What is the Razor/Razorblade model?

A:

The Razor/Razorblade business model owes its name to one King Gillette, founder of the eponymous razorblade company. The story goes that Gillette's idea for creating disposable razors stemmed from his personal experience with a straight razor so worn it was rendered useless. Gillette reasoned - and rightly so - that if he could offer consumers a sturdy, permanent razor supplemented by cheap, easily replaceable blades, he could corner the men's facial grooming market and create a massive, repeat customer base.

In modern times, the Razor/Razorblade model has evolved to mean any business practice in which a company offers a one-time product - usually at little or no cost (see loss leader) - that is complemented by another product for which the consumer is required to make repeated purchases. Perhaps the most recent contemporary example of this practice involves cable companies giving away DVR devices to customers and then charging those customers monthly subscription fees to use the DVRs.

However, a company need not give away products to adhere to the Razor/Razorblade model. For example, during the first few years of manufacturing "Next Generation" video game consoles, both Sony and Microsoft would sell their products at a significant loss. They then would make up for these losses by offering online gaming subscriptions and software licensing agreements. In this way, the two companies still managed to exploit the Razor/Razorblade model - generating profits from loyal, repeat consumers.

This question was answered by Justin Bynum.

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