Freebie marketing, also known as the razor and blades business model, is the concept of either giving away a sellable item for nothing or charging an extremely low price in order to generate a continual market for another, generally disposable, item. The concept was pioneered by King C. Gillette, inventor of the disposable safety razor and founder of Gillette Safety Razor Company (today known as Global Gillette, a division of Proctor and Gamble). King Camp Gillette ( January 5, 1855 &ndash July 9, 1932) was an American businessman popularly known as the inventor of the Procter & Gamble Co ( P&G,) is a Fortune 500, American global corporation based in Cincinnati Ohio, that manufactures a wide It is a similar concept to loss leader marketing. A loss leader or leader (also called a key value item in the United Kingdom is a product sold at a low price (at cost or below cost to stimulate other profitable
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Development
While working as a traveling salesman in the 1890s for the Crown Cork and Seal Company, Gillette had an idea while attempting to shave one morning. King Camp Gillette ( January 5, 1855 &ndash July 9, 1932) was an American businessman popularly known as the inventor of the The 1890s were sometimes referred to as the " Mauve Decade" because William Henry Perkin 's aniline dye allowed the widespread use of that Crown Holdings Incorporated ( (formerly Crown Cork & Seal Company) founded in 1892 by William Painter is a Fortune 500 company based in Philadelphia His straight razor was so worn from use that it could no longer be sharpened. His idea was to create thin, cheap, removable blades that could simply be removed from the handle and discarded when no longer usable. [1]
As consumers use up the blades they then purchase replacements, potentially going on for years and decades. This potentially ensures a steady flow of consumers.
Applications
Freebie marketing has been used in business models for many years. The Gillette company still markets disposable razors in the fashion of their founder, often sending disposable safety razors in the mail to males near their 18th birthday, packaging them as giveaways at public events that Gillette has sponsored, etc.
Standard Oil
With a monopoly in the American domestic market, Standard Oil and its owner, John D. Rockefeller, looked to China to expand their business. Standard Oil was a predominant American integrated oil producing transporting refining and marketing company John Davison Rockefeller ( July 8, 1839 &ndash May 23, 1937) was an American Industrialist and philanthropist Representatives of Standard Oil gave away eight million kerosene lamps for free or at greatly reduced prices. [2]
This also resulted in a slogan among American businessmen, “Oil for the lamps of China. ” In other words, if you give them the lamp, they'll buy the kerosene from you. Oil for the Lamps of China became the title of a book written by Alice Tisdale Hobart explaining the phenomenon in a fictionalized way. Alice Tisdale Hobart (1882-1967 born Alice Nourse in Lockport New York, was an American novelist [2]
Gmail
Freebie marketing has also been used in a number of other mediums in more recent years. In 2002, Yahoo! launched a premium webmail service, charging users $29. 95 per year for 25 MB of storage. In 2004, Google launched Gmail, a free service that offered (at the time) 1 GB of storage. Gmail, officially Google Mail in Germany and the United Kingdom is a free POP3 and IMAP Operating costs were offset by advertising revenue which increased as usage did. [1] Yahoo! later announced unlimited free e-mail storage.
Comcast
Comcast often gives away DVRs to its subscribing customers. Comcast Corporation ( is the largest Cable television company the second largest Internet service provider and (according to the company the fourth largest telephone However, the cost of giving away each free DVRs is offset by a $19. 95 installation fee as well as a $13. 95 monthly subscription fee to use the machine. Based on an average assumed cost of $250 per DVR box to Comcast, after 18 months the loss would balance out and begin to generate a profit. [1]
Music
In July, 2007, Prince gave away 2. Prince Rogers Nelson (born June 7 1958 in Minneapolis, Minnesota) is an American musician 8 million units of his most recent album for free by bundling them with a Sunday edition of London's Daily Mail. The Daily Mail is a British newspaper currently published in a tabloid format The Daily Mail paid a 36-cent licensing fee for each CD. [1] As such, Prince earned approximately $1 million in licensing fees and in turn, sold out 21 August concerts in London which grossed $23. 4 million (a record for the region). [1] (The Daily Mail also increased their circulation by 20% for the day. )
Issues
The freebie marketing model may be threatened if the price of the high margin consumables in question falls. It may even be illegal in some instances.
Inkjet printers
Computer printer manufacturers have gone through extensive efforts to make sure that inkjet printers are not compatible with cheaper aftermarket ink cartridges, such as designing the cartridges in a way that makes it possible to patent certain parts or aspects, or invoking the Digital Millennium Copyright Act. A patent is a set of Exclusive rights granted by a State to an inventor or his assignee for a fixed period of time in exchange for a disclosure of an The Digital Millennium Copyright Act (DMCA is a United States Copyright Law which implements two 1996 treaties of the World Intellectual Property [3]
In Lexmark Int'l v. Static Control Components the United States Court of Appeals for the Sixth Circuit ruled that circumvention of Lexmark's ink cartridge lock does not violate the DMCA. Lexmark International Inc v Static Control Components Inc, 387 F The United States Court of Appeals for the Sixth Circuit is a federal court with Appellate jurisdiction over the district courts in the following districts On the other hand, in August 2005, Lexmark won a case in the U. Lexmark ( is an American Corporation which develops and manufactures printing and imaging solutions including laser and inkjet printers multifunction products S. that allows them to sue certain large customers for violating their boxwrap license.
Other goods
Consumers may also find other uses for the subsidized product rather than utilize it for the company's intended purpose, which adversely affects revenue streams. This has happened to “free” personal computers with expensive proprietary Internet services and contributed to the failure of the CueCat barcode scanner. A personal computer ( PC) is any Computer whose original sales price size and capabilities make it useful for individuals and which is intended to be operated The Internet is a global system of interconnected Computer networks The CueCat (trademarked:CueCat) is a Cat -shaped handheld Barcode reader developed in the late 1990s by the now-defunct Digital Convergence Corporation [4]
Tying
Tying is a variation of freebie marketing that is often illegal when the products are not naturally related (for example, requiring a bookstore to stock up on an unpopular title before allowing them to purchase a bestseller). Tying is the practice of making the sale of one good (the tying good to the De facto or De jure customer conditional on the purchase of a second distinctive Tying is also known in some markets as 'Third Line Forcing. '[5]
Some kinds of tying, especially by contract, have historically been regarded as anti-competitive practices. A contract is an exchange of promises between two or more parties to do or refrain from doing an act which is enforceable in a court of law Anti-competitive practices are Business or Government practices that prevent and/or reduce Competition in a Market (see Restraint of trade The basic idea is that consumers are harmed by being forced to buy an undesired good (the tied good) in order to purchase a good they actually want (the tying good), and so would prefer that the goods be sold separately. The company doing this bundling may have a significantly large market share so that it may impose the tie on consumers, despite the forces of market competition. The tie may also harm other companies in the market for the tied good, or who sell only single components.
See also
- Complementary good for a good that should be consumed with another good
- Loss leader for an item that is sold below cost in an effort to stimulate other profitable sales
- Product bundling for offering several products for sale as one combined product
- Product churning for selling more product than is beneficial to the consumer
- Vendor lock-in
References
- ^ a b c d e Anderson, Chris. A complementary good or complement good in Economics is a good which is consumed with another good its Cross elasticity of demand is negative A loss leader or leader (also called a key value item in the United Kingdom is a product sold at a low price (at cost or below cost to stimulate other profitable Product bundling is a Marketing strategy that involves offering several products for sale as one combined product Product churning is the practice of selling more product than is beneficial to the Consumer. In Economics, vendor lock-in, also known as proprietary lock-in, or customer lock-in, makes a customer dependent on a vendor for products “Why $0. 00 is the Future of Business. ” Wired. Wired is a full-color monthly American Magazine and on-line periodical published in San Francisco, California since March 1993 March, 2008.
- ^ a b Cochran, Sherman. Encountering Chinese Networks: Western, Japanese, and Chinese Corporations in China, 1880-1937. University of California Press. Retrieved on 2008-03-16. 2008 ( MMVIII) is the current year in accordance with the Gregorian calendar, a Leap year that started on Tuesday of the Common Events 597 BC - Babylonians capture Jerusalem, replace Jehoiachin with Zedekiah as king
- ^ Yuk-fai Fong. “When Does Aftermarket Monopolization Soften Foremarket Competition?”. Northwestern University Kellogg School of Management. Retrieved on 2008-03-16. 2008 ( MMVIII) is the current year in accordance with the Gregorian calendar, a Leap year that started on Tuesday of the Common Events 597 BC - Babylonians capture Jerusalem, replace Jehoiachin with Zedekiah as king
- ^ Cory Doctorow. “Two million CueCats at $0.30/each”. BoingBoing. net. Retrieved on 2008-03-16. 2008 ( MMVIII) is the current year in accordance with the Gregorian calendar, a Leap year that started on Tuesday of the Common Events 597 BC - Babylonians capture Jerusalem, replace Jehoiachin with Zedekiah as king
- ^ Trade Practices Act - Third Line Forcing
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