Razors and Razor Blades

One of the most enduring strategies for a company to use is “Razors and Razor Blades.” The strength of this strategy is continually on display from razor companies like Gillette. A consumer pays a basic price for the razor and then continues to generate revenue for Gillette through the life-long purchases of razor blades.

Another example of a company using this strategy is HP with their printers. Buy the printer at a low price and then purchase ink cartridges as they run out. HP added a new twist some years ago by having a message show up on the printer (and the print function on WORD) that states a cartridge is running low.

That got me thinking that my relationship with the car dealership I bought my car from is the same type of relationship. Yes, it is entirely in my control but I always bring my car to the same dealership for service.

An example that is not in my control is my iPhone (I just love this device). I’m always on the lookout for new apps and go to iTunes to purchase (or download free) applications. For Apple, it is a win all around – for them, for their developers and for me. And the constantly growing number of apps (now over 100,000) provides a nice competitive advantage for Apple.

Well, can the “razor and razor blade” strategy work for insurance?

How about property/casualty insurers who offer concierge service after an automobile accident? Hopefully it won’t happen with the same frequency as iPhone app purchases but seen over a vast number of automobile insurance policyholders who use the concierge service, these insurers are hoping that by providing a well-tuned (no pun intended) experience, they can better manage their loss costs than having the rascally claimants go to the body shops of their choice.

Are there other insurance examples? Perhaps in the life or annuity segments? Please let me know.

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Published in: on December 8, 2009 at 8:22 am  Comments (2)  
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2 CommentsLeave a comment

  1. Interesting. AT&T subsidizes the purchase of an iPhone (the “razor”) in exchange for signing a contract to use their service (the “blades”). I think insurers that sell policies as a loss-leader would quickly run into regulatory hurdles.

    P&C carriers that are tied to a financial institution have some options, though. For example, USAA gives customers a great rate on a car loan and then sells them the insurance for it.

  2. Just to be clear, I’m not proposing insurers sell poicies as loss-leaders. (Although, I think we can make an argument that each line of business should not necessarily be managed as its own P&L.)

    For me in our wonderful wacky world of insurance, I was thinking more of services that generate fees as the ‘razor blades.’ And these services could be crafted for both B2C and B2B lines of business.

    Think of Guy Carpenter’s CAT risk modeling capabilities and services. Augmenting services with services also qualifies (for me) as ‘razor blades.’

    Thoughts?


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