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3 Gillete business model

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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.

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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.

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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.

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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

happened.

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”.

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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

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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.

That’s all

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