Razor-Razorblade Model
Categories: Financial Theory
Those handles are beautiful. Inlaid wood. Rare tortoise shell. Sanded for days by teenage girls from Indonesia. The razor holders or handles, were they to sell for what they cost to make, might sell for 40 bucks each. But they don't. They're almost given away at 5 bucks.
Why? Because they carry one and only one type of blade. And the blades wear out. The blades cost a nickel to make and sell for 2 bucks. So you just need for a customer to fall in love with the holder and casing, and they'll buy a dozen blades the first 3 months or so, and you'll have made back almost all the money you lost selling the razor holder thing as a loss leader. Do this for 3 more months and you're in profits. Do it for a decade and you're Schicking pretty as a company worth billions.
The razor-razorblade strategy is a common one in a bunch of different businesses wherein they more or less "give away," or just sell at a very cheap price, the foundational element, like a printer. But then charge a lot...like $15 per printer ink cartridge that costs them a buck to produce.
Hi, Hewlett-Packard. We heart your rainbow color ways.
