The answer is somewhere in the middle, as usual.
If you price too low, you will absolutely scare off good clients. I have no interest in a $99 designer because I want good quality and experience, and an experienced designer wouldn't charge such a low rate.
On the flip side, if you are just building up your clientele offering low prices is a great way to get things going. Just be a little less than the market rates and you'll be ok - no reason to discount further than that.
The trick is to know your market. If you have an idea of what your service would cost on the open market, you can undercut the competition a little bit without making yourself look like a flea market.
Another thing that helps is to offer discounts rather than cut rates. If you want to give out deals, thing about giving new clients 50% off $200 instead of $99 - or something like that! Good luck!