We hear the words “freemium” or “loss leader” all the time. It’s a pretty common practice in today’s market places to sell something at break-even or to give it away for free if it leads to the sale of a more profitable product or service.
However, we often fail to grasp the deeper strategic importance of free or break-even offerings and, even worse, many often fail to implement this strategy successfully by using it to take advantage of their customers.
Sunil Gupta, in an interview with HBR’s Ideacast, describes what he calls Razors and Blades.
In Gupta’s mind, a Razor is the loss leader given away for free or sold at break even.
For example, most of Amazon’s hardware offerings are Razors. Amazon doesn’t have to generate much, if any, profit on the sale of hardware because they’re making money on the sale of other, more profitable products, sales that these same devices facilitate.
Get enough Amazon hardware into people’s hands and sales of other products take care of themselves.
On the other hand, a Blade is a product or service that generates profit. In contrast with Amazon, Apple is dependent on hardware sales to generate profits. The hardware is the Blade.
Blades make money, Razors act as a compliment or stepping stone if you will, to get people to purchase a company’s Blade.
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Using a Razor to sell a Blade is a time-tested strategy, but it can go terribly wrong. To avoid this strategy backfiring on you, here are a few tips.
First, use the right tool for the job.
Frankly, the Razor + Blade strategy isn’t always the right strategy. Don’t try to force a square peg into a round hole. Only use this strategy when it makes sense.
Second, always and aggressively provide value.
Just because it’s free or doesn’t generate a profit doesn’t give it an excuse to suck. People’s time and energy are precious. Respect that with your Razor. If your prospect doesn’t walk away with something genuinely useful, you’re doing it wrong.
Third, and finally, be as transparent as possible.
Your prospect should know what they’re getting, why they’re getting it, and have an opportunity to evaluate it on the merits. If you’re collecting data, tell them. If you use your Razor to sell a Blade, tell them.
More transparency is (usually) better than less and will build respect and trust between you and your prospects.
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What are some ways that you’ve used the Razor + Blade strategy successfully? Have you ever gotten it wrong?