A razor blade model is a business technique which involves selling an item at a low price so that the complimentary item can be sold at a higher price. It is a pricing strategy utilised by companies to sell what is thought to be the primary product at a lower price so that the complementary product may be sold at a higher price later. The term comes from the famous razor makers ‘Gillette’. The company sells its razors at a very low price and the blade for the same normally costs at least three times more than the cost of the razor.
Competition plays an important role in the razor blade pricing strategy. Hence, companies would try and make their complimentary products unique. For example, a printing company would make it difficult to use third-party cartridges for its printers.
The pricing strategy is effectively used for selling e-products today. Apple utilises a reverse razor blade model. Apple marks its I-phone products at roughly 60% more than the making price. For example, an I-Phone X would cost Rs.25,000 to make and it sells for Rs.69,000, giving a profit margin of almost 64%. In this case, the mobile phone would be the blade. The razor is the products that Apple sells on its store.
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