The razor and blade strategy just got a bit more complicated.
Associated with King Gillette (King was really his first name), it referred to cheap razors and expensive blades. When it works, you sell your product as a loss leader and then make money on its complements.
HP’s Razor and Blade Time Bomb
With printers and ink cartridges, razor and blade was a natural. HP sold an inkjet printer that needed cartridge refills. So it only had to underprice the printer and overprice the ink.
The problems began when third party cartridge makers entered the market.
Responding, HP orchestrated a “sneak attack.” The first step was a March 2015 firmware update. Unbeknownst to recipients, it was programmed to release a DRM (digital rights management) time bomb six months later. On September 13 customers using third party ink cartridges started getting error messages like “other cartridges may not function” or “damaged.” Their only alternative was one made by HP or one of their licensed producers.
When customers expressed their anger, HP said quality and safety were their goal. Only their ink, they (had previously) said, could best withstand 300º temperatures, endure high speed squirts and drip at the right rate.
But still, they were making a DRM reversal available.
Our Bottom Line: Complementary Goods
The razor and blade strategy is all about creating more demand for a product.
First, by lowering the price for one item, you increase the quantity demanded:
Then, when you sell more printers, you need more inkjet cartridges: