Razor and Blades Business Model
The other day I was pouring water from a Brita water pitcher into a Kuerig coffee machine when one of my co-workers pointed out that the Keurig machine followed the printer-and-ink-cartridge profit model.
What he was talking about was that the machine itself is probably sold at a loss, but that the wide distribution of the machines allowed them to sell a ton of potentially high-profit coffee pods. I've always thought of this as the "ink cartridge" model, but some research revealed that is has had a different name for 80 years: the "razor and blades" marketing model.
According to Wikipedia, King Gillette, a regular guy with the name "King", and inventor of the Gillette razor, adopted this business model after his patents ran out for mass-produced razor blades.
It is still in use for razor blade cartridges, and a bunch of other products use it as well, to varying degrees of success.
The best example in this century is the color printer and ink cartridges. Printer manufacturers practically give the printers away in the hopes of gaining ink customers.
The prices on this page were collected on Amazon.
Modern gaming console sales help the sales of $59 game software.
Keurig makes these single-cup coffee brewing machines. They don't tightly control the production of coffee "pods" or "K-cups", but they license some brands of coffee cups with their "Keurig Brewed" mark. This pod packaging doubles the price of ground coffee.
Free games on Facebook and mobile platforms help sell "boosters" for real money. In the example above, Lollipop Hammers are sold to help players through levels of Candy Crush Saga.
This is known as the "Freemium" business model. The basic game is free, the premiums can be a enviable cash flow.
You might think that Brita would be happy selling plastic pitchers for $21, but that's the cheap part. The profitable component is probably the $10 filter.
The Kindle e-book reader probably isn't terribly profitable at $69, but it facilitates the sale of millions of e-books.
In 2014, Gillette razors are $7, and the disposible cartridges are $3. They have a lot of little blades... like 10 I guess.
And finally, the Swiffer sweeper. The sweeper sells for $7, the same price as the Gillette razor above. The sweeper uses disposible cloths which sell for 25¢ each. Those aren't expensive, at least not to a guy that just paid 71¢ for a lollipop hammer.