Gillette sits as #18 on Forbes’ Most Powerful Brands list. How does a company that sells disposable razorblades for mere pennies on the dollar have a value of $16.8 billion dollars?
It’s because they leveraged what we now know as the razorblade model of business.
The business came about due to the creation of a disposable safety razor which coincidentally required the use of the blades made by whom? Gillette.
The basic principle of the razorblade model is to leverage a lower priced item (often labeled as a loss leader) in hopes that the customer comes back to your business which offers a premium component to said item. The lower-tiered item should, in theory, be valuable in its own sense but having access to the premium product increases its value and longevity, for the consumer.
These types of businesses have become commonplace.
Take a look at the printing industry which has a stronghold on printing supplies. Keurig, too, has a dominant share on the single cup brewing industry thanks to the inexpensive machine but premium priced K-cups.
The truth is that every business has an opportunity to uncover and leverage the razorblade model.
The following will provide a few tips (and examples) to do so.