The Razor Blade Model: How Gillette's Strategy Shaped Business Success
Unveiling the Revolutionary Strategy that Inspired Iconic Brands and Transformed the Business Landscape
In the 20th century, there was a company called Gillette that did something remarkable. It survived for 120 years, through seven revolutions and two world wars. What's even cooler is that Gillette didn't just grow as a company; it also came up with an idea that changed the world and influenced big companies like PlayStation, Xbox, Kodak, and Amazon Kindle
So, what was this idea, and how did it inspire such famous products?
Let's travel back to the late 1800s when people started to prefer a clean-shaven look over bushy facial hair. But shaving back then was tricky.
You had two options: a super sharp straight razor that was a bit scary, or a safety razor that needed constant sharpening and was a pain and risk of cut. People had to visit barbershops all the time to keep themselves groomed.
Then, a salesman named King Gillette got really frustrated with his razor. He thought, "Why not have a razor with a detachable blade that you throw away after using, like a disposable camera?" And that's how he came up with the idea for the modern razorblade.
King Gillette patented his idea, and for 15 years, his company was doing great. But in 1921, the patents expired, and other companies started making similar razors. Gillette's sales started going down fast. That's when they needed a clever plan.
They came up with the "razor blade model." It was simple: sell razors at low prices and make profits by selling blades at higher prices. People would keep buying blades, and Gillette would keep making money. They sold razors at super low prices, sometimes even at a loss, just to get people to buy their blades.
This strategy worked like magic. In just a year after they started, Gillette's razor sales went up by a huge 127%, bouncing back from a 20% drop. This razor blade model became a pricing legend.
Today, this idea still influences big brands like Sony and Amazon. Sony sells PlayStation consoles at a loss, but they make money from games and subscriptions. Amazon sells Kindle devices almost without profit, but they earn from selling ebooks.
If you're starting a business, you can learn from Gillette. Create a system that keeps customers coming back. Make things easy for them, like Gillette did with disposable razors. But remember, don't rely too much on one idea. And be careful with pricing—it can help you succeed or fail.
Lastly, guard against overdependence on this model, for it may render you vulnerable to disruptive tides, as Kodak's history underscores.
Kodak was so stuck to making money by selling their film roles that in spite of being one of the first companies to file a patent for digital cameras they do not realize that the film role itself will cease to exist with the rise of the digital revolution and the fact that by sticking to the razor blade model they practically digging their own grave.
“In 1977, Kodak filed a patent application on some features of Sasson's prototype camera. Titled "electronic still camera", the patent listed Sasson and Gareth Llyod as co-inventors. The issued patent, U.S. patent number 4,131,919”
The Gillette Company is owned by Procter & Gamble now.
So, remember Gillette's story when you're building your own business. Keep your customers happy, find smart ways to make money, and stay open to change.