When it comes to successful business models, one that stands out is Canon’s razor and blade strategy. This approach, also known as the bait and hook model, has been instrumental in Canon’s success as a leading manufacturer of imaging and optical products.
Canon, a Japanese multinational corporation, was founded in 1937 and has since become a household name in the world of cameras, printers, and other imaging devices. The company’s business model revolves around the concept of selling low-cost, high-quality hardware (the ‘razor’) and generating recurring revenue from the sale of consumables (the ‘blade’).
Financial Summary (2023)
- Revenue: ¥3.9 trillion
- Operating profit: ¥370 billion
- Net income: ¥260 billion
- Free cash flow: ¥400 billion
Key Highlights:
- Canon’s revenue and operating profit grew in 2023, driven by strong demand for its imaging and healthcare products and services.
- The company’s net income and free cash flow also grew in 2023, reflecting the company’s strong financial performance.
Razor and Blade Model
In Canon’s case, the company sells cameras, printers, and other hardware at competitive prices, sometimes even at a loss, to attract customers.
Once customers have purchased a Canon camera or printer, they become locked into the Canon ecosystem. This is where the ‘blade’ comes into play. Canon makes a significant portion of its revenue from selling ink cartridges, toner cartridges, and other consumables that are essential for the operation of their devices. These consumables are often sold at a higher margin compared to the hardware itself, resulting in a steady stream of recurring revenue for the company.
benefits of the model
The razor and blade model offers several advantages for Canon:
- Customer Lock-In: By selling hardware at an affordable price and then making money from consumables, Canon creates a strong customer lock-in. Once customers invest in Canon products, they are more likely to continue purchasing Canon consumables, ensuring a steady revenue stream.
- Recurring Revenue: The sale of consumables provides a predictable and recurring revenue stream for Canon. This stability allows the company to invest in research and development, improve product quality, and maintain a competitive edge in the market.
- Competitive Advantage: The razor and blade model gives Canon a competitive advantage over its rivals. By offering affordable hardware, Canon can attract a larger customer base and gain market share.
Challenges and Potential Risks
While the razor and blade model has proven successful for Canon, it is not without its challenges and potential risks. Some of these include:
- Price Sensitivity: Customers may be more price-sensitive when it comes to consumables, as they need to be purchased regularly. Competitors offering lower-priced alternatives can pose a threat to Canon’s market share.
- Technological Disruption: Rapid advancements in technology can render certain hardware obsolete, reducing the demand for consumables. Canon needs to stay ahead of the curve and continuously innovate to maintain its market position.
- Counterfeit Products: The popularity of Canon’s products makes them a target for counterfeiters. This can result in lost revenue and damage to the brand’s reputation.
BUSINESS MODEL CANVAS
1. Customer Segments:
- Home users in need of personal printers.
- Small and medium-sized businesses requiring office printers.
- Large enterprises with high-volume printing needs.
- Professional photographers and graphic designers.
- Students and educational institutions.
- Photography and creative businesses.
2. Value Proposition:
- A range of printer types (inkjet, laser, photo, etc.).
- High-quality printing and imaging technology.
- Innovative features (e.g., wireless connectivity, mobile printing).
- Durability and reliability.
- Eco-friendly and energy-efficient options.
- Printing solutions for various needs (documents, photos, labels, etc.).
- Canon’s brand reputation and global presence.
- Professional-grade photo printing (for certain models).
3. Channels:
- Canon retail stores and showrooms.
- Authorized dealers and resellers.
- E-commerce websites (Canon online store).
- Distributors and wholesalers for commercial clients.
- Marketing and advertising channels.
4. Customer Relationships:
- In-store shopping and demonstrations.
- Online and e-commerce purchasing.
- Customer support for inquiries and technical issues.
- Service and repair centers.
- Marketing and promotional campaigns.
- Professional support for commercial clients.
5. Revenue Streams:
- Sales of Canon printers (consumer and commercial models).
- Sales of printer consumables (ink cartridges, toner, etc.).
- Accessories and spare parts sales.
- Printer maintenance and repair services.
- Licensing deals and co-branding partnerships.
- Professional-grade photo paper and printing supplies.
6. Key Resources:
- Canon printer models and technology.
- Consumables (ink cartridges, toner, etc.).
- Brand recognition and global presence.
- Research and development for printing technology.
- Supply chain and distribution network.
- Service and repair infrastructure.
7. Key Activities:
- Product development and innovation (printers and printing technology).
- Manufacturing, quality control, and assembly.
- Marketing and promotional activities.
- Distribution and retail partnerships.
- Customer support and technical services.
- Research and development for printing technology.
8. Key Partners:
- Authorized dealers and resellers.
- E-commerce and online retail partners.
- Commercial clients and distributors.
- Marketing and advertising partners.
- Co-branding and co-marketing partners.
- Service and repair partners.
9. Cost Structure:
- Product development and manufacturing costs.
- Marketing and advertising expenses.
- Distribution and supply chain costs.
- Customer support and operational costs.
- Research and development expenses.
- Service and repair costs.
Conclusion
Canon’s razor and blade business model has been a key driver of its success in the imaging and optical products industry. By selling hardware at affordable prices and generating recurring revenue from consumables, Canon has created a strong customer base and a steady revenue stream. While challenges and risks exist, Canon’s ability to adapt and innovate has allowed it to maintain its position as a market leader.
It is essential to consider a number of elements when implementing such a model, such as whether the product is complimentary or supplementary, how easily it can be substituted by other suppliers, barrier to entry and how lucrative the consumable is.
The most popular Razor and Blade models are clustered around consumer products. But what about industrial applications? We have a number of examples in our Innovative Business Model section of how Industrial supplies leverage the use of Razor and Blade.
