By Jeffrey the Barak
When you buy a certain make and model of razor, say for example the Gillette Fusion, you get the handle part at a very low price in relation to the manufacturer cost. But it only takes one type of cartridge, and over the years, the profit from selling you these cartridges enables Gillette to recover the research and development costs from the handle, and make a good profit.
This is the “razor-blade economics” model that was essentially introduced to the world by King Gillette when he introduced their safety razor in 1903.
Mobile phone service providers, or as they are known in the United States, Cellphone service providers, have used the razor-blade model since the 1980s, offering free basic phones, or very expensive phones for just $199 with a two year contract. Customers have spent something like a hundred dollars a month paying for service, and so within a few months, the carrier makes up the difference between their wholesale cost of the phone and your $199 special price. And because of your two-year contract, you promise to provide them with a profit.
But that is changing. While these deals still dominate the market, more people are finding that it is better to pay the real retail price for their phones, and then just pay month to month for service, without a long-term contract.
Making it easy in the United States is the law. Under the Federal Communications Commission’s “local number portability” rules, so long as you remain in the same geographic area, you can switch telephone service providers, including interconnected Voice over Internet Protocol (VoIP) providers, and keep your existing phone number.
In practice, it can be a difficult and trying process to port your phone number from one carrier to another, when you give your billing and contact information via voice call to a support technician who is not too wonderful at being accurate, but with patience the porting can always be made to happen. Sometimes it takes a week and hours of patient support calls, but often it is a ten minute process.
So instead of buying the cheap razor and expensive blades, we can now find cheaper blades for our full-price phones, and after a few months we are ahead financially.
If we choose Android over iOS, then we also see that the current top ten lists of devices feature some phones that are very affordable, and rated as highly as the most popular phones. There are some very good ones for a couple of hundred dollars, almost the same price as a subsidized Samsung Galaxy or iPhone, which are the world’s two hot desirables at time of writing.
Coupled with very low-priced data plan offerings such as those on T-Mobile’s 2014 menu, it really does become possible to save many hundreds of dollars over two years as compared to deals during the contract era preceding 2014.
The same trend is happening in Europe, but they have been into unsubsidized phones for a lot longer. Sometimes spending up front can cost you less over time, whether it is your smartphone, or your higher quality shoes. It is something we should consider when making purchase in several areas of todays complicated marketplace.