Razor and Blade Price Inversion – Puzzle

We are asked to think of Razor and Blade Pricing Strategy as

“Give the razors (handles) away for free. Get a large enough customer base. Charge for blades”

Take look at the pricing for the “Perfect Pencil” and its refills.

Slide1

We see a far too expensive razor, so to speak, priced at $425 and comparatively far cheaper 3-pack blades for $25.

What is going on? Don’t these pencil marketers know the razor and blade strategy? Shouldn’t they be giving away the Perfect Pencil with its Sterling Silver set cheap (or even free) and make money from selling pencils?

Engrave your answer on the Sterling Silver cap of the Perfect Pencil and send to me.

Hints:

  1. Think about the customers they are targeting.
  2. Why those customers will buy the Perfect Pencil?
  3. What is the perceived value of $425 Pencil set?
  4. Why will any of these customers buy refills?
  5. What is the perceived value of refill to these customers?
  6. What is the value signal component – the razor or the blade – the pencil holder or the  pencil?

For extra credit  – Why does the refill cost $25?

Hint:

Think about the price anchor set by $425.

5 thoughts on “Razor and Blade Price Inversion – Puzzle

  1. The problem with conjoint analysis is the assumption that marketers know consumers’ preferences and that consumers know their own preferences (and their order).

    Focus groups might give some insights about preferences but even its results need to be taken with a grain of salt (e.g. the moderator can be a significant variable).

    Dry-testing is the only solution (to the best of my knowledge) that replicates the real world but is a bit naughty!
    http://www.targetmarketingmag.com/article/the-art-science-dry-test-direct-marketing/1

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  2. Hi Rags, How would you find out what the perceived value is?
    If the utility is worth $1 (the price of any other pencil that writes), what is the stuff the makes up the other $424.
    The bigger question is if this was a brand-new product with no sales, how would be go about pricing it?

    Would we still get to $425? Or do we just pick the highest price we can, and say our customer is someone who doesn’t ask for the price… “If you ask for the price, then clearly you can’t afford it”🙂

    Cheers,

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  3. I do not know the right answer, I can only state the most likely explanation using the Hints I listed.
    They are targeting a segment with higher disposable income and positioning their product as a luxury item thereby competing against Gucci and Louis Vuitton.
    There is lot of perceived value from the $425 Perfect Pencil, same as a $425 Coach handbag. Customers are not buying it for writing.

    So the initial high price – priced to capture customer value.

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