Aggressive Low Prices Can Create a Capacity Crisis

Setting a price that is too low can be just as dangerous as setting one that is too high. An aggressively low price, especially for a product with a strong value proposition, can generate a wave of demand that the company is not prepared to handle.

This leads to a capacity crisis, where the company cannot produce enough product to meet the overwhelming demand.

The Consequences:

• Customer Antagonism: Customers who have designed the product into their systems are left stranded. They are forced to delay, cancel, or curtail their own programs, creating immense frustration and ill will.
• Damaged Reputation: The company is seen as unreliable. The goodwill generated by the low price is completely erased by the failure to deliver.
• Lost Opportunity: The company fails to capitalize on the market momentum it created, and the window of opportunity can be lost.

Pricing decisions cannot be made in a vacuum. They must be made with a realistic understanding of the company's manufacturing capacity and its ability to ramp up production. A great price for a product you can't deliver is not a great price. This is a key lesson in why Pricing is an Art, Not a Science.