Gillette Razors: How a Small Idea Became a Multi-Billion-Dollar Corporation

Even now, prominent businesses from various industries, such as Xbox, Playstations, and HP, use the 120-year-old technique.

Gillette is one of the few brands that is so closely associated with razor blades that there are few others. It is one of the most revolutionary companies of the twentieth century, and one of the few that has lasted for 120 years, surviving seven revolutions and two world wars. But, more than its size or age, Gillette deserves credit for presenting the world with its billion-dollar proposition. Some of the world's most successful companies, including Playstation, Xbox, Kodak, and Amazon Kindle, have copied Gillette's success model.

You may be perplexed as to how a razor manufacturer can inspire famous items like the PlayStation and Xbox.

What started it all

The solution to this question can be found in Gillette's late-nineteenth-century history. The dense beard vogue was waning, and the clean-shaven mustache look was gaining popularity. Shaving, on the other hand, was a difficult chore. In the late 1800s, it was deemed harmful. If you needed to shave, you could use a straight razor or a safety razor. Both of these options, however, had their own set of problems.

The straight razors appeared to be extremely similar to the ones shown in Game of Thrones. People were afraid to touch their faces or necks with these razors because they were so sharp.

The safety razor, on the other hand, was a one-time purchase that required frequent sharpening, which was a time-consuming process. So, every two to three weeks, men in the nineteenth century went to barbershops to seek expert assistance.

A traveling salesperson was running late for work one fine day. He didn't have the time or patience to carefully use his life-threatening razor or to constantly hone the safety blade every time he needed to shave.

That's when he had the idea for a razor with a detachable disposable blade that could simply be thrown away after each shave and replaced with a fresh one.

That is where the modern-day razor blade's creativity began. Mr. King Gillette, the developer of the best-selling version of the safety razor, was the irritated salesperson.

Gillette's foresight resulted in the innovative creation of disposable blades, which permanently transformed men's grooming.

King Gillette and a buddy cooperated on a patent for their razors and blades. The patent meant that no one else could imitate Gillette's invention, allowing the company to stay a market leader and grow into a multimillion-dollar enterprise for the following fifteen years.

When the patents on Gillette razor blades expired in 1921, things began to shift, and within a year, every competitor was producing an identical set of razor blades.

Gillette was in serious financial distress and was losing market share. Their sales dropped by 20% in just one year, a significant drop for a company that had been the market leader for almost a decade.

Strategic changes shifted fortunes.

To keep the company from going bankrupt, Gillette had to do something unusual.

This is when Gillette began using the razor blade business strategy as a pricing model.

Although King Camp Gillette is widely attributed with the concept and its proverbial example "Give 'em the razor; sell 'em the blades," he did not invent this approach. Gillette not only absorbed the model from its competitors but also played a key role in popularizing it.

The price model went on to forever alter the razor industry's dynamics. Gillette's new plan was to sell razors at a low price with no profits and then sell disposable blades at a higher profit margin. As a result, instead of a one-time cash selling razors, you now have a steady stream of income.

Gillette enticed users into their ecosystem with low or negative-cost razors, and then profited from their recurrent blade sales.

When Gillette completed the deployment of the razor blade business model in 1922, the company's sales soared by 127 percent, compared to a 20 percent drop the previous year.

That's how Gillette built a reputation for fair pricing. It continues to act as an inspiration for some of the most renowned companies of the twenty-first century, even after one hundred years.

Even today, many management schools throughout the world teach this 100-year-old pricing approach.

Sony and Microsoft, for example, utilize a similar method to sell their gaming consoles at a loss and earn from PlayStation plus subscriptions and game content. Sony lost around $60 on each PS4 console sold in order to make billions on CDs and subscriptions.

The same method was used by Kodak to offer cameras for dirt-cheap prices and entice customers to return for their film roles. We've seen HP do the same with its printers. Even now, Amazon Kindle is sold at nearly no profit in order to profit billions on ebook sales.

So, this is the strength of Gillette's amazing price strategy, which has been emulated by others in a variety of industries around the world.

Important Takeaways

This story has a lot of valuable lessons for us to learn:

#1) Retention of customers

The most important benefit of this technique is that it leads to high customer retention. Getting your clients to join your ecosystem will always provide you with a competitive advantage. Another benefit of client retention is repeating sales over time, which is critical for a business's survival.

#2) Identifying locations of greatest reluctance and working to reduce them

A customer is more hesitant to purchase a gaming system than a CD or a subscription. As a result, you'll need to put in more effort to overcome this hesitancy and convert it into a sale. Providing low-cost goods is a wonderful approach to go about it.

Selling consoles at a loss and raising game prices will provide you exponential returns in this instance.

#3) Don't put too much faith in this model.

Keep in mind that you don't want to become so reliant on this strategy that you overlook the danger of disruption, as happened with Kodak.

Even after being one of the first businesses to submit a patent for digital cameras, Kodak continued to make money by selling film roles and disregarded the rise of digital cameras. We've all heard of Kodak's demise.

The most crucial thing to learn for any entrepreneur is that price is a two-edged sword. When used correctly, it can yield fantastic results, but if you don't keep track of it, it can cost you a lot of money.