Razor-Razorblade Business Model |
| Credit: Good/Bad Marketing |
What is the model?
• The razor-razorblade model is a pricing tactic in which a dependent good is sold at a loss (or at cost) and a paired consumable good generates the profits.
• Also known as a razor and blades business model, the pricing and marketing strategy is designed to generate reliable, recurring income by locking a consumer onto a platform or proprietary tool for a long period. It is often employed with consumable goods, such as razors and their proprietary blades.
• The concept is similar to the "freemium", in which digital products and services (e.g., email, games, or messaging) are given away for free with the expectation of making money later on upgraded services or added features.
Challenges of this model
• Value perceived by the customer: The buyer needs to be consumed that there is an advantage in continuing to use that product, instead of exchanging it for a competitor. Therefore, the consumable product must be desirable, offering the best perceived cost-benefit.
• Environmental costs: People are increasingly concerned with the ecological footprint being left behind. For this reason, many companies that apply the razor and blade business model have been the target of activists due to the amount of waste that their consumable products produce.
• Brand lock-in: People can be frustrated by feeling that the company takes away their freedom of choice and end up denying the brand for it. In addition, if consumable products are too expensive, the price may end up discouraging customer loyalty.
Examples of this model
• This model has been used in several businesses for many years. The Gillette company now uses this approach, often sending disposable safety razors in the mail to young men near their 18th birthday, or packaging them as giveaways at public events that Gillette has sponsored.
• Electric toothbrushes and printers are both examples where the ongoing revenue stream associated with the sale of consumables can exceed the profit associated with the initial purchase.
• Games consoles such as PlayStation and Xbox have historically been subsidized in their initial release. Both Microsoft and Sony relied on continued revenue through the sale of games - for each game sold, a component of the sale goes to Microsoft or Sony, in turn helping to offset the initial console subsidy.
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