The key to succeeding without competing on price is understanding and utilizing your “unique value proposition” – what sets you apart from your competition. You don’t have to be cheaper if you are better and therefore provide additional value for the additional cost.
To decide whether you need to adjust your pricing or not, you need to know a lot more than your costs and what your competitors charge. Here are some factors you should consider:
What is the customer willing to pay? Many businesses make the mistake of basing their pricing directly off their cost for providing that service or product (i.e. “It costs us a dollar, so we should charge two.”). Instead, start by deciding how much customers are willing to pay.
What kind of customer am I targeting? The answer to the first question depends largely on this one. Do you want to cater to more clients at a lower margin, or make more money per client but limit the size of your market? Ideally, you’ll be able to identify different price points, segment the market, and maintain both types of customers.
How should I react to my competitor’s prices? Your prices shouldn’t revolve around your competition’s, but it’s certainly a consideration. First, honestly identify if your overall experience is better or worse than the competition. If it’s better, decide how much and price upward.