Razor-and-blades model
business model of selling high-profit consumables or subscription services for use with a subsidized durable good
The razor-and-blades business model is a business model in which one article is sold at a low price or even given away in order to increase sales of a complementary good, such as consumable supplies. It is different from loss leader marketing and product sample marketing, which do not depend on complementary products or services. Common examples of the razor-and-blades model include inkjet printers whose ink cartridges are significantly marked up in price, coffee machines that use single-use coffee pods, electric toothbrushes, and video game consoles, which require additional purchases of accessories and software not included in the original package.
Although the concept and the catchphrase "Give 'em the razor; sell 'em the blades" are widely credited to King Camp Gillette, the inventor of the double-edged safety razor, Gillette did not in fact follow this model, nor did it invent the razor-and-blades model, although it did pioneer the production and sale of disposable razor blades.
Development
The legend about Gillette is that he realized that a disposable razor blade would not only be convenient, but also generate a continuous revenue stream. To foster that stream, he sold razors at an artificially low price to create a market for the blades. However, Gillette razors were expensive when they were first introduced, and the price only went down after his patents expired in the 1920s: it was his competitors who invented the razors-and-blades model.
Applications
This model has been used in several businesses for many years.
Standard Oil
With dominance in the American domestic market, Standard Oil and its owner, John D. Rockefeller, looked to China to expand their business. Representatives of Standard Oil gave away eight million kerosene lamps or sold them at greatly reduced prices to increase the demand for kerosene.
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