Eastman Kodak’s razor and blade pricing strategy is not expected to succeed in the short run. Earlier this year, the company revealed that it would be introducing an inkjet printer in the price range of $150-$300, using ink cartridges that would be “priced more than 50% lower than those of incumbents (Christenson & Anthony, 2007).” According to an article published in Forbes, “Kodak’s approach has many of the hallmarks of disruptive innovation, giving it a great chance of creating a much-needed winning product. But there’s still a long way to go before the company can declare success (Christenson & Anthony).”
Kodak happens to follow the razor and blade pricing strategy for its inkjet printers. Businesses such as Gillette, Wilkinson Sword, Schick, and Remington are known to have made millions of dollars using this pricing strategy. These companies gave away their razors or sold them at prices that were lower than the costs of production, making money on the razor blades instead (“Razors,” 2007). Inspired by the success of these companies, the leading manufacturers of printers such as HP, Lexmark International and Epson profitably applied the razor and blade pricing model by sacrificing profits on the hardware. Instead, they made money on the printer cartridges – the consumable part of the product (Christenson & Anthony).
Kodak is turning around this approach by radically reducing the price of its printer cartridges rather than the hardware that it plans to sell. Whereas competitors are selling ink cartridges for $30 or more, Kodak plans to sell them in the price range of $9.99 to $14.99. According to the company, it is able to sell cheaper ink cartridges because it has found a way to produce them at lower costs than its competitors (Christenson & Anthony).
While the low prices of Kodak’s ink cartridges are sure to attract customers, the competitors of the company, such as HP, are already selling their printers at prices that are much lower than those of Kodak’s printers. Moreover, thirty percent of the global ink market has already been taken over by “private label, recycled ink cartridges (Christenson & Anthony).” These ink cartridges are generally ten to fifteen percent cheaper than the branded ones, and sold by retailers such as Staples and Internet vendors like Carrot Ink (Christenson & Anthony). Hence, the low prices of Kodak’s ink cartridges will not appear truly novel to the consumers.
Kodak’s pricing strategy would also not succeed if its competitors reduce the prices of ink cartridges as well. Even so, Kodak might find itself at the winning end if its entry into the printer market manages to grow the market. The company is claiming that its Photo Value Pack would allow people to print pictures at home for only 10 cents – a cost that is almost sixty percent lower than that of using a system created by HP (Christenson & Anthony). With such claims, it is possible for Kodak to help the printer market grow by attracting more consumers to personal printers.
Nevertheless, it is too early to say whether Kodak’s entry into the printer market would be a profitable one. The razor and blade pricing strategy is surely a successful strategy. All the same, Kodak is facing a number of obstacles, such as the market for recycled ink cartridges and the possibility that its competitors would follow its strategy. If the printer market grows because of Kodak’s entry, the company would definitely benefit. Still, it could take some time before we are able to witness the sure fire success of Kodak’s pricing strategy in the printer market, that is, if the company is eventually successful in its new venture.