I've been visiting a lot of different hosting sites lately to get an idea of how everyone else handles their company. I've noticed that there are gigantic gaps in prices from one host to another. My cheapest plan is 3.25/month and then I see other hosts with half of what I'm offering for like 20$/month .... so i guess my question would be who buys them?

Some people pay for quality, reliability, speed, uptime, support, etc. Just because your prices are cheap doesn't mean that you're going to get more clients that a host with prices 5 times higher.

Sure, you'll get people who just go cheap, but there are also people who want the best for their website.

-Steve

Who buys them? The customer who has gained confidence in the product you offer, through a number of methods; reviews posted on the internet, pre-sales questions, and information made available on your site.

Pricing is only one part of what it takes to offer a product worth buying, and to be completely honest, one of the absolute least important parts. Myself included in this scenario, you'll often find yourself caught up in the pricing games, always trying to undercut the competitor. Instead of worrying about that though, you should be focusing on adding more value to your product offered. Add value to the product at the current price, don't lower the price because the value of the product has gone down due to changes in the market.

my 2 cents,
A business that would loose more than the hosting price if their site is down for an hour or so would make sure that they have a reliable host and would need personalized support.
Another reason, a business whose site needs processing power wouln't put that among thousands of cheap sites on a single server, so they would pay the price of what they get in return.
good luck,

People pay for quality. You also have to adjust the charges of your hosting packages to accomodate for the following:

First we are going to say your expenses are $100 month for a dedicated server and your ideal margin is to make $500 month (random ballpark figures). You will need to figure out how many clients you need to break even, and how many you will need to make a profit. Say you owe $100 for your server per month, ideally you would make at least $500 per month gross (400 profit) off that server. This will cover advertising costs, merchant account, any other unexpected costs, and should provide a profit.

Then figure out how many clients you will need to reach say $500 per month. If your hosting account costs $3.50 per month, you will need 142 clients to reach $500. Say you have 80GB hard drive and 1000GB month of bandwidth, your $3.50 per month package then becomes 500MB (80000 MB divide by 142 clients) diskspace and 7GB (7000MB divide by 142) of bandwidth per month.

You then factor in that you have to support 142 clients. Now you could hire third party support, or you could increase the price of your account and support less clients and keep more profit.

There are a lot of things you have to decide for yourself when creating hosting packages, don't use another buisnesses packages as a template. Also keep in mind that your competition that offers astronomical bandwidth and diskspace allowances most likely wont be your competition that long.

The idea is focus on quality hosting, and provide knowledgable and prompt support to your clients and your name shall spread.