Inc suggests that businesses should not try and compete on price alone, and provides a few alternatives:
Carve out a niche. If you “own” a market, you have more room to set prices. If there are 100 mechanics in your city, you’ll face constant price competition. But if you’re the only mechanic specializing in Volvos, you’ll face much less price pressure.
Work smarter, not cheaper. Let’s face it, a lot of your competition is just plain dumb. So, improve profits through innovative practices. Southwest Airlines, for instance, saved money by using plastic, re-usable boarding passes instead of paper passes, and they were the first to use electronic ticketing. Southwest maximizes profits from their planes by getting them back in the air an average of 20 minutes after landing, instead of the 2-3 hours of other airlines. By being smarter, Southwest became the most consistently profitable airline in the industry.
Focus on value, not price. Value is a term used to mean the combination of price and quality. When you shop for a winter coat, you may be willing to pay higher prices to get quality that will last many years. Likewise, a client may be willing to pay a higher price for your printing services if you can deliver the job faster with fewer errors than your competition. Excellence and service are competitive advantages that let you justify higher prices.
Target the right customers. Not all customers are willing to pay more even for better quality. So make certain you aim your marketing efforts at customers who will respond to the differences you offer and can pay a slightly higher price for that value.
Build loyalty to you, not your price. Even if you use special pricing (discounts, introductory offers, sales) to initially attract customers, immediately go to work developing a relationship that keeps customers coming back when the price goes up.
Some good advice there – we are too caught up on the “affordability” theme. Maybe we need to think a little beyond that.