Example: BYD Batteries
An example of Cost Innovation is Chinese battery manufacturer BYD that decided to compete head-on with the $40 per unit Lithium-ion (Li-Ion) batteries produced in the West, which at relative high cost prevented its use in mainstream products.
BYD's R&D lab found creative ways of re-engineering the batteries through process innovation that saw the elimination of expensive 'dry rooms' used by Western competitors. This resulted in these batteries to be produced at ambient temperature and humidity at 30 percent of the cost, while also offered at superior quality and matching price to lower-performing nickel-cadmium batteries.
Cost innovation occurs when changes in the product design, production or delivery process, technology or materials result in a reduction in production or delivery costs.
In contrast to ordinary products where cost cutting is typically attempted over the life of the product, here cost cutting is built into the initial design process, making cost innovations cheaper than the cheapest ordinary products.
Source: Zeschky et al., 2014