I just got an angry note from Anna in the Midwest. She read one of my books, got the coupon for unlimited free consulting by email and decided to cash it in. She sent me a note asking me to persuade her bosses that the best way to grow their resort was to lower prices.
When I responded that perhaps she ought to consider raising prices and using the extra money to create a remarkable experience, she got really angry with me. Of course, I refunded her consulting fee. Actually gave her three times back what she paid...
Here's what I think: Cheaper is the last refuge of the person who's not a very good marketer. Cheaper is easy and cheaper is fast and cheaper is linear and cheaper is easy to do properly, at least at first. But cheaper doesn't spread the word (unless you are much cheaper, but to be much cheaper, you need to be organized from the ground up, like Walmart or JetBlue, to be cheaper). They are, you're not.
Cheaper is a short term hit, not a long term advantage. Cheaper doesn't create loyalty, because the other guy can always figure out how to be cheaper still, at least in the short run.
Even free isn't cheap enough to win in the long run. Not if other people can figure out how to match what you've got.
So, if you can't be cheaper, be better.