Razor and blades business model
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The razor and blades business model (also called the "bait and hook model" or the "tied products model") works by selling a "master" product at a subsidised price, and making the profit on high margin "consumables" that are essential to the use of the master product. The master product may actually be sold at a loss, in order to "capture" the customer into using the consumable product.
In effect, this is the same as offering a high-interest loan to the customer to offset the price of the master product, which is to be paid off in installments as they use the consumables.
This business model can be dated to King C. Gillette, who used this business model for his sales of razor handles and disposable razor blades. This business model continues to be used in the disposable razor blade business to this day.
This model may be threatened if the price of the high margin consumables is in question. For example, computer printer manfacturers have gone through extensive efforts to make sure that printer ink cartridges are not interchangeable.
In markets where all the major competitors follow this business model, there may be suspicions of the existence of cartels and violation of antitrust legislation. In some cases, notably auto parts in the United States, legislation exists specifically to prevent this business model from existing.
Other examples include:
- electric toothbrushes and their brushheads
- computer printers and their ink cartridges
- games consoles and the games they play
- cell phones and air time costs
- inexpensive cameras and prints