Commodity: A good or service whose wide availability typically leads to smaller profit margins and diminishes the importance of factors (as brand name) other than price (Via Merriam-Webster online)
The term "commodity" is a hot one in marketing circles these days, especially when people talk about why they shouldn't price match and drop prices in general. A commodity in this context is a product that's lumped in the "generic" category, and that people buy based on price alone. Just like the cutout bin.
I don't know if you remember the cutout bins that record stores used to have. They were the records that were leftovers, or the last one of certain titles, or whatever. The odds and ends that the store wanted to get rid of, and that were sold at deep discounts. They would cut a little notch in the corner of the album cover to show that it came from the cutout bin, so that they couldn't be returned for full price.
Cutout records were all priced at a flat rate regardless of the quality. You could find a dud like Zamfir, Master of the Pan Flute, priced the same as a gem like Ian Dury and the Blockheads. But regardless of the occasional gem that we found, the idea that the records in the cutout bin were of lower quality than the regularly-priced records was generally accepted. And we also accepted that the price was the reason to look at the cutouts. (Hey, we were broke college students.)
Well, when you start dropping your prices it makes customers think that you're the cutout bin. "Hire me, I'm desperate enough that I don't value my own product enough to stick to my pricing!" you're saying. "What I do doesn't deserve to be counted as valuable, because I'm willing to devalue it for anyone who comes along! I'm the leftovers, but hey, I'm cheap!"
Just go cut that notch right into your reputation.
When you're willing to match prices, you're telling your client that your product is a commodity, or something that can be purchased based on price. The price becomes the focus, and the reason that people buy from you.
Now, if you want to be the "cheap cake lady" then have at it. Make your price the main event. Sell your bargain cakes and advertise price over quality. There's definitely a place for that...and I think it's called "Craigslist." That's also where people go to get small profits, minimum wage, and burnout.
If you want to have clients buy from you based on the quality of your product so that you can make a decent profit, though, you might want to rethink the idea of price matching and undercutting. Figure out what the price is and stick to that. The quality of your product should be what clients are focused on if you want to be able to charge a decent amount.
Discounts are okay in certain situations, but not on a regular basis in order to book clients. That will just get you a reputation as someone who's selling things that people don't want to pay full price for. And that's not good for your bottom line in the long run. Unless you enjoy hanging out on Craigslist, in which case you may have bigger problems.
Kara Buntin owns A Cake To Remember LLC, custom wedding cakes in Richmond, VA