Pattern description

The basic product is cheap or given away for free. The consumables that are needed to use or operate it, on the other hand, are expensive and sold at high margins. The initial product's price lowers customers’ barriers to purchase, while the subsequent recurring sales cross-finance it. Usually, these products are technologically bound to each other to further enhance this effect.

Inventive problems

Application examples

One of the fathers of the pattern is John D. Rockefeller, who started to sell cheap paraffin lamps in China towards the end of the nineteenth century. Purchasers of the lamps had to buy expensive fuel in order to light them, which Rockefeller manufactured in his Standard Oil Company refineries.

Hewlett-Packard appropriated the model in 1984 by adapting it for the ThinkJet, the first inkjet printer in the world developed for private use. Unlike expensive industrial printers, it sold for as little as US $495, rendering it affordable by the average American. Hewlett-Packard generated most of its revenue through the subsequent sale of printer cartridges.

Another prominent company that effectively uses the Razor and Blade business model is Nestlé’s Nespresso. Here the system involves a combination of inexpensive coffee machines and pricey coffee capsules

References

The Business Model Navigator: 55 Models That Will Revolutionise Your Business