There's a chart that changed the way I think about pricing strategy, and it wasn't in any marketing textbook. It was a graph of solar panel costs from 1976 to 2024, showing a price decline from $106 per watt to $0.38 per watt. That's a 99.6% drop. Not because solar panels got simpler, but because the industry got better at making them. Every doubling of cumulative global solar capacity drove prices down by roughly 20%.

That relationship, between cumulative production experience and declining unit costs, is the experience curve. And the pricing strategy built on top of it is one of the boldest bets a company can make: price your product based on where your costs will be, not where they are today.

What Is Experience Curve Pricing?

Experience curve pricing is a strategy where a company sets prices below current costs (or at very thin margins) based on the expectation that production costs will decline predictably as cumulative volume increases. The company accepts short-term losses or compressed margins to gain market share, accelerate down the cost curve faster than competitors, and eventually reach a cost position that locks in long-term profitability.

The underlying principle, first documented by Boston Consulting Group in the 1960s, is that every time cumulative production doubles, value-added costs decline by a consistent percentage, typically between 10% and 25%. This isn't just labor efficiency. It includes improvements in manufacturing processes, supply chain optimization, product design simplification, and institutional knowledge that accumulates over time.

Bruce Henderson, BCG's founder, led the original research into semiconductor manufacturing, discovering that the cost per unit of integrated circuits dropped predictably with each doubling of cumulative production. That insight became one of the most influential strategy frameworks of the 20th century.

The Experience Curve vs. the Learning Curve

People confuse these constantly, so let me clarify. The learning curve, first described by aerospace engineer Theodore Wright in 1936, focuses specifically on labor productivity: workers get faster at a task the more times they do it. Wright's Law states that for every doubling of cumulative production, the time required to produce a unit decreases by a constant percentage.

The experience curve is broader. It encompasses the learning curve but also includes economies of scale, technological improvements, process innovation, and purchasing power gains. It's the total cost decline associated with cumulative experience, not just the labor component.

I think this distinction matters because experience curve pricing isn't just about having experienced workers. It's about building an entire system, manufacturing, supply chain, R&D, procurement, that gets cheaper as a unit the more output it produces.

How It Works in Practice

The strategic logic is deceptively simple: if you know your costs will drop by 20% every time you double production, then the company that reaches the highest cumulative volume first will have the lowest costs. And the company with the lowest costs can either take the fattest margins or use that cost advantage to price competitors out of the market.

This creates a first-mover incentive that explains a lot of aggressive pricing behavior in technology and manufacturing industries.

Here's the sequence:

1. Price aggressively at or below current costs to maximize volume.
2. Gain market share faster than competitors, accelerating cumulative production.
3. Ride the cost curve down as manufacturing, procurement, and process improvements compound.
4. Reach a cost floor that competitors with lower cumulative volume cannot match.
5. Either maintain low prices to keep competitors out, or increase margins once the dominant position is secured.