A number of businesses have made significant profits by leveraging a razor & blade business model, introduced and perfected by Gillette . The name derives from the marketing practice of selling the permanent platform (razors) at or below cost and the consumable complement to the platform (blades) at a significant mark up over cost. Other examples of industries that have used this business model include printers & printer ink, video game consoles and games, and today’s topic – vacuums and their many costly accessories.
For many years, the market leaders in these industries had the advantage of offering goods or services for a price that did not reflect the total cost to the consumer. They were able to do so because, after the initial purchase, switching costs were not insignificant. However, new competitors entered these markets with transparent business models and were able to gain market share, reduce prices and more importantly, lower costs to consumers.
An example is Kodak’s entry into the consumer inkjet market. Since the launch of its line of printers, Kodak has been able to educate consumers regarding cost-per-page and increase their market share, while offering significant ink cost savings to consumers. This has helped keep ink costs from rising at their historical rate.
Another industry that has thrived in the razor and blade business model, and that is likely to experience further disruption, is the manufacturing and sales of vacuums for the home.
A study conducted by TeleNomic Research and released today by the American Consumer Institutefound that the long-term expense of operating and maintaining a vacuum cleaner usually costs consumers much more than the vacuums’ purchase price.