Monday, October 3, 2011

Razors and blades strategy

While talking to a friend of mine on Intuitive Surgical, we discussed their business model of making a killer on the disposable portions of the DaVinci robot. I can see that with patents all over, and with a high barrier of entry, it would be hard to be a competitor for a while, so, that is a place where the famous "razors and blades" strategy would work. Same for instance, on glucose meters. This is a market (health care) also were quality prevails over cost (some times too much). But then, I wonder how Gillete, the named inventor of such a strategy was surviving today? So, I did some digging:

You can skip the whole thing and jump to page 26: "Gillette no longer had that lock after the 1904 patents expired in 1921, and yet the strategy toward which it was unwillingly pulled worked. Whether that was consumer habit, or the superior quality of the Gillette blades, or something else is something that we cannot divine from the catalogues."
And last page: "And that leaves a hole in the analysis. Gillette had not played razors-and-blades when it could have during the life of the 1904 patents and did not seem well situated to do so after their expiration, but it was exactly at that point that Gillette played something like razors-and-blades, and that was when it made the most money. Razorsand-blades seems to have worked at the point where the theory suggests that it should not have. Why is that? Did Gillette succeed because of quality, or were there powerful, even if hard-to-discern-now locks—psychological or otherwise—between the razors and the blades?"

So, basically the author himself does not know. He proposes couple of thoughts, that maybe are confirmed in slide 24 of Advertising, branding, etc... Bottom line, it could be quality or it may be beyond quality, the people simply got too much inertia to change or simply is stupid (assuming again there is no quality difference). Seriously, has anybody done the work of evaluating the two to justify paying for the more expensive one? Why would you go through so much trouble, anyhow? I guess that you simply assume the answer and pay for what theoretically is right (more price, better quality). I wonder what would be the strategy of a competitor to take market share away from Gillette. The competitors are not small (Wilkinson, BIC...), and I think the first actually tried (more advertising), but not sure they took market share away. It would also be interesting to check their advertising budget and how much of that affects the price of the blade.

Anyhow, the following article basically seems to say that the shaving experience is truly much better and people will be willing to pay for it. It also says that there will be a huge marketing campaign.

My next thing to investigate ink jets... :)

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