Analyse the relationship between the product life cycle and cash flow.

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. The revenue will now slowly drop but there is a possibility that the firm will not go into debt.

My overall conclusion is that the relationship between the product life cycle and the cash flow are very similar. When the product life cycle starts to grow so does the cash flow as it does when the life cycle decreases. This is because If the product is selling more, than it is obviously going to have a greater cash flow. If the product is selling less then the cash flow will decrease with the product life cycle.