Pricing Model

Hewlett Packard’s “Razors and Razor blades” business model

Shelves of HP ink cartridgesMany printer manufacturers have implemented this commonly quoted business model over the years, most notably HP. This business model duplicates the success that razor manufactures found by charging very little for the razor itself (1 x sale), but then recouping the lost revenue opportunity, with a continuous stream of higher priced razor blade sales.

Consumers typically stop evaluating the value of a purchase, once the razor is in use and continue purchasing supplies without question making the supplies a larger profit center. This successful model is even more effective for printers, and for good reason.

Printers require installation, drivers, and a learning curve, all which create barriers for consumers who may wish to find better value in a competing brand. Add to that, the ambiguous nature of understanding cartridge value, which leads many people buy the least expensive printer they find and settle for it once installed.

The perfect example would be the printer that cost less than the cost of 1 set of black and color replacement cartridges. Many people, who never owned a printer before, were none-the wiser to the real cost of replacement cartridges.

Several new HP printers will begin flooding the market in July 2006. Most of these machines were cheap to buy (starting at $25.00 + at many bog box retailers) but HP quickly recovered the subsidized cost of their printers within 2 sets of replacement cartridges.

Sometimes these new cheap printers also may not come with printer cables, which can add to the enticing initial price. Over the course of a few months, the low price paid for the printer will be overshadowed by the amount spent on replacement ink cartridges. The goal for printer manufacturers is to get printers into the hands of consumers first, so that money can then be made with a lifetime of supplies.

As the printer prices became more subsidized to lure in new customers, the cartridge size began shrinking to ensure the ink cartridge buying cycle would still render a profit.

Most new HP inkjet printers since 2006, use “standard” cartridges containing 5 Milliliters of ink. Compare that with, the older HP 51645 (5 years earlier), which contained a whopping 42 milliliters of ink. (Very cheap HP ink cartridges when you consider they have over 8x times the ink volume.)

In 2007, nearly identical machines, with different shell designs, model numbers and features, allowed HP to release 20 to 30 different printer models within months and with much less R&D. This allowed them to progressively squeeze out competitor brands.

By the middle of 2007 Hewlett Packard has claimed a near monopoly on store shelve space for printers in some retail centers.

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