Analyse the relationship between the product life cycle and cash flow :: Economics

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.