One perfectly sound approach is to just be the cheapest. This often entails lower margins, but hopefully higher volumes. However, the problem with this approach is that it can become a race to the bottom. At some point, somebody will find a new corner to cut. As Seth Godin says , "the problem with the race to the bottom is that you might win."
On the other end of the spectrum is this approach:
This is a pamphlet describing full ripeness mangoes from the Miyazaki prefecture in Japan . These are not the cheapest mangoes around. In fact, it's the opposite; they're generally known to be the world's most expensive. But they will almost certainly be the best mangoes that you've ever tasted . And you'll only be able to get them between the months of April and August.
Sometimes it's possible to be both cheaper and better. And that's obviously an ideal position to be in. But in many, or perhaps most cases, you'll need to choose. Cheaper, or that much better.