Gillette a Shave Above the Rest

Gillette A Shave Above the Rest

King C. Gillette not only invented the disposable razor, he also developed the aftermarket business strategy that has influenced business practices throughout the world. It was Gillette's idea to price the razors very low, almost giving them away, but charge whatever the market will bear for the disposable blades. He knew the profit would come from the repeated sale of the blades so it didn't matter if he lost money on the razor. Gillette's aftermarket strategy not only made him a millionaire, it is still successfully used by the Gillette Corporation and countless other businesses nearly 100 years later, proving that it is a viable business plan.

Seeing the need for a better way to shave, Gillette took the straight razor and began to improve it. He created a razor that consisted of a double-edged, thin metallic blade that was attached to a T-shaped handle. An early version of the razor was released in 1895. He continued with the manufacturing of the razor and soon founded the Gillette Safety Razor Company, which later became the Gillette Company, in Boston, Massachusetts. The company's first sale consisted of only 51 razors and 168 blades, but the razor was an instant success. Gillette went on to produce 90,000 razors and 12,400,000 blades by the end of his second year in business. Soon, millions of men owned the disposable razor, and Gillette had planted his seed.

In order for the strategy to be successful, Gillette knew two things had to happen. The aftermarket strategy requires an installed base and lock-in. The installed base is represented by the original sale (the razor) and this base is what makes the aftermarket so enticing to businesses because aftermarket products and services are sold repeatedly to the entire installed base of customers. In order to sell to the installed base over several years, a solid aftermarket strategy requires that customers are in some way locked-in to using the aftermarket product or service. This can be achieved through patents, technology improvements and service contracts.

A good example of aftermarket strategy can be seen in the video gaming industry. The hardware and software are controlled by the same company: the designer of the console is also the distributor of the games. This market structure demands a common pricing scheme. Give away the razor and scalp them with the blade: set a low