Companies love the notion that a lower price instantly expands the user base, but the economics of discounting run deeper than headline growth. When a price drops, the marginal customer often arrives because the product now feels cheap enough to try, not because it truly values the solution.

That cheapness lowers the perceived cost of switching, erodes the psychological lock‑in that higher pricing creates, and invites price‑sensitive competitors to poach the same segment. In a recent product meeting, a team of product managers and finance analysts huddled around a pricing dashboard, celebrated a spike in sign‑ups after a half‑price promotion, and then watched the churn dashboard flash red as early‑stage users left at the first hint of a price increase.

The root cause was not a faulty product but a diluted moat: the discount turned the offering into a commodity, where price became the primary battleground instead of unique value. The long‑term effect is a downward spiral—lower prices attract low‑margin users, which forces the firm to cut costs elsewhere, often at the expense of product differentiation, further weakening the moat.