Razor and Blade Business Model

Recurring sales are the core of any business. When you launch your venture, you require a way to keep customers coming back. It only through having returning customers that your business will remain profitable and sustainable. However, as competition increase in the marketplace, achieving this objective is a mirage.

It is difficult to sell to the same customers for long unless you have a way of netting them on business. For this reason, many businesses come up with operational models to keep customers locked on what they offer.

The razor and blade business model is one of the approaches that businesses use to realize this objective. This article helps you understand what this model involves, how it works, and its benefits and shortfalls.  Therefore, continue reading this article to know more about this model.

What is Razor and Blade’s Business Model?

The razor and blade model is a pricing approach where businesses sell consumable and dependent products as a pair. The model involves selling the dependent item at a loss or offering it for free but selling the consumable product paid with it at a higher price. Consumers have to keep buying consumable products to operate dependable ones like the razor and blade.

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This model came to the surface in the 1900s, with King Camp Gillette being its proponent. Gillette invented disposable razors. His company offers the razor free of charge. But for you to use it, you must purchase a blade which is a bit expensive. Other organizations are adopting this model as their operational approach.

Notably, businesses using this model need to make their ventures a monopoly. This aspect hinders competitors from joining the market. Alternatively, they make it impossible for the dependent products to work with the competitors’ consumables. So, the customers keep coming for the company’s products.   

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How Does Razor and Blade Business Model Work?

As noted, this model follows the razor and blade approach. Like how a razor can’t work without a blade, the customers must have both dependent and consumable products to fulfill their task. The company offers the dependent items at a low price or free at some time. This approach enables it to boost sales of consumables and disposable products. Mostly, the dependent items are durable. Companies using this model work hard to sell or distribute the dependent items to many target customers. This way, they boost the disposable items’ recurring sales and succeed in locking in the customers to their business.

For instance, the razor can serve you for years. On the other hand, blades are disposable and short-lived. So, customers keep on replacing them from time to time. Since no other blades can work with the Gillette razors, customers can only buy them from this company.

Examples of Razor and Blade Business Model

Razor and blade are among the oldest business models. Upon invention by Gillette, other businesses are adopting it. Procter & Gamble – the company behind the Gillette brand – uses this approach. The company offers free razors but makes a profit by selling disposable blades.

The sim card and airtime companies also employ this model. You cannot recharge your line with airtime from other companies. Again, you need to recharge the line to keep using it. This aspect guarantees telecommunication companies recurring sales.

Printer manufacturers use the same model. The companies sell printers at a low price. But for you to use them, you require ink cartridges from the same companies.    

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Pros and Cons of the Razor and Blade Business Model

As an entrepreneur, razor and blade can be a perfect business model. It can have many benefits in enhancing your business growth. However, it also has some demerits. You need to know these aspects before employing the model in your venture. Here they are:

Pros

Enhances recurring sales and customer loyalty

The dream of every business owner is to win returning customers. Recurring sales is the only guarantee of sustainability in business. Having the right business model is one step to realizing this objective. The razor and blade come in to fill this space.

With it, you are sure of recurring sales as customers come back for the disposable (blades) products regularly. As you interact with customers, they developed trust and loyalty. This way, you enhance your customer-business relationship.  

Steady revenue

The success of your business is consistent revenue. However, due to competition, many businesses are unable to generate regular revenue leading to failure. By using the razor and blade model, you can transform your business fate. The customers keep on coming back for the blades (disposable items). This way, you are sure of steady revenue that enhances better planning and budgeting in your business.

Opportunity to grow the market share

Being a market leader in every company’s dream but achieving it can be a huge task. You need to employ a powerful model and invest in marketing. The razor and blade model offers you the opportunity to enhance your market share.

By offering razors (dependent items) free or at lower prices, many people are likely to buy them. This step boosts the sales of the blade items. Since the customers cannot use other blades with your razors, you will likely become a monopoly or win the largest market share.  

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Cons

Poses high risk

While you might win customers by offering free or low-priced razors, this may not convince them to use blades. The customers can sense your trap and tactic of locking them. As such, they can boycott your products even when you offer them free. This means that the model possesses a high risk of making a loss.

Only works for monopolies

For you to use this approach, you must operate as a monopoly. The products you are offering should not have alternatives or complements. Also, you need to pay for trademarks and patents to hinder other manufacturers from producing such products. This aspect is hard or impossible as it requires intensive investment.  

Conclusion

In a word, the razor and blade model is a smart way of winning recurring sales. The model enables you to lock customers by offering disposable items that do not have compliments. Also, it enables you to enhance customer loyalty. However, it comes with a lot of risks and may only work for monopolies.

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