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Lo-res_OJO-pe0065728-SThe model used to price the cartridges for men’s razors is so famous that when other companies use it, they’re described as adopting the “razor-and-cartridge model.” In this approach, companies sell the relatively expensive foundational item (e.g., razor, printer, espresso machine) at a discount, because they know they can earn back the revenues by selling many of the more expensive replacement items (e.g., cartridges, printer ink, coffee pods) at a higher price to the captive audience that already has invested in the brand and its dedicated products.

But the razor market also might be the source of the biggest challenge to this familiar and widespread model. Begun as a small operation out of the founder’s apartment, the Dollar Shave Club has gained a remarkable foothold. Using a subscription format, it allows members to purchase replacement razor blades for at little as $1 a month. Not only do subscribers get a great per-item price, but they also enjoy the convenience of receiving the product by mail, rather than having to make sure they stop at a grocery or drug store right before they run out of their daily grooming tool.

As a result of the appealing pricing and convenience model—as well as the witty marketing campaign that centered on YouTube videos featuring the founder telling slightly off-color jokes about shaving and other masculine pursuits, using some ribald language—membership in the Dollar Shave Club recently has grown to 3.2 million members. It offers three levels of membership for men’s razors, from a basic, two-blade option for $1 per month to the “Executive” package (a razor with multiple blades and a trimming tool) for $9 monthly. The Club also has expanded its offerings to hygiene, shower, skin care, and hair products, while slowly beginning to address the grooming needs of women as well.

Noting its success, Unilever recently purchased the company for $1 billion. The founder, who retains a 9 percent share, gets to take home about $90 million. That might seem like a lot for razors, but ultimately, it represents a payment for a radically innovative idea.

Discussion Question:

  1. Would you sign up to receive monthly deliveries from Dollar Shave Club? Why or why not?

Source: Paul Ziobro, “How Michael Dubin Turned a Funny Video into $1 Billion,” The Wall Street Journal, July 20, 2016