Monday, 10 April 2017

What links: Razor blades, coffee capsules, printer ink? It's the "two part pricing" model...

Two-part pricing is also known as the "razor and blades" model, because that's where it first drew attention - draw people in with an attractively priced (Gillette) razor, then repeatedly charge them for expensive replacement blades.

It revolutionised more than shaving. Gillette's blade led to a business model that has become ubiquitous in the modern economy. That model is called two-part pricing.

If you have ever bought replacement cartridges for an inkjet printer, you may well have been annoyed to discover they cost almost as much as you paid for the printer itself. That seems to make no sense.

The printer is a reasonably large and complicated piece of technology. How can it possibly add only a negligible amount to the cost of supplying a bit of ink in tiny plastic pots?

The answer, of course, is that it doesn't. But for a manufacturer, selling the printer cheaply and the ink expensively is a business model that makes sense.

After all, what's the alternative? Buy a whole new printer from a rival manufacturer? As long as that is even slightly more expensive than the new ink for your current printer, you will reluctantly pay up.