Thursday, March 21, 2013

Razor Strategy

The excellent manager is a restless one. He uses transformative strategies to move from one life cycle to another and strategies like the Long Tail, Blue Ocean, and the Razor for a competitive advantage and/or increased results. The Razor Strategy is three-step classic road map that has been used by many entrepreneurs to transform a moderately successful service business into a significant financial success. A similar approach can be used to transform a product company.

For the service company:

  1. In step one, you figure out how to package the business’s services in order to market and price them like a product (the razor).
  2. In step two, you figure out how to add a service component (the razor blade) to the packaged service product.
  3. In step three, add amenities around the product and services to create a unique, high-value experience for the customer. 

Product companies can be transformed by adding a service component (razor blade) to provide a continuing revenue stream and forge a lasting relationship with the customer. Make it easier for the customer to acquire the product (the razor) in order to secure the ongoing service revenues. Then amenities can be added to create a unique, high-value experience for the customer.

Why is it important to create the “blade” component for your business? Product companies have to resell their product every year to produce revenues. In effect, the top line on the income statement of the product business starts at zero on the first of every year. The top line of the “blade”-orientated company is cumulative from year to year. Each year’s new sales are added to the revenue line. It does not go back to zero.

Coffee companies transformed their business by selling coffee systems and coffee clubs where existing customers reorder coffee for the product (the system). They added exclusivity, deluxe packaging, and exotic blends to provide a unique customer experience. Printer companies dramatically reduced the cost of printers in favor of recurring ink/toner sales.

In a law firm example, an estate practice bundles its services in several different packages where each targets to different segments of the population: the up-and-coming professional, the young married couple, and the mature high-net-worth couple. The packages are sold for a fixed price, and promotional materials use the same look and feel as the brochure for a car. They add an optional monthly fee to its service package. This “razor blade” service includes updating the documents for changes in laws and keeping the client informed of any changes or expected changes in taxes, laws, court decisions, and regulations that might affect their estate or estate plan. The estate practice adds an addition to its office along with an upscale hospitality staff, all specifically designed to cater to their more affluent clients. Everything about their high-worth-focused facility and services reinforces the special VIP status of the firm’s opulent clientele. The experience provided for the clients’ benefit raises the firm to an entirely new level, attracting more targeted clients.

Mysteries by Tom Collins include Mark Rollins’ New CareerMark Rollins and the RainmakerMark Rollins and the Puppeteer and the newest, The Claret Murders. For signed copies go to Print and ebook editions are available from Amazon, Barnes & Noble and other online bookstores. The ebook edition for the iPad is available through Apple iTunes' iBookstore.

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