CFA Level I · CFA Level I Exam · Business Models
Company X sells printers at a small margin and earns most of its profit from proprietary ink cartridges bought repeatedly by printer owners. An analyst evaluating the sustainability of Company X's profit would most likely focus on:
The analyst would most likely focus on customers' ability to switch to third-party cartridges. Company X captures value through recurring cartridge sales, so lock-in determines profit sustainability. Printer margins are small and the number of models does not drive the recurring profit stream.
- Athe share of profit generated by printers at the point of sale
- Bthe ability of customers to switch to third-party cartridges, which would erode recurring revenueCorrect
- Cthe number of printer models offered in each product range
Explanation
In a razor-and-blade model, the value is captured through recurring consumables. Profit sustainability therefore depends on customer lock-in; if third-party cartridges are available, recurring revenue and margins are at risk. Printer margins are small and product range count is not the key driver.
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