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Explain, using a diagram, the stages in the product life cycle - Leaving Cert Business - Question A - 2006
Question A
Explain, using a diagram, the stages in the product life cycle. In the case of each stage, describe the implications for the cash flow of a business.
Worked Solution & Example Answer:Explain, using a diagram, the stages in the product life cycle - Leaving Cert Business - Question A - 2006
Step 1
Explain, using a diagram, the stages in the product life cycle.
Answer
The product life cycle consists of four main stages: Introduction, Growth, Maturity, Saturation, and Decline. Each stage represents different levels of sales and market presence.
Diagram
To illustrate the product life cycle, a graph with sales volume on the y-axis and time on the x-axis is often used. The stages should be clearly labeled as follows:
- Introduction: Sales begin at zero and gradually increase.
- Growth: A steep upward trend in sales as the product gains market acceptance.
- Maturity: Sales peak and begin to stabilize.
- Saturation: Sales growth slows down, reaching their maximum potential.
- Decline: A downward trend indicating a reduction in sales as market interest wanes.
This visual representation helps in understanding how a product evolves over time in the marketplace.
Step 2
In the case of each stage, describe the implications for the cash flow of a business.
Answer
Each stage of the product life cycle has distinct implications for a business's cash flow:
- Introduction: Cash flow is typically negative as initial costs for marketing and production outweigh sales revenue.
- Growth: Cash flow begins to improve significantly as sales grow rapidly and revenues rise, allowing for reinvestment in the business.
- Maturity: Cash flow stabilizes as sales peak, providing consistent revenue but also requiring ongoing marketing efforts to maintain sales levels.
- Saturation: Cash flow may slow as sales begin to decline, and businesses might need to cut costs or innovate to attract customers.
- Decline: Cash flow becomes constrained as sales drop significantly; companies must consider strategies such as discontinuing the product or finding ways to revitalize interest.