“PRICING” is a double-edged sword.

We all know what Price and Pricing is, and how important it is for businesses to survive. It is the only revenue generating element in the Marketing Mix (4Ps), the rest being cost centers. There can be several pricing strategies, each tied in with an overall business plan. 

Price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product. Where manufacturing is expensive, distribution is exclusive, and the product is supported by extensive advertising and promotional campaigns, then prices are likely to be higher. Price can act as a substitute for product quality, effective promotions, or an energetic selling effort by distributors in certain markets. 

There are approximately 14 types of pricing strategies and not every pricing strategy is applicable to every business. Some strategies are better suited for physical products whereas others work best for SaaS organisations. 

At a high level, conducting a price analysis looks like

    - Determining the true cost of the product or service

    - Understand how the target market and customer base respond to the pricing strategy

    - Analysing the prices set by the competitors

    - Reviewing any legal or ethical constraints to cost and price.

Analysing the pricing model is necessary to determine a new (and better!) pricing strategy. This applies whether you're developing a new product, upgrading your current one, or simply repositioning your marketing strategy. 

You might be wondering why am I speaking about price, pricing, and pricing models. Well, the reason is, "Razor and Blade Model".

What is Razor and Blade Model?

The razor and blade model is a pricing tactic in which a dependent good is sold at a loss ( or at a cost) and a paired consumable good generates the profit. It was a concept used by King Camp Gillette, the inventor of the disposable safety razor and the founder of Gillette in 1901. Though he didn't;t originate this model, it got famous because of him. 

This model has been used in several industries and businesses for many years. The Gillette company still uses this approach.

You might be thinking how can a razor and blade model be used for other businesses well, compare Razor and blade with other products you will find the similarities/

For example, 

    - Razor needs blades, 

    - Inkjet printers need Ink cartridges, 

    - Gaming consoles (PS and Xbox) need games (DVDs), software, and accessories.

Razor, Printer, and Gaming Consoles are sold at a lesser cost (sometimes at a huge discount) but the blades, ink cartridges, and Xbox and PS DVDs are sold at a higher cost.

In this model the pricing and marketing strategy is designed to generate reliable, recurring income by locking a consumer onto a platform or proprietary tool for a long period. It is often employed with consumable goods. 

The biggest threat to the razor and blade model is competition. Companies may thus attempt to maintain their consumable monopoly (and maintain their margin) by preventing competitors from selling products that match with their durable goods. With trademarks, patents, and contracts, firms can stifle competition for a long enough time to become a leader in their industry. Keurig is a good example of a company that capitalised on this model by preventing competitors from selling complementary products. 

If we look this model from Customer's point of View,

Benefits: Lower Upfront costs to purchase

Challenges: Frustration with brand lock-in and high priced consumables

in Business Post of view

Benefits: Accelerate growth by lowering the barrier of purchase along with high margins

Challenges: Lower fee models or flat fee || Customers may complain of product lock-in

This kind of business practice has been perceived by some as a form of price gouging and perpetuates an atmosphere of distrust within the consumer community. It can lead consumers to make their purchases elsewhere where they are receiving more perceived value, and in turn, the companies are not able to build desirable brand loyalty within their target demographic. 

End Note:

I believe, Pricing is like a double-edged sword, it has negative effects as well as positive effects. NO I'm not joking. When used right Pricing has the capability to give incredible returns, if don't it kills the business. 

The objectives of pricing should consider

    - The financial goals of the organisation

    - The fit with marketplace realities

    - The extent to which the price supports a product or service market positioning 

    - The consistency of prices across categories and products

    - To meet or prevent competition