What is a Harvest Strategy? – 4 Stages & 3 Reasons

What is a Harvest Strategy?

 

Marketing dictionary says – harvest strategy is a deliberate decision to cut back expenditure of all kinds on a particular product in order to maximize profit from it, even if in doing so it continues to lose market share. (Source)

 

Harvest Strategy

 

A harvest strategy is a business strategy or marketing strategy that involves a reduction of investments in a product, or line of business so that the entities involved can reap or, harvest the maximum profits. A harvest strategy is typically employed toward the end of a product’s life cycle when it is determined that further investment will no longer boost product revenue.

 

Cash cow Stage & Harvest Strategy

 

You know that products have life cycles, and when the product nears the end of its life cycle, it usually will not benefit from additional investments and marketing efforts. This stage of the product is called the cash cow stage, and it is when the asset is paid off and requires no further investment.

Therefore, employing a harvest strategy will allow companies to harvest maximum profits or profits before they reach their decline phase. Companies often use the proceeds from the final item to develop and distribute new products. Funds can also go towards promoting existing products with high growth potential.

 

A good harvest strategy may involve the gradual elimination of a product or product line when technological advances render the product or line obsolete.

 

Business Life Cycle Stages

 

Harvest Strategy

Source – corporate finance institute

 

#1 Start-Up Stage

 

This stage is the beginning of the cycle. In this stage, a business model is still being developed, and significant amounts of investments are needed to market the release of the new product or business line. Purpose of this stage to increase customer awareness and few initial sales.

 

#2 Growth Stage

 

This is the second stage where a product or business line demand’s started to increase, At this stage, the existing consumer base begins to mature, while traction for new customers continues to increase.

 

#3 Maturity Stage

 

This stage of a business is the third stage at which a business’ marketing and production costs begin to decrease, and the business is generating its highest profits. At this stage, revenue is constant, and operations are efficient.

 

#4 Renewal or Decline Stage

 

In this stage, a product or business line’s started to lose market share as a result of increased competition and/or stagnant revenues. It is also known as the cash-cow stage of the business or product, where more investment is not necessary, as further investments may not result in increased sales.

 

3 Reasons to Employ a Harvesting Strategy in Business

 

A business may decide to employ a harvesting strategy for 3 reasons including (but not limited to):

 

  1. The arrival of a product or business line at the cash-cow or declination stage.
  2. Development of new products and other interests.
  3. Discontinuation of a product or business line.