At the beginning of the 20th century, King Gillette (yes, his name really was King) was said to have sold cheap razors and then made his fortune on expensive blades. The strategy is a retailing legend.
But it did not quite happen that way.
Where are we going? To razor blade competition.
The Real Razor-and-Blade Story
Through his 1904 patent, King Gillette brought his razor and disposable blades to men who were accustomed to the hassle of maintaining re-usable equipment. Priced at $5, the razor and an introductory set of blades targeted the higher end of the market.
During the 17-year life of their patent, Gillette could have benefited from a razor-and-blade strategy but they didn’t. Although no competition meant buyers had to purchase their blades, the razor remained expensive.
1921 was the turning point. When Gillette’s patent expired, competition heated up and razor prices went way down. Although they tried to maintain the high end with a newly patented expensive razor, the cheap one attracted a sizable segment of the market. Because Gillette retained their loyal consumers, finally we see a low-priced razor generating revenue from blade sales and a “cutting edge” razor-and-blade strategy.
Approximately a century later, the shaving industry is again innovating. But this time it is not Gillette. Instead we have Harry’s, Dollar Shave and other online retailers attracting Gillette’s store-based clientele with the convenience and consistency of an online subscription model. Then, adding to their competitive advantage, sellers have eliminated the expense of TV ads and store overhead.
Our Bottom Line: Competition
In a classic study of the origins of the automobile industry, economic historian Alfred Chandler tells us how firms use strategy and structure to compete. Conveyed through case studies that included the origins of General Motors and its organizational structure, Dr. Chandler showed us that innovation is about more than the invention of a new product.
I know it is a bit of a leap from Dr. Chandler’s ideas to a razor-and-blade strategy and then to an online subscription model. But all relate to the many sides of competition and how market structures can be transformed by strategic innovation.
At the least, we have the traditional market structure continuum (below) being upset by new business models.
My sources and more…Quite readable, this history of Gillette from a University of Chicago law professor conveys the fascinating story and ideally complements this NY Times article and this one from WSJ on the contemporary shaving market. Finally, I do recommend Alfred Chandler’s Strategy and Structure. Not an easy read, it is worth the time.