I just bought a six pack of filters for my Brita pitcher for $25 so like $4 each and they’re good for two to three months each.
This might be false, but I’ve heard more than once that flag companies install flagpoles below cost, because those big ass flags are damned expensive.
I think there’s a difference between a product with associated consumables, and the razor-and-blade model.
For example, Diaper Genies aren’t exactly cheap at about $45-50. If anything, they’re marked UP, because they actually work as advertised, not sold cheaply in hopes of getting you into the habit of buying the refills from them.
The operative point is the sale of the item at a low price, in hopes of thereby increasing the sales of the complementary consumables- maybe even engaging barriers to switching.
Inkjet printers are a perfect example. They just about gave the printers away relative to other sorts of printers, and then gouged the crap out of you on the ink, which would dry out, etc…
I don’t think consoles are a great example; they’re still awfully expensive, and considering what’s in them, it seems like a fair price.
Exactly. I used to work for a company that used to make the burn-in and test hardware that Intel used to do just this- they were basically pizza ovens that could hold dozens, if not hundreds of large circuit boards (roughly 18" square) that each held about 6 or so processors. They’d heat them up to various temperatures, and run various stress test algorithms on the processors at different clock speeds, etc… Depending on how they performed under the testing, they’d sort them, mark them, and sell them accordingly.
The original dot matrix printers were expensive. The ink cartridge was fairly cheap and lasted a long time. Epson was a popular brand that worked well with pc’s. I remember paying over a $150 for a Epson fx-80 in1988. Built rugged. It never quit working. I finally sold it around 2004.
Ink jet changed things. The ink for them was higher. You only need black. The color ink cartridge was optional.
I remember prices for ink jet printers dropping and the quality noticably degrading. Ink cartridges got more expensive.
Another coffee-related semi-example. I recall companies that would provide free coffee makers to an office in return for the office having to purchase the coffee just from that company. Note that the office didn’t actually own the machine. I always wondered how they knew you were buying just their coffee. Sure if you never bought their coffee, they’d be unhappy, but what if you bought 1/3 of your coffee for cheaper elsewhere and put it into their empty cans?
I’ve never owned a Diaper Genie, but I own a similar product – the Litter Genie, which I assume is made by the same company. The pail itself sells for under $20. A pack of three refills costs more than the pail itself.
Game consoles aren’t cheap, but considering they’re essentially computers, they’re cheaper than what one would expect to pay for a computer capable of running the latest games.
Yes and there are many stories of people who need an array of computers to run sophisticated equipment saving money buy buying a bunch of XBoxes.
There was a business using a sort of’razor blade’ business model that turned it around in their marketing. They marketed the business as a volume meat supplier providing customers with high quality meat individually packaged to be kept in home freezers. They would deliver the meat and would even pack your freezer for you. The company would also sell you a freezer if you didn’t already have one.
Their actual business was selling freezers. They sold high quality commercial freezers offered with a payment plan over time with a long term warranty and service agreement. You could buy their meat even if you didn’t have one of their freezers at the same price though. I don’t remember the name of the company in the New York area, a business rating stated clearly they were in the freezer business and the freezers was their main source of profit. Here’s a different company that may be doing the same thing.
You reminded me of Agilent Airlines, a budget airline in the US. As I understand it, their real business is selling vacation packages – I’ve heard them described as a “travel agency with planes”. Of course that doesn’t really fit the razor-and-blade model; at most the cheap flights to popular vacation destinations are a loss leader to draw people into booking an all-inclusive vacation through them. And you are of course perfectly welcome to take on of their flights without booking a full vacation package (although from what I understand their website really tries to push them).
A brick and mortar camera store I worked at in the early 1980s did this as a loss leader type of sales method.
(not exact prices to follow)
We could buy Canon AE-1Program cameras with a 50mm f/1.8 lens for about $300
If we purchased 50 or 100 or so at a time, Canon USA also included an option for us to also get an ever-ready case, logo strap, and a UV filter for about $5 a kit.
We would advertise (with co-op advertising from Canon) the camera and lens as a limited time 3 day sale for $289. This would drive a lot of business into the store. Great, but we lost $11 or so on every camera with normal lens we sold, right?
So, as salesmen, we pushed the accessories. Pushed hard. Buy a logo strap for $8, a UV filter for $10, and an ever-ready case for $24… Before you know it, we made back the $11 loss and added about $30 dollars or more of profit
Other lenses and accessories had a regular profit margin, it was those consumer market cameras with normal lenses that had the loss when on sale. We rotated brands every week.
Add in a roll or two of film and a coupon for “discounted” photo processing, and that original $11 loss was a great investment, even tho we would have some customers come in an buy only the camera and lens. A store limit of 3 like purchases for any customer kept other stores from getting lower than wholesale cost cameras for themselves from us (besides the warranty legal issues)
I have no idea how camera sales are made now, I worked this job as a teenager
I don’t know… maybe right at release, but one of today’s Xboxes or PS4s is a pretty lame computer by today’s standards, and probably doesn’t really have more than $300 worth of hardware in there.
That’s not to say that they’re making a lot of bank on the consoles themselves, but I’m not sure they’re necessarily underpriced for what they are, either.
Here’s a Reddit thread discussing this:
The top comment mentions a good one: Mobile phone subscriptions. Hey, free phone! Just sign here …
Some others are 3D printer filament with authentication chips and devices with proprietary batteries.
Did anyone mention Culligan? We don’t use them, but their business model was to rent water softeners and have a local delivery person to bring bags of softener salt on a regular basis. Considering bags are 40 pounds, it eliminated a big hassle, especially for people who are elderly. I don’t know if they still offer the service, but it looks like they still do bottled drinking water delivery.
Interesting fact: the disposable kind also (may) contain a battery. Specifically, a lithium-air battery that is not exposed to air. It still produces some energy, but the device simply bleeds this through a resistor. The battery produces hydrogen as a byproduct in this state, which is used to pressurize the cylinder of lubricant and dispense it. You can change the rate of delivery by changing the resistance put across the battery (low resistance means high current, which means more gas production).
That’s loss-leader marketing, which is different than the razor-and-blades model.
The whole point of razor-and-blades is that you sell the “item” inexpensively, which in the classic example is the razor handle. Not necessarily at a loss, but inexpensively. The point being that you want as many people as possible to buy the item.
Then you make your profit on selling the customers the complementary items/consumables (i.e. the blades) over time. For cameras, it would be if Kodak just about gave away the cameras, and then made their money back on film.
Loss-leader marketing is just pricing some item below cost in hopes of making the profit back on the “bundle”- i.e. all the other stuff sold with it. There’s no expectation of ongoing sales or profits.
Keurig gets it both ways.
You pay a lot for the machine and the coffee cups.
They may cut the profit a little on the machine. It’s certainly not cheap.
Keurig may have started out trying to use the razor blade model - but I doubt it. The actual single-serve Keurig machines start at about $60 (on sale) while the Mr. Coffee version goes for about $30 so they were always making money on the machines. You are by no means locked into buying coffee from Keurig. They tried at one point to make machines that wouldn’t work with generic cups but that didn’t go over very well - in fact, it’s one reason I bought a Mr. Coffee version and I’m sure I’m not the only person who did that.
Right. I mentioned the place that sells meat but is actually in the freezer business. The consumer tends to think the opposite, that the razor is the freezer and the blades are the meat. In reality it’s not a razor blade business, the low monthly payments for that freezer go on for a long time and can’t be cancelled inexpensively. The meat price is about the same as a freezer package a butcher might sell, but they do deliver it and will even pack your freezer for you.
The fact that the Keurig machines are NOT particularly cheap is a big hit against it being a razor-and-blades marketing model.
One thing that hasn’t really been said explicitly is that in order for the razor-and-blades model to work, the manufacturer has to have significant market share on the complementary good, if not outright market dominance.
It doesn’t work if someone can buy your cheap machine, and then go use someone else’s complementary good in it. Then you’re just giving the machines away and not making money on the complementary good.
That’s why razor blades, photographic film, printer ink cartridges, etc… are all suited for this- they’re all things that aren’t easily made by anyone. But a Keurig pod? Trivial by comparison, I suspect.
That’s also why the video game console example doesn’t quite sit right with me; there’s got to be some sort of licensing or something where Microsoft/Sony would make their money off 3rd party games, because the vast majority of games are NOT published by Microsoft or Sony for use on their consoles.
Razor manufacturers spend huge amounts on R&D so they can come up with innovations they can patent, preventing others from copying them. Gilette always has a new patented blade release mechanism on a new razor, so that knock-offs can’t be made to fit the handle.