How does Nespresso make money?
Razor-Razorblade business model - Selling the base item for a loss to make money from the recurring consumables
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This is Edition #7 of the newsletter. You can find the previous editions here.
Nespresso is a machine-and-pod coffee concept for making espresso, developed by the food multinational Nestlé. By fitting an aluminum coffee pod into the machine, perfect espresso can be made at the push of a button.
How Nespresso makes money
Nespresso makes money by selling the machine at cost but selling the coffee pods at a recurring premium. This is similar to how Razor companies make money.
Razor-Razorblades Business Model
The razor-razorblade model is a pricing tactic in which a dependent good is sold at a loss (or at cost) and a paired consumable good generates the profits.
Also known as a razor and blades business model, the pricing and marketing strategy is designed to generate reliable, recurring income by locking a consumer onto a platform or proprietary tool for a long period. It is often employed with consumable goods, such as razors and their proprietary blades.
The concept is similar to the "freemium," in which digital products and services (e.g., email, games, or messaging) are given away for free with the expectation of making money later on upgraded services or added features.
Other companies that use the same model
Gilette (the OG) basically invented this model
HP and other Printers (cartridge being the razor-blade)
Atari, Xbox, Play Station and other gaming consoles
Nuclear Energy (reactor at cost (or at a loss) and making its profits off fuel-supply contracts)
High-end pens/ Ink refills
Credit card with no annual fees
Kindle & e-books
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