricing and avoid the “low price, low quality” perception.

When you’re selling products or services, you want to set prices that achieve a positive result. But strategic pricing isn’t just about lowering prices; consumer perceptions also play a significant role. Here’s a look at how consumers view and value “low” prices and what a business can do to change their perspective while setting price points that work for everyone. 

How do consumers perceive low prices?

Despite all the hype surrounding great deals, it turns out that cheaper isn’t always better. Research from Vanderbilt University, published in the Journal of Consumer Research, suggests that low prices can backfire for retailers because consumers sometimes see low prices as a sign of a low-quality product. 

However, the researchers also found that consumers sometimes see low prices as simply good deals. Shoppers’ perceptions of a low price depend on what they’re thinking about when deciding to buy a product.

“The bottom line of our research is that people can hold two opposing beliefs about a product,” said Steve Posavac, professor of marketing at Vanderbilt University and lead author of the study, in a statement at the time of the study’s publication. “In the case of price, most people simultaneously believe that low prices mean good value and that low prices mean low quality. But these two beliefs are not equally present in consumers’ minds all the time.”

Did you know?Did you know? Different products play different roles in sales. Some products are specifically meant to drive foot traffic, and others are for improving profit margins.

How do consumers determine the value of low prices?

If a consumer comes upon a low-priced product or service, they may see it as a good deal, or they may see it as not worth their time or money. How consumers think about price is just as important as the actual price.

“Consumers rarely have complete information, and [they] use various strategies to fill the gaps in their knowledge as they consider and choose products,” Posavac said. “One of these strategies involves using naive theories: informal, commonsense explanations that consumers use to make sense of their environment.”

A consumer may perceive a company as “upscale” and assume its prices are too high, or they may see a company as a discount retailer whose prices are much too high for its reputation. They may also see the discount retailer’s products as inferior. It’s not easy for a business to manage its customers’ perception of price vs. value. 

TipFYI: Not everyone is your ideal customer, and that’s OK. When you identify your customer base, you can narrow your marketing efforts and become perceived as a specialist, leaving consumers less likely to question your pricing.

How can companies improve consumers’ perceptions of low pricing?

Companies can influence how consumers feel about their low prices by conducting market research and improving their marketing strategies. In the Vanderbilt study, when companies focused on the product quality in marketing materials, consumers looked more favorably upon pricier products. However, when companies focused on value, consumers rated cheap products more favorably.

“A company may implement an everyday low-pricing strategy that manages to reduce brand value and alienate consumers if many of them believe that low prices equal low quality,” Posavac said. “Over the years, JCPenney customers had become so used to sales that they no longer believed they were getting a good deal. [Companies] design a strategy by assuming that a certain naive theory is going to drive consumer evaluation and choice when, in fact, several naive theories are available to the consumer.”

The research findings suggest that raising the price correlates to increased value, but the focus can’t solely rely on that. It’s about combining value and convenience so consumers feel they’re getting their money’s worth. Introducing an improved product that’s still competitively priced can increase the odds of successful sales and build customer loyalty.

TipTip: To increase your odds of retaining customers while raising prices, consider rewarding long-term customers with grandfathered pricing, increasing value along with price, and always being transparent in your communications with customers.

How can you avoid the ‘low-price, low-quality’ perception?

Of course, a product’s price doesn’t always reflect its quality. For example, currency can play a role in the pricing of products in different countries. In some parts of the world, the U.S. dollar goes very far. In another country, you could potentially buy a nice four-course meal for a third of the price that you would in the U.S. However, does that mean the quality of the food is bad? Not necessarily.

Another reason a high-quality product could be priced low relates to supply and demand. If a particular product is not in high demand, the price could decrease to entice people to buy it. On the other hand, if there is a surplus of a product, the company might drop the price to get rid of excess inventory. This doesn’t mean the product is faulty or not useful.

For companies to control their price perception, marketing directors must present their brand the right way. Building a brand gives consumers words to think of when their company comes to mind. Ideally, if your company uses an everyday low-pricing model, your customers won’t think about how cheap your product is or view it as low quality. Instead, they’ll think about how your product is a great value.

How do you disclose low prices as a service business?

Service companies disclose low prices to consumers via marketing and advertising, but managing your approach is essential. If you operate a service business, creating a competitive price quote will work best. In a service business, prices sometimes vary by client, and clients will want to know precisely what they’re getting for the price. 

Besides offering a competitive price, be transparent and detailed about everything you’re willing to include in the price. It’s also critical for your customer to understand that a quote is different from an invoice, and various factors may affect the final price.

David Mielach contributed to the writing and reporting in this article.

Image Credit:

Prostock-Studio / Getty Images

Brandi Calero-Holmes
Brandi Calero-Holmes
Business News Daily Contributing Writer
Brandi Calero-Holmes has been a freelance writer for roughly 3 years creating content for small businesses, digital publications, and professionals internationally while residing in Newport News, Virginia. Her 8 years of career experience in finance and business include insurance and consumer lending. In 2018, Calero-Holmes has written extensively on business and finance topics for numerous brands and digital publications.