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Still a Great Strategy – “The Razor & The Blade”

Even small businesses can learn something from the proven marketing strategies of large companies. Over a century ago, the Gillette Razor Company invented the safety razor and pioneered a great business model. They sold their razor at a remarkably low price while requiring the customer to buy the blades at a huge profit. This marketing approach became known as the “Razor & The Blade”.

We now see this strategy being used by many companies.  Of course, Gillette is still selling their razors and pushing replacement blades to their retail customers.  Hewlett Packard sells their laser and inkjet printers to us, supposedly for almost no profit to them, but requiring us to buy the ink cartridges at huge profits to HP.  A recent entry to this type of marketing is Green Mountain Coffee, the owner of Keurig – the single cup coffee maker.  The customer buys the coffee maker but has to buy the coffee pods from their web-based store, grocery store, or big box mass merchandisers.  Green Mountain supposedly sells the coffee makers at very low profit to them but makes a huge profit on the coffee pods (razor and blade strategy).

Starbucks Coffee also recognized the value of this profitable add-on sales strategy. In the last few days, they announced a joint venture with Green Mountain Coffee to sell the single pod coffee at their stores. (Read more.) The market reaction reinforces the wisdom of this marketing technique. On the day the deal was announced, Green Mountain Coffee Roasters shares surged 41 percent in Nasdaq trading, the most in almost 18 years, and Starbucks jumped 9.9 percent. (Read more.)

Last week, Wal-Mart announced a similar strategy of accepting orders on line which “ship to store”.  This is nothing new, as Best Buy, JC Penney and others already do it, but Wal-Mart is a much bigger retailer. They are quoted as saying “Not only do we see it as a nice convenience for customers.  But we also saw it as a way to drive incremental traffic to the stores” (Star Tribune). This approach is slightly different from “razor and blade” but is synergistic buying nonetheless, resulting in increased average sales with the retail customer.

What is important for all entrepreneurial business people to understand is how to increase your business.  Go after the “low hanging fruit.” This may simply mean getting your existing customer base to expand their project or to increase their shopping basket with you. You might use a razor-and-blade strategy or convenience shopping. These are all effective actions to create value for your business.