ACCA Performance Management (F5) Certification Practice Exam

Which of the following stages in the product life cycle indicates declining profitability?

1. Growth stage

2. Maturity stage

3. Pre-production stage

4. Decline stage

The correct answer is: Decline stage

The stage in the product life cycle that indicates declining profitability is the decline stage. At this point, the product has already gone through the introduction, growth, and maturity stages. During the decline stage, several factors contribute to a decrease in profitability. Market saturation often occurs as competitors enter the market, leading to increased supply and ultimately driving down prices. Consumer preferences may have shifted, or new technologies may have rendered the product obsolete, causing demand to fall. Furthermore, companies may face rising costs associated with maintaining production and marketing for a product that no longer attracts significant interest. Understanding the decline stage is crucial for managers because they need to decide whether to rejuvenate the product through enhancements, discontinue it, or taper off production. This necessitates strategic decision-making regarding how resources should be allocated, emphasizing the importance of recognizing this phase in the product life cycle.