I recently started my own business, an electronic cigarette company. Right out of the gates I offered extremely competitive pricing, sometimes 50% cheaper than direct competition. For example: one bottle of liquid might cost you 15-18$ elsewhere, whereas I was selling for 8$.
I thought a cheaper pricetag would incentivize sales, but in fact it has done nothing (or potentially the reverse). My product might be seen as cheap due to the huge disparity in pricing in comparing my business to others similar, and this deters sales because people assume my product isn't quality.
I'm not sure the psychology or philosophy behind it, but is a cheaper pricetag inherently less desirable to a consumer? Does it elicit the feeling of cheapness and in turn deters sales? Maybe an analogy would work best in explaining:
Basically, does a higher pricetag mean more units sold? Does a higher pricetag mean quality?
Let me give you an anecdote. A while back I needed to replace the roof on my house. I have absolutely no idea how to properly vette a roofer so I got 3 bids and picked the one in the middle.
The guy who bid lowest might very well have been more competent than the other two. However, his bid was about 40% lower than the highest one and that scared me. Questions that ran through my mind included: Was there something he didn't think of? Were the materials he uses of a very low quality? Did he not carry the proper insurance? etc.
Point is his low price was the very reason I decided against him.
One thing you'll find is that some people shop on price alone. They will always buy from whoever has the lowest price - however for every one of those there are more that will not buy because of the low price. Others generally buy from the middle and still others buy only the most expensive stuff. - My wife, much to my chagrin falls into that latter category ;). Others may try and compare features in order to get the most "value" for their dollar. However, even those will generally not buy the cheapest as they have been trained to think that low price == low quality.
Personally, I wouldn't buy from you either based on price alone. When you are that much lower than your competition for what is essentially the same thing I start thinking that perhaps you are cutting your liquid with cheap filler or failing to put in the right amount of other ingredients in some way.
Instead of trying to low ball the competition you should be considering how to charge more than your competitors. Perhaps having a store front that is inviting and relaxing - in other words not like the traditional cheap cigarette place that looks like you might get mugged on the way out but rather more like an Apple store which is clean and easy to navigate.
Maybe you have monthly specials for card carrying customers.
Maybe you simply advertise each month about a new "limited" edition liquid that just came in. "Hey everyone, for this month we managed to get our hands on the elusive Strawberry Passion!!!" or whatever..
Basically, stop competing on price and start competing on experience.