Strategy
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The Experience Curve

1968 by Bruce Henderson
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  • Bruce Henderson
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  • Price and cost data show that costs decline by some characteristic amount each time accumulated experience is doubled.

  • If the production of a product is not growing, the rate of cost decline per year gradually slows down.

 

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There is a hypothesis that costs follow a definite pattern which is a function of accumulated production experience. If further research validates this theory then the implication for business management is far reaching.

If we consider business competition as a system in equilibrium, then this hypothesis introduces a whole new set of relationships which are of critical importance in establishing the stability of competition. The whole of business policy is affected from manufacturing cost standards to export policy.

Apparently the following conclusions can be justified:

  • Reductions in cost of manufacture and distribution should be predictable.

  • Stability of prices on purchased material should be predictable.

  • New products should be priced as low as necessary to dominate their market segment or probably not be sold at all.

  • Market share must be maintained at all costs as long as growth rate exceeds the anticipated rate of return.

  • The value of market share can be calculated with enough accuracy to permit determination of the return on investment as the result of any change in share.

  • Export potentials of a product can be approximated by relating comparative advantage derived from experience levels.

  • The cost trade-offs of low labor cost versus concentrated production can be approximated.

  • The probable stability of prices can be forecast.