A trip to the local drug store prompted listener Paul Fuligni to wonder why razor blades are so expensive, such that they’re now often in locked containers or behind the counter at the drug store.
It turns out, lots of people have thought a lot about the pricing of razors and blades. There have been dozens of academic papers written about it and any good MBA student will have studied it.
“This tends to be called ‘razors and blades pricing’ or a ‘two-part tariff’,” says Richard Schmalensee, an emeritus professor of economics and management at MIT and the author of his own paper on razor blade pricing.
Companies woo customers with an inexpensive, maybe even below-cost product (like the razor handle) and then charge more a related good (such as the refill blades). It’s a way to lock customers into a product line, but Schmalensee says it’s also a way to charge higher prices for customers who use the product more often.
“The person who uses a new blade every day, that’s a person who values a close shave and that’s the person I, as the manufacturer, know would pay a high price,” he says. “And I’d be happy to charge them that high price.”
A slew of other products use the razors and blades model: Video consoles and video games, printers and ink cartridges, e-readers and e-books, and even in some ways, phone carriers who subsidize a cell-phone handset when purchased with subscription to their service.
However, there’s another reason why blades are so expensive.
“Razor blades are really, really difficult to make,” says Jeff Raider, the co-founder of Harry’s, a start-up that sells shaving products directly to customers through its website.
Raider says before he started Harry’s, he had no idea how complicated razor production would be or that there’s only a few companies in the world producing blades. He wound up purchasing a German factory in order to get the blades and quality he wanted.
“It actually starts with buying really fine razor steel,” explains Raider. “You have to grind steel so that it’s very sharp at its tip and very strong at its base. That gives it both stability and a really crisp cutting surface.”
The combination of strength and precision minimizes the risk of nicks or razor burn.
The metal is then heated and cooled, “actually changing the molecular composition of the steel,” says Raider. Next it’s ground at “specific angles that are proprietary to the razor blade manufacturer, in machines that the manufacturers actually make themselves.”
Because creating the blades is an intricate, complicated, expensive process with high barriers to entry, the few companies that make blades have an advantage: Without many competitors, they’re able to charge higher prices.
“Historically, the companies that have known how to make razor blades have been able to charge people vastly different prices for razor blades than the actual cost,” say Raider.
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