Gillette sits as #18 on Forbes’ Most Powerful Brands list. How does a company that sells disposable razorblades for mere pennies on the dollar have a value of $16.8 billion dollars?
It’s because they leveraged what we now know as the razorblade model of business.
The business came about due to the creation of a disposable safety razor which coincidentally required the use of the blades made by whom? Gillette.
The basic principle of the razorblade model is to leverage a lower priced item (often labeled as a loss leader) in hopes that the customer comes back to your business which offers a premium component to said item. The lower-tiered item should, in theory, be valuable in its own sense but having access to the premium product increases its value and longevity, for the consumer.
These types of businesses have become commonplace.
Take a look at the printing industry which has a stronghold on printing supplies. Keurig, too, has a dominant share on the single cup brewing industry thanks to the inexpensive machine but premium priced K-cups.
The truth is that every business has an opportunity to uncover and leverage the razorblade model.
The following will provide a few tips (and examples) to do so.
Customization
Consider the marketplace for office furniture.
Thousands of work stations, chairs, office accessories, and the like, are needed for businesses.
Now figure that OfficeMax, Staples, and Office Depot comprise the majority of those providers.
Makes it difficult to see where a business could wiggle in, right?
What’s needed is a layer of customization.
This customization allows a business to offer premium products because they are tailored to a customer’s requests and desires.
Let’s say, for example, you operate a business and need custom office furniture.
A basic offering, which you may find at major retailers, may suffice if you needed a simple, generic item. However, a choice in the customization allows you to work with another business that tailors to your brand, work space, and workflow.
Your turn: Take a look at one of your physical products and develop ideas on how to add customizable features. These features may include tailored designs, branding, white labeling, reports, dashboards, and more. What you can do is take the generic offering, use feedback from customers, and begin developing extensions for the item which come at a premium cost.
On-going Premium Support
Linux, a popular open source operating system, is free for all to use, develop, and support.
You may wonder how a business could thrive off something that is free. It has been proven though and one of the industry leaders is Red Hat.
Red Hat provides open-source software, products, and support for major enterprises. It currently holds about $9.2 billion in valuation.
The secret of Red Hat’s success relies on the ability to offer support for Linux which is difficult to master but greatly rewarding due to its lack of a price tag. Premium support helps companies implement the operating system and have tailored customizations for their needs.
Your turn: Find the opportunities hidden within your customer support. Identify whether your business has the opportunity to sell premium support for high-end clients. Consider dividing your current level support into a free and paid model depending on its complexity.
Become Your Own Competitor
Consumers like to believe they are the ones in control of the market. An interesting infographic that you won’t want to miss is The Illusion of Choice.
What the infographic reveals is an idea that we’ve all had in the past: the cheap, regular, and high-end products are generally all sold by a select group of companies.
These companies involve Nestle, Kraft, P&G, Johnson & Johnson, Kellgog’s, and others.
What we see as competition is merely a company ensuring they have a hand in all markets.
A customer unwilling to purchase a high-end product could find themselves buying from the same company that offers an inexpensive equivalent.
Your turn: Select one or two of your hottest products or services. Develop a new brand to house these offers. Set the offers at a higher (or lower) price depending on the market. Delegate and hire individuals to act as sales representatives for this spin-off business. Funnel leads from these new channels into you existing business but send it back white labeled as the off-shoot brand.
