Experience Curve

Benefit

Determines your own cost position for specific products and services.
Creates clarity about your own cost reduction potential: How much flab do we have on the scales?
Basis for deriving realistic, long-term cost reduction and efficiency improvement targets.
Shows the potential cost position of suppliers, which can be used to derive arguments for price negotiations (Lopez effect).
Basis for make-or-buy decisions.
Diagnoses the potential cost position of competitors (industry diagnosis).
Basis for the development of intelligent pricing strategies for market entry.
With ongoing realization: best starting position for all conceivable price developments.

Applications

The experience curve can be used to calculate how much cost reduction potential a company has in its individual product or service segments. This tool provides the answer to the question of how much unhealthy fat there is in the organization. The reader learns that the effect relates to the entire product life cycle, why the experience curve effect only applies to the costs of value creation, that it is not automatic, and what destroys an experience curve. The experience curve is the basis for deriving realistic, long-term cost reduction and efficiency improvement potential. In addition, knowledge of one's own experience curve, as well as that of suppliers and competitors, is a valuable basis for effective strategic decisions. This chapter looks at the causes of this effect, explains the mechanism in detail and uses an example to illustrate how the experience curve is calculated.