Unraveling of a Strategy?
When they first tried to sell Jell-O, no one would buy it because it was new and made of "interesting" ingredients. When it was made up into the final product, it was sweet, tasty, and everyone who tried it liked it. But how to get people to try it, that was the question. They finally figured out how to get things started. Since they couldn't give out free samples door-to-door because of laws preventing salespeople to do such things, they gave out a free recipe book that drove folks to buy the product at the store in the center of town. Sales finally took off (Anderson).
This evolved into such things as giving away a razor so folks would buy razor blades to fit the razor - forever. Every MBA knows this as the "razors-and-blades" strategy. It works.
HP has done this for years with their ink jet printers. They sell the printer for give-away prices. Then they price the ink high. People buy.
Looks like HP's strategy is being challenged by the new cheapness of the American buying public, and businesses. Printing and imaging volumes are down twenty percent (Vance) from last year. So, is this the end for the HP printer business? HP is responding with tie-ins with MySpace and other web media. Something's got to give, somewhere. The ink strategy for HP has worked for a long time. It is going to take some effort to make it continue. Maybe focusing on related markets would work, or, more risky, new products into new markets. Let's keep watching.
Anderson, Chris. Free. The Future of a Radical Price. Hyperion. 2009.
Vance, Ashlee. H.P. Tries to Keep the Ink Flowing. New York Times. 19 August 2009. http://www.nytimes.com/2009/08/19/technology/companies/19hewlett.html?_r=1&ref=technology