Low price feels like a safety net for growth, but the real reward is not more users—it is a tighter, higher‑margin cohort. When a business chops its price to undercut rivals, it invites price‑sensitive shoppers who leave the moment a cheaper alternative appears, while simultaneously eroding the perceived value of the offering for everyone else. The erosion creates a feedback loop: as margins shrink, the firm must cut costs elsewhere, often by reducing service quality or product features, which in turn fuels the very churn it tried to avoid.

Consider a mid‑size SaaS firm that launched a “starter” tier priced so low that the sales team could close deals in minutes. Within weeks the support inbox filled with a flood of basic queries, and the engineering team spent days patching trivial bugs that never would have mattered to higher‑paying clients. The churn rate among the cheap tier climbed sharply, while the average revenue per user for the whole company slipped, forcing the firm to raise prices across the board and lose even its original premium customers.

The paradox is that the cheap tier was never a moat; it was a moat‑breaker, turning a potential defensive barrier into a liability. By focusing on price as a loyalty signal, firms ignore the deeper economics of value capture: the spread between what a customer is willing to pay for the core benefit and what they actually pay. Strengthening that spread—through differentiated features, superior service, or exclusive data—creates a moat that survives price wars.