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CMA Final · Strategic Cost Management · Product Life Cycle Costing

During which stage of the product life cycle do firms typically incur the highest promotional spend relative to sales while profits are negative or very low?

The introduction stage has the highest promotional spend relative to sales. Volumes are low while the firm must create awareness and build distribution, so costs exceed revenues and profit is negative or very low. Growth, maturity and decline stages have larger sales bases or reduced promotion.

  1. AIntroduction stageCorrect
  2. BGrowth stage
  3. CMaturity stage
  4. DDecline stage

Explanation

In the introduction stage, sales volumes are low, and heavy advertising and distribution build-up is needed to create awareness, so promotion is high relative to sales and profits are negative or minimal. Later stages see rising sales that absorb these costs.

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