Razor-and-Blades pricing revisited

Anirudh Dhebar

Business Horizons, 2016, vol. 59, issue 3, 303-310

Abstract: From razors and blades to printers and ink cartridges to smartphones and monthly usage charges to media devices and content, razor-and-blades pricing is commonplace. The argument for such a business model is compelling: entice consumers to adopt with a low initial price for the ‘razor,’ build up an installed base, and more than make up for the initial subsidy by charging a high price for replacement ‘blades.’ The problem is, many consumer enticement, customer lock-in, and competitive lock-out mechanisms look less and less tenable given modern-day developments such as the Internet, Google searches, social media, the hacker revolution, the ‘maker movement,’ rapidly improving technology, leaky supply chains, and global markets. This article characterizes the what, why, and how of razor-and-blades pricing; then examines the present-day tenability of such a pricing practice; and concludes with an impetus and a call for innovation—innovation in, perhaps, the pricing of and the purchasing arrangement for the initial razor; the value proposition from the razor and the razor-and-blades system; the architecture of the razor-and-blades system; and the delivery, especially in terms of customer experience, of value from the razor-and-blades system.

Keywords: Complementary products; Adoption incentives; Razor-and-blades pricing; Customer lock-ins and competitor lock-outs; Business-model innovation (search for similar items in EconPapers)
Date: 2016
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:bushor:v:59:y:2016:i:3:p:303-310

DOI: 10.1016/j.bushor.2016.01.011

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