Lesson 4 of 8 · All lessons in this module
- What a business model describes: customers and offering
- Channels: how the offering reaches customers
- Pricing: power, premiums and price discrimination
- Bundles, razors, freemium and subscriptions
- Value proposition, value chain and profitability
- Conventional business models and their variations
- Integrated case: two firms, same industry, different risks
- Business model innovation, network effects and platforms
Lesson 4 of 8 · 13 min
Bundles, razors, freemium and subscriptions
Firms with several or complex products use bundling, razor-razorblade and add-on pricing; firms chasing scale use penetration, freemium or hidden-revenue pricing; and many offer use without ownership through subscriptions, leasing, licensing and franchising.
In short
- Bundling: products sold together, usually at a discount to the sum of separate prices, or only together.
- Razor-razorblade: cheap durable equipment plus high-margin, often proprietary, repeat-purchase consumables.
- Add-on pricing: optional extras bought at or after purchase, when the customer is "captive"; overdoing it hurts goodwill.
- Penetration pricing: deliberate discounting to build scale and share, at the cost of margins; controversial if it lasts too long.
- Freemium: basic use free (or with ads), pay for more. Hidden revenue: users pay nothing; someone else (advertisers, sellers) pays.
- Subscriptions charge recurring fees for access; leasing (physical assets), licensing (intellectual property) and franchising (a fuller licence with territory and support) are similar recurring-revenue models.
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