Business Model - Bait and Hook

In the discussion on Business models we now begin into taking up business models (generally used ones). Here we use a pretty common example of Razor and Blade as an example.

One would be quick to realize that generally the first time you purchase a razor, bundled along with it you get along with it a blade; in case you want more you would get a small cartridge of blades may be four or five blades. Once the old blade loses its sharp edge, all you do is replace the existing blade but don’t through off the handle. You connect the new blade with the old handle and continue using it. There is nothing out of the world in here? How do I relate this to business model?

Let’s look at the simple basic question – How is the company making money in this process?

You may note that there are generally numerous additional transactions for every single sale of the first razor and blade. Once I have got the razor and blade sold to the consumer – I have essentially got him for myself for a very long time! I now begin making my money by sale of the cartridge of blade as long as the handle is usable! The unique design of the handle connector would be enough for me to enforce that no other blade could be used for my company’s handle. So we find that companies in this domain generally pricing the first buy low price and then make bulk of the money with every new sale of the blade cartridge.

Since the first sale is generally like the hook for the consumer, and with just adding new baits I can catch more fishes – this model is also called the Bait and Hook Model.

Next Business Model - Direct Sales.

Read in Kannada: http://somanagement.blogspot.com/2011/02/blog-post_22.html