The Gillette razor/razor blade business model

As a former business student, I have an ongoing interest in business models and their accompanying marketing strategies. The Gillette razor/razor blade model is an interesting concept; needless to say, the money is in the blades and not the razor.

The Gillette razor/razor blade model revolves around a loss leader with the razor being sold at a loss with the razor blades sold at a substantial profit. The loss leader razor is complemented with a razor blade requiring repeated purchases. Naturally, the razor/razor blade combination is unique ensuring that you have to purchase razor blades from a specific manufacturer, in this case Gillette.

The psychological factor at play is the perceived bargain of purchasing a razor that is considered to be better value than competitor's products. This is especially true when the consumer is now locked into a product with the razor purchase. Instead of creating a one-off sale, a continuous revenue stream is generated by the consumer needing to not only make repeated purchases who purchases less out of product loyalty and more from force of habit.

The model was further refined with the printer/printer cartridge offered by computer hardware manufacturers. This can be circumnavigated by third party firms offering refillable cartridges at significant discounts, although with printed circuits added to cartridges, this became less cost effective. The Nespresso coffee machine/capsule model is another example, slick advertising with George Clooney endorsing Nespresso is critical to success, the coffee is decent, easy to make and easy to clean up.

This business/consumer model also encompasses e-commerce with digital industries adapting the model. A business like Google doesn't even offer a product as a loss leader, instead a portfolio of services and applications is offered to the consumer for no cost assembling a large audience for advertisers to target consumers. Applications are offered to consumers free of charge with opportunities to upsell premium products, ironically sometimes to escape aggressive advertising firms. This is the ultimate example of the old school bait and switch in a digital application.