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Apple Succeeds with ‘Backwards’ Bussiness Strategy

In a recent Mashable article, author Chris Taylor highlights how Apple succeeds using a unique business model to sell its products.

The iconic retail strategy, followed by most businesses in the 20th century, has been to ‘give away the razor handles and make money on the razor blades’.  The idea behind this is that you get consumers hooked on an affordable product (razor handles) and then make money on the essential accessories and add-ons (razor blades) to that product.  In 2001, Apple defied this business model with the launch of their groundbreaking iPod product.  Prior to the iPod, MP3 players resembled bulky, over sized compact disc players.  The iPod came with significantly less storage, a much higher price point (at $399), and yet consumers went crazy over them.  Two years following, Steve Jobs launched the Apple iTunes Store where songs were sold for 99 cents (a price that barely covered costs for each song sold).  People questioned the low price, to which Jobs responded: “The dirty little secret of all this is there’s no way to make money on these stores.” When asked why he would keep the price so low, when most of the profit goes back to the music company and the rest barely covers production costs, he replied: “Because we’re selling iPods.”

How is Apple taking this model to the next level?  At the iPad Air Launch event on Oct. 22, Apple announced that Mac OS X Mavericks and iWork would be Apple Unveils iPad Airfree.  This means that once consumers purchase their shiny new Apple product, the rest is free. All the coveted add-ons, apps, and now the OS itself, will be complementary with purchase.  Most business consulting management advises against such practice, predicting failure for companies who go against the well practiced “razor blade” business model.  However, Apple has proven itself unarguably successful in its unconventional strategy.  The next big question: how will Apple’s competitors compete?

 

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