Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How Subscriptions Changed the Price of Razors
Transcript
- Lucas: Luna, how much do you think a single Gillette razor cartridge actually costs to make? Luna: I've heard numbers around twenty, thirty cents. But the retail price is, what, four to five dollars? Lucas: Yeah, roughly. Gillette's pricing was legendary — they had a duopoly with Schick, and both kept margins fat. Then along comes Dollar Shave Club in 2011, and they basically said: we'll sell you that same cartridge for two dollars, shipped to your door. Luna: And they weren't making cheaper blades. They were just selling them at a lower price point. Lucas: Exactly. Dollar Shave Club sourced blades from a Korean manufacturer — same factory that made store brands. But the real trick wasn't the blade. It was the subscription model. When you sign up, you pay a few bucks a month, and a fresh pack shows up automatically. That changes the price anchor completely. Luna: Because you're not comparing cartridge to cartridge anymore. You're comparing a subscription to a trip to the store. Lucas: Right. The old anchor was the retail price of a pack of eight — maybe thirty dollars at the drugstore. DSC's anchor was two dollars, plus a one-time fee for the handle. That handle was basically free. They sold it for a dollar, but the cost was around three. So they lost money on the razor to lock you in. Luna: That's the classic razor and blades model inverted. Usually you make money on the blades after giving away the razor. Gillette did that for decades. Lucas: But DSC flipped it again. They made the subscription the profit center. The blades had a gross margin around fifty percent, which is lower than Gillette's seventy-plus, but the subscription created predictable recurring revenue. And that's what Unilever valued. They bought DSC in 2016 for $1 billion, even though the company was barely profitable. Luna: So Unilever was paying for the subscriber base, not the blade technology. Lucas: Precisely. At the time of acquisition, DSC had about three million subscribers. That's roughly $330 per subscriber. But here's the part that ties back to pricing psychology: the subscription model didn't just lower the price — it changed the reference point. Suddenly, paying four dollars for a cartridge seemed absurd, even though the actual cost to produce DSC's cartridge was probably higher than Gillette's. Luna: Wait, higher cost? How? Lucas: DSC didn't have the same scale as Gillette. Gillette buys plastic and steel by the trainload. DSC was buying smaller batches, so their per-unit cost was actually higher. They subsidized the handle and the shipping. The margin came from volume and the subscription lock-in. Luna: So the product wasn't cheaper to make. They just made it feel cheaper. Lucas: They made the transaction feel cheaper. The monthly cost was low — the cheapest plan was one dollar for the handle plus two dollars for the blades. Three bucks a month. That's a coffee. The cognitive load of deciding to buy, going to the store, comparing prices — all that friction was removed. And the anchor shifted from a one-time high price to a recurring low price. Luna: And by the way, this is a good moment to mention — if these marketing conversations have sparked something you've actually used, well, a couple of dollars a month makes a real difference to keep the show ad-free. Lucas: Yeah, exactly. It's the same principle — small recurring support adds up. You can find us at buy me a coffee dot com slash fexingo. Seriously, it's what keeps us independent. Luna: Worth it. So back to DSC — did the anchor work on everyone? Lucas: Not on the high-end shaving enthusiasts. DSC's blades were fine for most guys, but razor snobs complained about tugging and irritation. Gillette responded by introducing the Fusion ProShield, which added more lubricating strips and a flexball. They leaned into performance anchoring. But the damage was done. Gillette had to cut prices and launch its own subscription service, Gillette On Demand. Luna: So DSC forced the entire category to change its pricing language. Lucas: Absolutely. And the lesson for marketers is this: if you can change the reference transaction, you can reset the acceptable price. DSC didn't sell a better blade. They sold a different way to buy blades. The subscription became the product. Luna: And the price anchor shifted from the cartridge to the monthly subscription. Lucas: Right. So when you're thinking about your own pricing, ask: is your anchor tied to a product or to a relationship? If you can move it from a one-time purchase to a recurring one, the perceived cost shrinks and the loyalty grows. Luna: Especially if you can make that first transaction feel nearly free — like the one-dollar handle. Lucas: Exactly. That one-dollar handle was a decoy price. It made the subscription seem like the real value. And the subscription itself was priced just low enough to avoid scrutiny. Three dollars a month? That's less than a sandwich. Nobody does a cost-benefit analysis on a sandwich. Luna: So the psychological trick is to make the decision feel trivial. Lucas: Yes. And that's why Dollar Shave Club's story is such a clean case study in pricing. It's not about technology. It's about framing.