Your small business can gain market share by setting prices lower than the competition, but you may not be able to sustain that practice. If you market yourself as having everyday low prices, you will encounter business problems that you have not anticipated. The constant struggle to make up for lower prices by selling higher volumes can strain your operation.

Price Wars

Your competitors can lower their prices to beat yours, and you may find yourself in a battle to see who sells the cheapest and still makes a profit. Once you reach your absolute bottom price, you will lose your competitive edge if your competition can still beat your prices. Make it clear to your customers that you offer low prices, not the lowest prices. If you promise to beat every competitor’s price, you may fall prey to those who sell below cost just to capture your customers.

Poor Vendor Relations

You may aggravate your vendors if you constantly haggle for lower prices from them so that you can pass on lower prices to your customers. Some vendors may stop doing business with you, and others may start giving you defective products so they can meet your price requirements.

Reduced Profit Margins

If you cannot get low-enough prices from vendors, you may have to sell products at a price that does not leave you enough profit. You have to constantly monitor the volume of sales of greatly reduced products to see if you are getting your original investment back on those products.

Perception of Poor Quality

Once you establish a reputation for having everyday low prices, you may find that customers suspect the quality of your products. You may find it difficult to introduce higher-priced and higher-quality lines of products, because customers who want higher quality may not believe you can offer exceptional goods.

Inability to Have Sales

Once you advertise everyday low prices, you cannot put products on sale. You claim that you already offer the lowest prices, so offering a discount during a sale would indicate that your prices are higher than they need to be the rest of the time. This can present problems if you want to move items that do not sell well. Though you may be willing to sell products below cost to clear out inventory, your customers may mistakenly think that you have room to lower prices on other items.