One of the most common business models that is in place today is the bait and hook business model. It’s a pretty basic concept. Products are sold to consumers at a low price. That’s the bait. The hook comes when customers keep buying that product, purchase refills for it, or buy goods or services that help to enhance the initial product.
The replaceable razor head is often the example that is used for this business model. It’s even referred to as the Razor Blade model by some because of how successful the product has been for the industry. Customers purchase a razor that has a base unit and a limited amount of razor heads. When the razors grow dull, the customer purchases refills. Ongoing profits are achieved as customers keep buying the refills.
Some customers have been using the same replaceable razor for 5+ years. For Gillette and other razor companies, that’s 5+ years of profits being achieved.
The Concept of Freemium Software Follows the Bait and Hook
For a more modern look at the bait and hook business model, one only has to look at the world of social gaming. There are numerous free games that can be downloaded onto tablets, smartphones, or played on social sites like Facebook. These games are designed to have limited play time and have difficult levels that require upgrades to be purchased. Each upgrade is usually $1.99 or less.
People see value in the free game download and the ability to play the game. That’s the bait. The hook comes in when someone can’t proceed through a tough level without purchasing an upgrade. Playing off of the competitive factor that people have with their friends, games like Candy Crush Saga have been able to make over $600,000 per day by using this business model.
Video games have used the bait and hook business model since the consoles were first introduced in the 1970s and 1980s. The consoles are sold at a low enough price to recoup some of the manufacturing costs, but the video games are sold at higher prices so that profits can be achieved.
Your Data Stream Is a Bait and Hook
Even smartphones today are using the bait and hook business model to get people to purchase their products and services. Providers are offering free or steeply discounted top smartphones like the iPhone 6 in exchange for long-term data plans that have higher costs. The bait is the discount on the wanted smartphone. The hook is that you’ve got to purchase a data plan that could be $60-$90 per month per person. The profits will be made back in no time at that rate.
Here are some other common examples of the bait and hook that many get many customers to open up their wallets or purses every day.
- Printers that require new cartridges, refills, or toner.
- Digital cameras that require print image development.
- Offering menu items for $1, but charging higher prices for associated items, like a drink.
The goal isn’t to give away free items every time a customer returns for a product. The goal of the bait and hook business model is to get people excited about the initial bait product. They need to love it so much that they find value in buying the hook because the bait has been so great. Customers feel like they’re getting a bargain when the business model is run to perfection and businesses are able to make a ton of profit in return.
Other Products Become the Hook As Well
When a business is running a sales promotion, they are using a modified version of the bait and hook. The low prices on specific items is designed to bait customers into a visit. The hook comes by having other needed items available at full price. It’s like running a sale on salty peanuts, but having bottled water being sold at regular price. The profit margins are high on the bottled water and people purchase the item because they know the salty peanuts will make them thirsty.
A customer feels like they’ve saved money with the sale price on the salty peanuts. In reality, the business made profit on each item. Many customers wouldn’t have even thought to purchase either item except for the sale that was run.
The bait and hook business model is a proven winner in many industries today. As long as excitement can be generated for a product, then there is always a chance for it to succeed.