The product life cycle and cash flow

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  • Product life cycle
    • The product life cycle is the stages through which a product passes through starting from its development to withdrawn from the market.
    • The development stage is when the product is being developed and being designed by designers.
      • During this stage the net cash flow is negative as money is being paid out to workers and for materials but no money is coming in from sales.
    • The launch stage is when the product is released into the market and it is backed up with promotion and advertising to inform customers about the product. The aim is to get customers to trial the product.
      • During this stage the net cash flow is negative as money is being for promotion and advertising and the costs are likely to be higher than money from sales.
    • The maturity stage is when the product reaches a peak in terms of sales. Research and development costs are likely to be paid off . The product is more profitable enough to be financing the development of new products. More customer loyalty and repeat purchase. Manufacturers are using extension strategies.
    • During the maturity and decline stage net cash flow is positive as start up costs have been paid and the value of sales exceeds the costs of production
    • The decline stage is when competitors are bringing out products which takes sales away which means consumers have plenty of choices for products which takes sales away.

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