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CFA Level I · CFA Level I Exam · Business Models

A company sells razors at a low price and earns most of its profit from recurring sales of proprietary replacement blades that fit only its razors. This pricing approach is best described as a:

This is a razor-and-blade model. The firm discounts the base product to build a customer base, then earns most of its profit from the proprietary consumables that work only with that product, creating recurring, locked-in revenue.

  1. Asubscription model
  2. Brazor-and-blade modelCorrect
  3. Cfranchise model

Explanation

The razor-and-blade (captive product) model sells a base product cheaply and earns profit on related consumables that are tied to it. A subscription model charges periodic fees for access, and a franchise model licenses a brand and system to operators.

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