The Razor Blade Business Model In A Nutshell

The razor blade business model, also known as the razor-razorblade model, involves selling a product at a lower price to then selling a related product later for a profit. The razor and blade business model has been popularized by King C. Gillette, founder of safety razor company Gillette, which sold a durable razor at cost while selling disposable blades at a premium.

Understanding the razor-blade business model

The razor blade business model describes the strategic positioning of one product as free or complimentary to boost sales of a dependent product that generates revenue.

The model is often attributed to King C. Gillette, founder of safety razor company Gillette. The entrepreneur reasoned that if he could sell consumers a durable razor handle for very little, he could sell the disposable replacement blades at a premium price. 

The company reaped the rewards of Gillette’s strategy since the expensive blades needed to be replaced constantly. What’s more, the consumer had no choice but to purchase them as they were the only blades that were compatible with the razor handle. The strategy was such a success that current owner Proctor & Gamble continues to use it today.

The razor-blade business model intends to avoid competition by offering a free or low-cost product in the first instance – even if the business must incur a loss. Once customer loyalty has been attained, the company has an easier time selling them more profitable products.

Note that the razor-blade model is similar to the freemium model, where digital products and services are offered for free under the expectation that a consumer will pay for features at some future point.

Companies utilizing the razor-blade business model

Aside from razor blades themselves, there are many other brands in different industries utilizing this business model.

Let’s take a look at a few of these below:

Keurig – the company sells a range of single-serve coffee makers, with some available for less than $100. Where Keurig makes money is in the sale of coffee pods, with a 6-pack alone retailing for around $20. Microsoft, Nintendo, and Sony – these companies have almost always sold their video game consoles at close to cost price or less. The razor-blade model is prevalent in the industry because consoles require hardware updates and price cuts to ensure they remain relevant over long periods. The “blade” in this case is the video game itself. Hewlett Packard – HP has a wide range of printers, with some of the cheapest retailing for around the same cost as an ink refill. The company is counting on its customers having to constantly replace the toner cartridges to make moneyPotential limitations of the razor-blade business model

The benefits of the razor-blade business model for businesses are well stated. But there do also exist some limitations:

Environmental costs – some companies using the model have been criticized for the amount of waste they generate. In today’s world, businesses are expected to be environmental stewards and those that are seen to be destructive will lose customers to their competitors. Coffee pod brands were banned in some workplaces because their compositional mix of plastic, metal and coffee grounds made them impossible to recycle.Brand resentment – some consumers also become resentful of the company for effectively forcing them to use a certain product. This feeling may be exacerbated by prices the consumer considers too expensive. For example, many consumers are bemused by the fact that the price of ink is comparable to the price of a printer.Outlay risk – brands who implement the razor-blade model always run the risk that they will not recoup their initial costs. If the business is heavily subsidizing the initial product, poor sales in the premium product may result in an overall loss.Competition – when a company sells its premium product with a higher margin, a competitor can offer the same product for less without incurring the expenses associated with developing the free or low-cost product.Key takeaways:The razor blade business model also known as the razor-razorblade model, involves selling a product at a lower price to then sell a related product later for a profit.The razor blade business model has been used by brands such as Keurig, Microsoft, Nintendo, Sony, and Hewlett Packard.The razor blade business model endeavors to reduce competition and enable consumers to try a product at a low cost before turning them into repeat buyers. However, the model has been associated with environmental concerns and brand resentment. There is also the risk that the premium product becomes unprofitable or a new competitor emerges. 

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