CFA Level I · CFA Level I Exam · Business Models
A company that sells razors at a low price and earns most of its profit from proprietary replacement blades is most likely exposed to which business model risk?
The company is most exposed to rivals offering compatible, cheaper blades. Its profit comes from recurring sales of proprietary consumables, so substitutes that break the lock-in erode the revenue that subsidizes the low-priced razor. Packaging costs and seasonality are general risks, not specific to this model.
- ARivals offering compatible, cheaper bladesCorrect
- BRising prices for blade packaging
- CSeasonal swings in retail traffic
Explanation
The model depends on locking customers into proprietary consumables. Compatible, cheaper blades from rivals undermine the recurring-revenue stream that funds the low razor price. Packaging costs and seasonality affect any seller and do not strike at the model's core profit mechanism.
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