Implications of the product life cycle for business cash flow & marketing strategy Flashcards
development
Generating and screening product ideas and then designing and developing the product
The business usually incurs high costs for research and development, market research, and product testing
Cash flow is usually negative during this stage, as the company is investing heavily in the product without generating any revenue
The marketing strategy during this stage is focused on creating awareness and generating interest in the product
introduction
The stage begins when the product is launched
Characterised by slow sales growth as the product is still new and unknown to most consumers
Cash flow is usually negative as the business usually incurs high costs for promotion, advertising and distribution
Promotional efforts are focused on creating awareness and generating interest in the product
Pricing strategies will depend upon the nature of the product and the market
Price skimming may be used for innovative or high technology products where little competition exists
Penetration pricing may be more suited to products being introduced to competitive markets
growth
The product enters this stage when sales begin to increase rapidly
The business focus shifts to building market share and increasing production to meet the growing demand
Cash flow usually turns positive during this stage as sales revenue increases and costs are spread out over a larger volume of production
Marketing strategies focus on differentiating the product from its competitors and building brand loyalty
Price skimming tactics may be dropped in favour of longer-term premium pricing for high-end products
Promotional activity including advertising is likely to increase as customers are encouraged to purchase repeatedly
Further distribution channels will be sought to meet increasing demand
maturity
Characterised by slowing sales growth as the product reaches its peak in terms of market penetration
Cash flow is usually positive during this stage as sales revenue continues to come in and costs are reduced through economies of scale and efficient production processes
The marketing strategy aims to maintain market share and increase profitability by cutting costs and finding new markets
Promotional pricing tactics may be used
Advertising will focus on reminding customers of product benefits
Further new distribution channels will be sought
Product features may be upgraded
decline
Starts when sales begin to decline as the product becomes obsolete or is replaced by newer products
The business focus shifts to managing the product’s decline and reducing costs
Cash flow usually turns negative as sales revenue declines and costs associated with the product’s decline increase
The marketing strategy may involve discontinuing the product, reducing its price to clear inventory, or finding new uses for the product
