Analyse the relationship between the product life cycle and cash flow

Analyse the relationship between the product life cycle and cash flow

The 'product life cycle' is split into 5 stages:

* Research and development

* Introduction

* Growth

* Maturity/Saturation

* Decline

The product life cycle is the model that represents a sales pattern

for a product over a period of time. It shows the revenue by a product

from is introduction to its eventual decline. There are four stages to

the product life cycle: Introduction, growth, maturity and decline.

Research and development is the first stage of the product life cycle.

This is where a firm has a research team look in to possible new ideas

and products for a business. This can be very expensive for the firm.

No income is made at this stage as there is no revenue coming in to

the firm but capital being paid out on resources. The cash flow at

this stage is very low.

Introduction: This is the point when the product life cycle begins.

This is when the actual product is launched and does not include

testing or research and development. Manufacturers at this stage spend

a lot of money in order to create awareness. The cash flow at this

stage would not be very positive. A lot of money has been spent at the

introduction to get the public to notice the product and to make them

aware. The firm would not expect to make any profit at this stage as

the product has just been launched.

Growth: If the product succeeds, sales will grow. Prices could still

be high but with increased competition prices will drop. The producer

still advertises at a high level to fight off competition. Product

starts to move into profitability. The cash flow starts to gain more

revenue.

Maturity: Sales growth begins to slow as market saturation is

approached. Sales are kept going by those who are late to adopt new

products. This stage will last longer than the earlier stages. This is

where the most revenue is taken in for the longest period of time.

This is where the cash flow reaches its peak but also at the point of

saturation starts to decrease. To stop the revenue and the product

going down at the point of saturation maybe the firm could give the

product a new identity and maybe a new advertising campaign.

Decline: Eventually the product will become less interesting for

purchasers, and the decline of the product will commence.