Razor Blade Business Model - Explained
What is the Razor Blade Model?
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Table of ContentsWhat is a Razor and Blades Business Model?How does the Razorblade Business Model Work?Academic Research on Razor Blade Business Model
What is a Razor and Blades Business Model?
The Razor and Blades Business Model is the strategic positioning of one product as free or complimentary in order to boost the sales of the actual revenue generating product. It was first used by Gillette to increase sales of its blades by offering hand held razors at throw-away prices in complimentary packages. King Gillette reaped rich benefits in the sale of blades that required repeat custom as they need to be replaced constantly.
How does the Razorblade Business Model Work?
Companies over the years have adopted and modified the model to increase sales of products in their respective niches. Complimentary products are offered, sometimes even at a loss to the parent company, to generate profits in the long term. Usually, one of the two products is cheaply available but requires frequent replacement so the other product can be put to use. Satellite companies giving away complimentary DVRs to consumers is one such example. Although the DVR is free, continued reception and viewing of TV channels requires monthly or yearly subscription renewal - i.e., constant expenditure to keep utilising the free DVR.
Modern Freemium models of apps and free games are also based on the Razor Blade Business Model. Although the products are free to use, in-app or in-game features, moves, and operations require purchase of upgrades, payment to enable avail special features, and so on. Offering a free complimentary product isnt the only approach to the Razorblade Business Model. Offering a new product at very low entry prices, even if it incurs losses for the company, until the public is used to them and becomes reliant on the products, is another way of increasing sales. Once the product is entrenched in the market, change in price structures and sales can recover the losses incurred due to the initial low balling.
Academic Research on Razor Blade Business Model
- Business models, business strategy and innovation, Teece, D. J. (2010). Long range planning, 43(2-3), 172-194. This journal discusses various business models and strategies employed in the process of innovation.
- The role of the business model in capturing value from innovation: evidence from Xerox Corporation's technology spinoff companies, Chesbrough, H., & Rosenbloom, R. S. (2002). Industrial and corporate change, 11(3), 529-555. This article discusses the impact of business models on deriving maximum value in the early stages of innovation.
- Business models and the internet of things, Fleisch, E., Weinberger, M., & Wortmann, F. (2015). In Interoperability and Open-Source Solutions for the Internet of Things (pp. 6-10). Springer, Cham. This article discusses strategies and business models for non-digital industries stepping into the sphere of the Internet of Things.
- Emerging business models for the open data industry: characterization and analysis, Zeleti, F. A., Ojo, A., & Curry, E. (2014, June). In Proceedings of the 15th Annual International Conference on Digital Government Research (pp. 215-226). ACM. This article discusses emerging business models and strategies for economic opportunities resulting from the open data industry.
- Business models and technological innovation, Baden-Fuller, C., & Haefliger, S. (2013). Long range planning, 46(6), 419-426. This paper looks at technological innovation through the lens of different business models.
- Business model innovation: Creating value in times of change, Amit, R., & Zott, C. (2010). This paper highlights innovation in the evolution of business models and the subsequent value creation amidst a changing economic scenario.
- Capabilities, cognition, and inertia: Evidence from digital imaging, Tripsas, M., & Gavetti, G. (2000). Strategic management journal, 21(1011), 1147-1161. This article presents a case study to establish the link between managerial understanding and its impact on organisational capabilities accumulation.
- Understanding business models and business model risks, Shi, Y., & Manning, T. (2009). The journal of private equity, 49-59. This article provides a framework for understanding different business models and the inherent risks associated with them.
- Business model innovation in corporate competitive strategy, Bereznoi, A. (2015). Problems of Economic Transition, 57(8), 14-33. This article sheds light on the innovation in business models in volatile corporate environments.
- Business model innovation, Bonakdar, A. (2015). PhD diss., University of St. Gallen. This thesis discusses innovation in business models and its impact on capturing value.