The problem is far from new. You are selling a unique line of items that has a fairly high demand. Due to an increased interest in your product, sales continue to increase until one day you notice sales numbers start to fall. After a little research, you find that your products have been duplicated and are selling for less, a lot less.
This happened to an internet retailer we'll call Joe. He had a successful website selling accessories related to the liquor absinthe. Until legalization of absinthe in 2007, business was brisk and increasing every month. With the legalization of absinthe came a flood of absinthe accessory dealers. Every body from online liquor stores to knitting sites wanted a piece of the absinthe ware pie. The problem was, these new sellers were not familiar with what a quality absinthe product looks like. They simply bought the least expensive pieces with images of giant dollar signs dancing in their heads.
All of the sudden, BAM! there was a glut of low quality absinthe ware with too many sellers and we all know what comes next. Price wars. Not that competition is a bad thing. It actually brought the price of the knock-off items to where they should be. But the problem is Joe still has all of the premium products that he paid higher prices for.
So what does Joe do? He has three options:
He can sell his items at a loss to compete.
He can start buying the lower quality items to compete.
Or, he can stick to his original marketing plan and emphasize quality and uniqueness.
Joe actually went against what everyone was telling him. He pushed on and continued providing premium pieces with exceptional customer service. It took some time but you know what, it worked! People began to realize there was a difference between a $59 absinthe fountain and a $159 absinthe fountain. It wasn't long before Joe's sales were back to where they belonged. He also enjoyed watching the sellers of the sub-par merchandise wither away.
So here is the short story; if you have your eye on the ball and focus on customer satisfaction which includes providing a quality product, you will come out ahead. And whatever you do, don't turn to irrational cost cutting methods like buying cheaper products just to offer a lower price. People will realize the value of quality every time.
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