Razor And Blades Model, An Inescapable Trap

It is said that getting into business requires selling, but staying in business requires sales productivity. Innovation is always a challenge, lot of companies run out of capital if they have to release groundbreaking products all the time. But what if one could have a steady flow of guaranteed customers for the same product for theoretically an infinite duration? This can withstand the conundrum of products going obsolete when some trend passes or if they simply don’t click in the market. The razor and blades model is one maneuver that has stood the test of time and is still in use today.

The Intelligent Trap

• Buy For Less, Spend More Over Time
• Pay less for razors, pay more for blades
• Pay less for printers, pay more for inks
• Pay less for consoles, pay more for games

 The razor and blades model primarily focuses on selling a product at a low profit margin or at a loss but selling the consumables at a higher markup to compensate for it. This gives the maker an infinite source of revenue. This method is similar to a freemium model, where software is given for free and they make money when the consumers pay for additional features, for example, online games where the game is free but additional content is locked behind a pay wall. It’s similar to hook, line and sinker strategy in fishing.

The progenitor of this model was Gillette, Gillette used to sell their razors at a low price and used to sell the blades at high markup, this method ensured consumers get hooked by the low cost yet high quality handle, but if they wanted to replace their blades, they had to buy Gillette’s blades as they made the blades which fit into the razor, leaving them no alternative. This model was soon adopted by various companies to their own products and they too witnessed exponential profits and showed no signs of slowing down.

Prominent examples of this are printer manufacturers, printers are sold at a low cost but the inks are sold at a high cost. Video game consoles are sold at a loss and make profit by selling exclusive games at a higher markup. A prominent film company was a noted practitioner of this model, they were the provider of cameras, film, chemical solutions and the photo sheets, this resulted in a spiral where they didn’t focus on innovation and they eventually filed for bankruptcy.

Moral Dilemma

• Inadequate Quality- High Costs
• Consumer reverence

This of course has been met with its own fair share of troubles, the increasing cost of consumables has been met with inadequate quality which has upset the consumer base. It has been seen as exploitation since they have the consumers at their mercy, since they hold the supply and demand. And they design their products in such a way that a third party provider cannot provide a cheaper alternative, though legally they are within their boundaries, it raises a question on the authenticity of how they treat the consumer base. For example, printer companies software lock the printer if they use a third party ink and razor manufacturers model them in such a way that they cannot fit with other blades. And the intellectual property rights and patents only obscure the problem further.

The opposite business model also exists, where the upfront cost of a product is high but the add-ons cost less, apple is a well known example of this, the consumers pay a high cost to get access to the apple ecosystem by hardware, and they are free to buy lot of add-ons which are relatively low. This ensures they have a long time customer who will spend money on their products.

End Note

All in all, this business model is a good strategy to adopt by any company, but they should not make it their only means of profit. They can keep it on their portfolio of their revenue streams and focus on innovation of their other products while retaining revenue and reputation and a good customer base. The problem being overly reliant on this business model is the copyright law. Your products and business are only profitable when you are protected by the patent until it is valid, the moment the patent expires you will be bombarded with competition where you are definite to lose out as the rivals will offer better options. No business model is absolute is one lesson any entrepreneur has to learn. The needs of the consumer base will be changing over time and the free market demands they make creative solutions and keep evolving for them to survive.