Abstract:
The domination through costs is especially adapted to the activity fields where the experience effect is powerful, the differentiation of the products is week, and the competition is centered on costs and prices. The firms must be attentive to the technological developments and the appearance of the substitution products, which may lead to the failure of the costs strategy. The lowest cost strategy also involves risks depending on the manner the firm obtains the greatest producer position. When the costs reduction originates in the upstream or downstream integration, the cost advantage is generally protected. When the costs reduction originates in a long time effort of a better placement on the experience curve, the advantage becomes vulnerable facing the new technologies or a change in the market preferences. Strategically and conceptual speaking, the experience effect makes the firms to center their effort on the output and sales maximization, placing the accent on the control of their costs. The experience effect appears like a barrier while entering an activity field. The firms, which were not present in the beginning and could not achieve experience during their development, have a cost handicap, the more so as the experience curve slope is more pronounced and their cumulated material production is more important. This handicap, which cannot be annihilated through the recover of the cumulated output level of the best placed competitors, plays a particular part, that determines a decision modification, and maintains a very difficult entry on the newcomers segment. However the experience notion is very useful to the firm in controlling of its costs and comparing them to those of the main competitors. The experience effect may be annulled when the competitors have the possibility of copping the methods that are used by the market leader, respectively when the specialization and standardization intervene and lead to a powerful reduction of the costs.
