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Developing business ideas for drone technologies
Developing business ideas for drone technologies

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5.1 Razor and blade revenue model

The razor and blade revenue model involves selling a product at a low price and profiting from the consumables that customers need to purchase to use the said product. This revenue model was popularised by Gillette, hence its name! In this example, the idea was to attract consumers with a relatively cheap core product (razor) and make money by selling a high volume of consumables (razor blades). For this model to work, the core product is made compatible only to own-manufacturer consumables. This makes consumers ‘locked-in’ to buying consumables from the core product manufacturer. Another example is Nespresso, which gets customers to make a relatively small one-off investment in the coffee machine, but repeatedly buy the capsules required to use the machine.

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Figure 4 Coffee machines during promotion events are given for free to consumers signing up for an annual membership for coffee pods

This model has created a lucrative market for compatible consumables at a lower price. The challenge is for the manufacturers of the original core product to protect their revenue streams by blocking or hindering the use of such compatible consumables. This can be by voiding warranties, or introducing some form of detection system by connecting the core product to an online registration and service system, for example.

In the case of the coffee pods, the high volume of coffee pods has resulted in negative environmental effects. This has led some firms to create compostable coffee pods or to offer options for recycling them. Broadly, this has been the motivation for adopting 'green razor and blade’ revenue models, which are based on a durable core product that isn’t easily disposable, and environmentally friendly consumables. A good example is Epson’s EcoTank printer range, which is equipped with refillable ink tanks.