Gillete business model
Gillete is one of the most revolutionary
Hello My name is gauhar ali today we will discuss about Gillete in this article
companies of the 20th century.
It is one of those very few companies that have survived
for more than 120 years which includes more than
7 revolutions and 2 World Wars.
But what is more fascinating about Gillete is not the growth
of the company, but the fact that
Gillete gave the world a billion dollar idea.
And this idea laid the foundations of success
for some of the biggest ventures on the planet which include
PlayStation, Xbox, Kodak and even Amazon Kindle
The question is – What exactly is this strategy ?
and how did a razor company go on to inspire
legendary products like PlayStation and Xbox.
And more importantly how can you apply this strategy
for your startups.
The answer to this question lies in the history of the
Gillete company which dates back to the late 1800s
This was the time wherein the trend of dense beards
was fading away and the trend of clean shave mustache look
was on the rise.
But back then shaving was not an easy task
it was even considered to be a dangerous undertaking
In the late 1800s if you wanted to shave you had
only 2 options. The first option was a straight razor
and the second option was a safety razor
The straight razor are the ones that looked very similar
to the ones you might have seen in Game of Thrones.
And they were considered to be very risky because they were
super sharp and people were kinda scared to
get them too close to their face or their neck.
On the other hand, the safety razor was like a
one time purchase but once you bought it
you had to frequently keep sharpening it
and that was a very very tedious procedure.
So, the men of 19th century had to seek professional help
and they visited the barber shop 2-3 times every single week
One fine day, a travelling salesman was getting late to work
and he got extremely fed up of using
his life-threatening razor.
And he had completely lost his patience to keep sharpening
the safety blade every time he wanted to shave.
That’s when he thought, why not have a razor
with a detachable, disposable blade that can
just be thrown away after every shave and can be replaced
by a new one.
And that is how the ideation of the modern-day razor blade
This angry, pissed off salesman was none other than
Mr. King Gillete himself and his vision gave birth to the
revolutionary invention of disposable blades
which then went on to change men’s grooming forever
King Gillete collaborated with his friend and got a patent
for their razors and their blades, which is why
nobody in the market could mimic their iconic design.
And that is how for the next 15 years Gillete remained
a market leader and became a million-dollar company
But you know what ? Things started to change in 1921 and
this is when the patents of the Gillete razor blade expired
and within just one year every single Gillete competitor
was making a similar pair of razor blade
and this put Gillete into deep deep trouble
And this was clearly reflected in their sales numbers also
From 1921 onwards, the sales of Gillete razors
saw a massive decline of 20% in just one year,
which is like a crazy downfall for a company
that had been a market leader for more than a decade.
Now, here’s where they really needed to do something magical
to save the company from failing.
And that is when they came out with a pricing model
called the Razor Blade model
And this model went on to change the very dynamics
of razor business forever.
This model was based on a very simple philosophy wherein
they said, ‘Let’s sell the razors at an ultra cheap price
with low margins and then sell blades at a higher margin.
So that, when the customer keeps buying the blades
we can have a reccuring profit from each customer’
Basically, in one line it meant,
“Give them the razors and make them come back for blades”
So Gillete started selling razors at an ultra cheap rate
to compete with the competetion and sometimes
they even sold it at a loss, just so that they can
get people into the “Gillete Ecosystem”.
And guess what ? Within a year the sales of Gillete razors
shot up and after 1922 when the razor blade strategy
was fully implemented,
the sales of Gillete razors skyrocketed by a humongous 127%.
I repeat, Gillete went from seeing a 20% decline
in it’s sales to seeing a massive increase of 127%
in just one year because of the
execution of the Razor Blade strategy
And that is how Gillete established a legacy in pricing
and today, even after 100 years,
it still serves as an inspiration for
some of the most iconic brands of the 21st century
And the Razor Blade model, even today, is taught extensively
in B-schools all around the world
Today Sony uses his pricing model and sells it’s
PlayStation consoles at a loss, just so that
they can make recurring profits
through CDs and PlayStation Plus subscriptions
In fact, Sony incurred a loss of about 60$
which is about ₹4200 for every PS4 console they sold,
just so that they could make billions
through CDs and subscriptions.
Kodak sold cameras at a dearth cheap cost
just to make customers come back for the film rolls
and Amazon Kindle today, is being sold at almost 0 profit
just so that Amazon can make billions
out of it’s e-book sales.
This is the power of the Razor Blade model
So now the question is how can you apply
this model to your startup
Well people, as far as I am concerned
there are 3 important lessons that you need to keep in mind
while you apply this strategy for your startup
The first thing that you need to understand is that
getting your customers into your ecosystem will always
give you an unfair advantage over your competition
because an ecosystem always results into
massive customer retention.
Secondly, while you apply this model you need to find
the points of maximum reluctancy
and then you have to work on minimising it
For example, you would be more reluctant
to buy a PS4 console as compared to buying PS4 the games
after buying the console.
Therefore, selling consoles at a loss and hiking the price
of the games will give you exponential returns
as compared to doing it otherwise.
Thirdly, you need to be careful to not be so dependent
on this model that you end up neglecting
the very possibility of disruption
because this is exactly what happened with Kodak
Now I don’t know how many of you actually know this
but then Kodak was so stuck to making money
by selling their film rolls that inspite of being one of the
first companies to file a patent for digital cameras,
they did not realize that the film roll itself
will seize to exist with the rise of the digital revolution.
And the fact that by sticking to the razor blade model,
they were practically digging their own grave.
And last and most importantly, every entrepreneur needs to
realise that pricing is a double-edged sword.
When used right, it will give you incredible returns
but if you don’t keep the track of the changes,
it can even kill your business.
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