Razor-Razorblade Model

What Is the Razor-Razorblade Model?

The razor-razorblade model is a pricing strategy where a dependent decent is sold at a loss (or at cost) and a paired consumable great creates the profits.

Otherwise called a razor and sharp edges business model, the pricing and marketing strategy is intended to produce solid, recurring income by locking a consumer onto a platform or proprietary tool for a long period. It is frequently employed with consumable goods, like razors and their proprietary edges.

The concept is like the "freemium," in which digital products and services (e.g., email, games, or informing) are given away for free with the expectation of making money later on updated services or added highlights.

A few firms make more progress in selling consumables at cost and the accompanying durables at a high-profit margin in a strategy known as the reverse razor and sharp edge model.

Understanding the Razor-Razorblade Model

Assuming you've at any point purchased razors and their matching replacement sharp edges, you know this business method well. The razor handles are essentially free, yet the replacement cutting edges are costly. King Camp Gillette, who created the disposable safety razor and established the company that bears his name, promoted this strategy in the mid 1900s. Today, Gillette (and its parent Procter and Gamble) utilizes the strategy to great profit.

The greatest threat to the razor and cutting edges business model is competition. Companies may along these lines endeavor to keep up with their consumable monopoly (and keep up with their margin) by preventing contenders from selling products that match with their durable goods. For instance, computer printer manufacturers will make it challenging to utilize third-party ink cartridges and razor manufacturers will prevent less expensive generic sharp edge tops off from mating with their razors.

With brand names, patents, and contracts, firms can smother competition for a long sufficient opportunity to turn into a leader in their industry. Keurig is a genuine illustration of a company that capitalized on this model by preventing contenders from selling complementary products. They held a patent on the K-mug coffee units until 2012 and, subsequently, delighted in substantial profits and taking off stock prices. Nonetheless, after the patent expired, contenders overwhelmed the market with their adaptation of the K-cup, eroding Keurig's profits and market share.

In the event that a contender offers a comparable consumable product at a lower price, the sales of the original company's product endure, and their margin dissolves. Following quite a while of price expands that prompted grievances that their razor sharp edges were too costly and in response to membership based "clubs" stepping in with competitive products at a lower price, Gillette brought down the prices of their razors and sharp edges in 2018.

Illustration of a Razor-Razorblade Model

The video game industry gives one more illustration of the razor-razorblade model pricing strategy. Game control center producers have a history of selling their gadgets at cost or at a low-profit-margin by planning to recover the lost profits on the extravagant games, which consumers buy undeniably more frequently over a long period of time.

For instance, Microsoft brings in no money on the sale of its Xbox One X game control center even at an average $499 price, yet it gets about $7 out of each $60 video game.

Service suppliers frequently sell mobile telephones beneath cost or offer them since they realize they will bring in the money back over the long run from recurring fees or data charges. Printers are sold at cost, a loss, or at a low-profit-margin with the comprehension that ink cartridges will give recurring revenue.

Features

• The razor-razorblade pricing strategy was promoted by the disposable safety razor creator Gillette, which sold razors at cost and replacement cutting edges for a profit.
• Intellectual property protection and contracts give firms a competitive advantage as contenders are restrained from mimicking their consumable goods process.
• The razor-razorblade model is a pricing strategy where one great is sold at a discount or loss and a companion consumable great at a premium to create profits.
• The gaming industry utilizes this strategy by selling gaming machines at cost or a loss and their free video games for profit.