Imagine for a moment, five runners prepping for a race. Each one is a close contender for first place. No favorite, no clear winner. Then a couple days before the race, runner number 3 stumbles upon the newest pair of nikes that can increase his speed by at least a second. The day of the race runner 3 wins by 1.2 seconds! Fantastic you may say, but then before next race (there is always a next race) runner 3 notices that all of his competitors are wearing the same shoes! Now who wins?
Its much cheaper and easier to compete over quality, or even differentiate on audience. But don't take my word for it, think about some of your favorite brands, the ones that it would take a lot for you to switch to a competitor. Are you faithful and continually giving them your hard earned money because they are the cheapest option? Most likely not. Brand loyalty is a strong asset and is worth far more than the sum of its parts. If your customers choose you just because you have the lowest price, then you are in trouble because one day someone will come along with a less expensive product and all your price conscious customers will switch to the cheaper guy, no matter what.
When everyone competes on price, no one wins. You lower your price to compete, your competition does the same, you rebut, then no one is making any money. Whether its a time based service or a product, staying firm on a price and providing benefit beyond price are crucial to your success.
So then you may ask, but how do we compete? This is where branding comes in. Your brand is a reputation, a reason for customers to choose your company over others. Maybe you have better customer service, maybe better benefits, or user interface, or some social/emotional benefit. The best option in my opinion is to chose a smaller niche that is un-targeted by your competitors and focus on serving them as best you can. Building a name among 200 very specified customers is much easier than 20,000 or even 2,000. Get the 200 talking about how great your service, product, brand are, then growth will come organically.