Q: "Why would you sell something for 5 euro when people are happily paying 10?"

A: "We'd make a killing!"

From what you've written it seems the customers are not happily paying €10. They've simply traded satisfaction for convenience.

So your idea is a pasta place that enters a market where the only choice is "terrible and overpriced" and provides an alternative of just "terrible", attempting to price-out the competition and rake in the dough.

Exactly what OP is considering (replace 'terrible' with 'equivalent').

So I guess what your boss is getting at is that the smarter business strategy would be "less terrible and overpriced" - compete on value not cost.

It also means they have additional capital to

a) Advertise more

b) Improve ingredients and taste

c) Do all sorts of things to improve the customer experience.

In short, there are benefits to charging more from the outset that aren't always obvious until you're playing catchup.

What most businesses don't realise is that if you discount something by just 20%, you will actually have to effectively DOUBLE your sales in order to make the same Net Profit at the end of the day.

If you are looking to undercut the past place by 50%, then you will need to effectively sell 4x the volume that they are doing just to make the same sort of profit. That then brings further problems - in order to server 4x the customers during a lunch rush, you probably need to lease bigger premises with more staff on hand, thus increasing your Expenses - meaning a reduction in your Net Profit. More customers also means more customer problems (missed deliveries, reduced quality of service etc.)

You would eventually end up with a scenario where you have a bustling pasta dive with double the customers, but making LESS money than the original one next door - or worse still, making a loss. Even though you are charging half the price...

This is why starting upmarket and working down (Apple) works better than starting downmarket and trying to work up.

I don't think we can go that far.

Apple didn't start upmarket, first of all. Their original market was technical consumers. Jobs's obsession with design and beauty in combination with the Mac's decline in favor of more "business-oriented" IBM PCs, which were much uglier, eventually made Apple the de-facto brand of artists and designers, which led to it becoming the brand of those who wanted to showcase their creativity.

Apple products became fashion statements that said "I'm creative and unique". That's what really drove Apple into the luxury segment. It seemed to be more accidental than anything else.

Second, going after the big fish always sounds nice, but it's hard to do it successfully. Enterprise sales cycles take a long time, months or sometimes years. The features that big customers want are usually giant PITAs that have to integrate with 6 wildly divergent legacy systems. Enterprises want enterprisey support and they consider questions like "How likely is it that this product is going to be around in 5 years?" as part of the sales cycle (and until your company is at least 5 years old, it's hard to answer that).

For high-end consumers, in most cases, luxury brands have to be aged and respected before they build up the panache needed to drive acquisition. The brand has to be carefully controlled and messaged. Aggressive marketing can sometimes speed up the aging process.

If you're targeting mom-and-pops or normal consumers, there is a much bigger pool of consumers to draw from, and they have much lower barriers to entry. Find a segment to hook, inspire loyalty, serve them well, and then see about moving on to enterprise, hopefully targeting enterprises that your long-term customers work for and can convince to buy MyThing Enterprise Edition.

If you're starting with $5M of cash, going after the big fish in the pond may work fine. If you're trying to bootstrap or trying to find a way to survive after some pittance of seed funding runs out, it's usually a different story.