Pulling Off A Razor-Razorblade Product Strategy, Like Amazon's Product Strategists

Amazon’s product strategists shocked some constituencies with their $199 price point for the Amazon Kindle Fire tablet announced today.  But there’s a fundamental product strategy lesson to this pricing, and it’s an old product strategy model:  The so-called Razor-Razorblade Pricing model.

We all know this model well, as consumers: your initial purchase of razor is relatively cheap, but the cost of replacement razorblades really adds up over time. If you don’t buy razors, perhaps you’re familiar with this scenario from your inkjet printer.  Remember how cheap that scanner/printer was -- but have you ever seen the price of refill inkjet cartridges?

The Razor-Razorblade model works when “dependent goods” – the refills, the stuff you need to keep buying to use the product – are closely related to the anchor product.  In the case of the Amazon Fire Tablet, the dependent goods are content and services – MP3s, streaming videos, and of course books, magazines, newspapers, etc. and cloud services that allow you to store and synchronize your content across devices. Amazon’s product strategists can afford to charge a low entry price to raise adoption of the device, and then (they hope) deliver an experience that’s attractive enough for Kindle Fire owners to pay for as a service.

Hence Amazon CEO Jeff Bezos’ portrayal of the Kindle Fire product strategy:  “What we are doing is offering premium products at non- premium prices,” Bezos says. Other tablet contenders “have not been competitive on price” and “have just sold a piece of hardware. We don’t think of the Kindle Fire as a tablet. We think of it as a service.”

Not all product strategists can leverage the Razor-Razorblade product strategy.  In the tablet space, product strategists who have offered Android tablets have priced them too high and lack their own content services to execute Razor-Razorblade. They've focused on building a great device, devoid of content and services.  Understanding the power of the Razor/Razorblade product strategy is a fundamental differentiator product strategists at Amazon have engineered – and it will lead them to product strategy success with Kindle Fire.

Sarah Rotman Epps, senior analyst on my team, has the full analysis of Amazon’s product strategy here.

Comments

Razor Sharp

I think Amazon is right on point with it's kindle fire price tag of $199.00. Not to mention the economy of scale business that will come from all of the digital products such as ebooks,movies, music and apps for the device. The Razor strategy makes sense in fact, Amazon could grab market share from Apple if this product proves to be a solid product.

Class Disscusion #1

When I first read this article I was not sure is Amazon was smart to use the razor-razorblade strategy or not. The question I have is what kind of testing did Amazon do before deciding to use this strategy. I hope unobtrusive observation was one of them because its good to know how the target market acctually uses the device and how much dependent product purchasing they do. My thought is that Amazon will make a much higher profit from the dependent product purchases than the initial product purchase, in which case it is good for Amazon to use the razor-razorblade strategy. The strategy might also be good for the market because then they can vary their purchases based on individuality and are not stuck paying for services they don't use.

Jessica Combs

Adoption is key

Thanks for your comment! For Amazon, the low initial price point will lead to widespread adoption. This is key: Motorola Xoom, by contrast, has suffered from exceptionally low purchasing due to a high price point and no content or services strategy. Even if some of the buyers don't stick with Amazon's services, many of them will, particularly if the product experience is excellent. This was -- as Sarah Rotman Epps, on my team predicted -- the kind of strategy that only Amazon's product strategists could or would pull off in 2011. We think they are well positioned to create a formidable product/services proposition.

Amazon is not doing this in

Amazon is not doing this in the dark. Don't forget they already have years of Kindle book purchase data through classic Kindles, as well as a few months of Amazon Prime video consumption (through TV's, TiVo's, etc.). In short, it's not an uniformed strategy.