Following on in our series on business models, we decided to present you with a model which, while traditionally used in niche markets, has managed to lead a number of startups into sky-rocketing heights.
The razor and blades business model, also known as freebie marketing, has been used for decades and was originally introduced by Gillette in the early 1990’s. However, in the digital age, people question whether it still works. While some debate the question, others are making profits. Remember the Amazon Kindle Fire that sold at an extremely affordable price, but you need to purchase eBooks only through Amazon, in order to be able to use it? Well, this is razors and blades business model in action. Explained by the selling of razors, where the razors themselves are sold at a cheap price, but the blades are sold separately at higher prices, this business model stands for items, which are sold at a low price, or even given away for free, in order to increase the sales of the complementary goods needed to use such items.
The razor and blades business model is proof that marketing creativity truly matters. Most consumers don’t look too far ahead into the future when it comes to cost, making the razor and blades model an effective strategy. The model also has the potential to build a loyal customer base, which can be utilised by expanding your product range, and after the initial outlay it can be affective in securing a steady revenue.
One of the biggest disadvantages of using the razor and blades business model is that due to the speed at which information travels and the fierce competition, even if you are creative enough to reinvent the model for the digital age, competitors are bound to find ways in which to use your model to their advantage. This means, that even if you sell your razor, you can never be sure that the customer will buy your blade and not the one offered by your competitors. Nowadays there are companies who specialise in finding ways to copy your blades and selling them to your potential customers, leaving you at a loss.
Be creative. The Razor and Blades business model can be used in a variety of ways in the digital age, both for software and other products and at the end of the day it is all about the creative edge of your marketing strategy.
Check Out Your Competitors. If they are using the r