The relationship between the product life cycle, investment, profit and cash flow (AO2)
The cash flow from a product changes through its life cycle.
Introduction and growth stages
High development and promotional costs result in a negative cash flow.
Maturity and saturation stage
As a product moves into maturity, cash flow becomes positive. Economies of scale causes falls in unit costs and profits increase rapidly.
As a product becomes mature, competition increases and demand becomes more price elastic. Falling price reduces profit margins.
Decline stage
Sales fall and cash flow declines, possibly leading to losses.
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