Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is a main characteristic of the product decline phase?

1. Increased production to meet rising demand

2. Entry into the most profitable stage

3. The product loses its market share

4. Introduction of innovative features

The correct answer is: The product loses its market share

The characteristic that defines the product decline phase is that the product loses its market share. During this phase, sales begin to decrease significantly as consumer preferences shift, new competitors enter the market, or alternative products emerge. This decline can be influenced by factors such as changing market trends, technological advancements, or a saturated market where the need for the product diminishes. The product's diminishing popularity often means that companies face decreased revenues. As a result, businesses may also cut costs, reduce marketing efforts, or even discontinue the product entirely. Recognizing this decline can prompt companies to make strategic decisions, such as divesting or revitalizing the product line to extend its life cycle. In contrast, increased production to meet rising demand does not apply, as the decline phase typically involves decreasing demand rather than growth. Entry into the most profitable stage is more representative of the growth phase, where a product enjoys significant market acceptance and profitability. Lastly, the introduction of innovative features is characteristic of the introduction or maturity phases, where companies seek to rejuvenate interest in their products.