What is a 'Harvest Strategy'
A harvest strategy is a business plan for reducing or altogether eliminating investment in a particular product, brand or line of business due to a company's management determining the required expense to attempt to boost sales any further would not be justified by likely future revenues from the product or brand line. A harvest strategy typically results when a product or brand line has reached cash cow status, the stage of product maturity beyond which a product is unlikely to show any significant sales growth from continued investments in sales and marketing. The term "harvest strategy" describes the process whereby a company intends to harvest the profits from a cash cow in order to fund investment in development or sales and marketing efforts for other products with more promising sales growth potential.
BREAKING DOWN 'Harvest Strategy'Companies commonly utilize the profits from established brands or product lines to fund the marketplace development of new brands or of existing products perceived to have high growth potential. As an example of a harvesting strategy, the Coca-Cola company might choose to reduce investment in marketing its established soda brand in order to devote funds to sales and marketing efforts designed to promote its line of energy drinks. Another common harvest strategy plan is one employed by a pharmaceutical firm when it determines that an established medication it sells has reached the point of market saturation, can be used as a cash cow, and that a more productive investment of capital is to use the profits from that product to fund research and development or marketing efforts for other medications.
A harvest strategy may consist of simply allowing an established brand to continue generating revenue based on brand name recognition, established market share and customer goodwill, or it may entail gradual elimination of a product or brand line in cases where, for example, technology advances are rendering a product outdated and no longer desired by most consumers. For example, many companies selling stereo systems gradually eliminated sales of record turntables in favor of CD players as compact disc sales soared and record sales declined. Companies generally identify a certain target level of sales or revenues, and once the product or brand drops below that level, the company gradually eliminates the product from its product portfolio.
An Alternative Meaning of Harvest Strategy
The term harvest strategy is also used in regard to equity investments, where it refers to a proposed plan for investors, such as venture capitalists or private equity investors, to reap the profit from their investment. Two common harvest strategies for equity investors are either a plan to sell the company invested in to another company or to make an initial public offering (IPO) of company stock.