Razor Blade Business Model - Explained
What is the Razor Blade Model?
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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.
Back to: STRATEGY & PLANNING
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 isn't 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.
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