Customer retention is the heart of every business sustainability. Your business must have customers coming back for more products to keep it going. For this reason, many businesses come up with approaches to realize this objective. Also known as business models, the approaches help a venture build a system that keeps the customers hooked to it.
Razor and blade is one of the said models. This model involves offering a premium product (razor) at a lower cost and its complimentary disposable product (blade) at a high price. With time, a new model popped from the razor and blade. The model is a reverse razor and blade. But what does it entail? Read on to learn more about this business model.
What is the Reverse Razor and Blade Business Model?
As the name suggests, the reverse razor and blade business model is an inversion of the razor and blade one. Like the latter, this model involves two products – consumable and dependent. But unlike in the razor and blade, the sellers here offer the dependent product at a premium price and consumable at a lower and convenient price.
For better understanding, a company using this approach sell razor at a high price but offer the blades at affordable and pocket-friendly prices. So, the customers must dig deep in their pockets to access the razor to enjoy the blades. The producer focus on selling more dependent items to earn a high profit margin.
As such, they make the blade/consumable products unique and impossible to work with the competitors’ devices. This aspect ensures that a customer must purchase this device to enjoy the low price continuous/consumables.
How Does Reverse Razor and Blade Business Model Work?
This model is similar to the razor and blade one. The company offers two products that depend on each other to operate. Like how a razor cannot work without a blade, dependent items will not achieve the required task without the consumable ones. However, the case is reverse.
Instead of selling the consumables at a high price, the manufacturer offers the dependent at a premium price. You can only enjoy the offers and additional features by buying the dependent item at the set price. Investing in the dependent products opens a door for enjoying superb features and services free or at a reasonable price.
Again, the dependent items are usually long-lasting and durable. So, you can enjoy the consumable services and products as long as you wish when you buy them. The model works on a simple sentiment that charges the customers a premium price on the main product and offers the add-ons free or at a low price.
Examples of Reverse Razor and Blade Business Model
Several businesses adopted the reverse razor and blade model in offering their services. One of the notable brands is Apple. The iPhone, iPod, and Mac products require one to dig deep in their pocket to acquire them. Once you buy the product, you enjoy low-priced music on iTunes.
Also, you have an opportunity to buy apps, TV series, and movies at affordable prices. The users get Mac OS and iWork free of charge. However, to enjoy all these luxurious features and add-ons, you have to purchase Apple devices. Notably, Apple does not offer discounts for its devices, but you can enjoy the unlimited stream of premium content without any charges when you own them.
Amazon is another company applying the reverse razor and blade. This company offers Kindle at a high price. Kindle is a device that allows you to access e-books from Amazon. You need to buy it at a higher price, but you access millions of e-books for free or at a very low price when you have it.
Pros and Cons of the Reverse Razor and Blade Business Model
The reverse razor and blade model provides a business with a chance to make great returns on the primary product. However, it is not immune to some downfalls. The model comes with its pros and cons as shown below:
High customer retention
This model requires customers to invest a high initial price but enjoy long-term benefits from the add-ons. For this reason, a business using this approach attracts loyal and true customers who deliver value from its products. As they want to enjoy low prices and other extras, they will keep buying the products despite the expensive charges. As such, this model enhances customer retention.
High customer retention means continuous sales and revenue generation. If the organization keeps its promise of offering quality add-ons or services, it will enjoy customer loyalty. Hence, this model is essential in boosting customer retention.
Unlike the razor and blade, this model makes a huge return from the primary item. It does not offer the razor for free or at a minimal price. This means that even when the customers fail to purchase or use the add-ons, the seller will not suffer a loss.
Also, you only attract customers who believe in your products. You do not need to trap them in using your products, as is the razor and blade model.
Like the razor and blade, this model creates continuous income through selling accessories and add-ons. The customers are loyal, meaning the company will enjoy repetitive sales. So, it is easy to predict the possible revenue and plan your budgets effectively.
Block potential customer
As noted, companies using this model do not offer discounts on the primary product. Even if they do, the price is high. This aspect makes it hard for many customers to afford it.
These customers could become loyal ones and guarantee returning sales, boosting revenue for the add-ons and consumables. So, by using an inverted razor and blade model, you will block a large customer base that impacts the sales of secondary items.
In a word, the reverse business model is suitable for ventures selling high-end primary products. The approach helps you to maximize profit on these products. So, even when customers fail to take up the add-ons or consumables, your revenues will remain steady. However, it can block a large pool of potential customers who cannot afford the initial investment.