The razor blade business model relies on selling an initial product at a relatively low price (the razor) – potentially below cost, followed by consumables – where the firm makes the majority of its profit. Below are some of the most famous examples of the razor – razor blade approach.
Razor and Razor blades
The most famous example of this approach – where it gets its name – is companies like Gillett selling the razor for a relatively modest price, while substantially higher margins on the consumable blades. The attempt is to get customers locked into the company’s offerings, as once this initial product is purchased, consumers are likely to continue to purchase the consumables.
Electric tooth brushes
Electric toothbrushes are another example where the ongoing revenue stream associated with the sale of consumables can exceed the profit associated with the initial purchase.
Printers are often sold relatively cheap, with the ink cartridges to operate the printer often costs a similar price to the printer itself.
Game Consoles and games
Games consoles such as PlayStation and Xbox have historically been subsidized in their initial release. Although still priced at hundreds of dollars, the components in the consoles have at least historically exceeded the initial sales price. Both Microsoft and Sony have 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.
Cell phones and cell plans
Subsidizing cell phones as part of phone contracts can also be regarded as an example of the razor-razorblade model. Cell phone companies have historically covered part of the initial upfront cost of phones, recouping the initial outlay over the course of the cell phone contract.
The razor-razorblade business model relies on selling an initial product at a relatively low price, followed by consumables, where the firm makes the majority of its profit.
This article considers some key decisions with the razor-razorblade business model – the price of the initial durable, consumables, and how much of the consumables to bundle with the durable item.
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