The razor-razorblade business model (also referred to as the printer and ink business model, or the durable and consumables sales approach) involves selling an initial durable item – the razor – at a relatively low price, and then making the majority of the profit from the ongoing sales of the consumables. This article explores some key considerations involved in the sales approach.
The price of the initial durable item
One of the initial considerations is the price of the durable razor.
- Advantage of a relatively low price: Setting the price low may encourage initial adoption. Given the profits are not made with this initial offering, some razor-razorblade offerings (e.g., video games consoles) may be priced below cost as a loss-leader – helping encourage adoption to drive sales in the subsequent consumables.
- Advantages of a relatively high price: While one clear advantage of a high price for the initial razor is that it avoids substantial subsidy required on the initial item, it may also help avoid customer churn. A very low price means customers may not be inclined to stick with the offering – it is very easy to switch to a different offering.
The price that you are able to charge for the initial razor is also likely to be influenced by the prices of your competitors’ products. If others have a relatively low price, it can be difficult in attracting others to your offering unless you also have a comparably low price.
The price and value of the consumables
The final important consideration is the price and overall value of the consumable goods. Ultimately this is where money is made with this business model, and it is important that the margins are sufficiently high to recoup any initial subsidy on the original consumable product.
While not all customers will consider the ongoing consumable cost when making their initial purchase, some will – and if your product doesn’t offer sufficient value they will likely turn to a competitor’s offerings. This can be expensive – one of the worse situations is to subsidize the initial durable item, only for few consumers to continue with consumable purchases when they realize how costly the ongoing consumables are.
How much consumables to bundle with the initial razor
Beyond the price of the initial durable item and the price of ongoing consumables, it is also important to consider how much consumables to include within the initial purchase. Include too much and you both forgo part of the ongoing revenue stream, while also potentially running the risk of customers repeatedly buying the ‘durable’ item to take advantage of cheaper consumables bundled with the initial good.
Further thoughts: Consider your offering relative to others
It is important to consider the razor/razor-blade bundle as a package – how the overall value compares with that of your competitors. While some customers will focus on the initial cost of the razor, and others will focus on the consumable prices, ultimately a majority of customers will take both into account to some degree when evaluating the offerings. Being aware of your relative product positioning, and your margins at each stage can help influence your pricing approach.