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Harvest Strategy

Updated on April 9, 2024 , 3432 views

What is Harvest Strategy?

The decision of avoiding further investments in a particular product, security, business, and a line of products to make profits is known as the harvest strategy. Most business owners and investors consider Harvest strategy meaning when they believe the investment can no longer result in the profit for the investor.

Harvest Strategy

Most products and businesses have a specific life cycle. When this cycle ends and the product seems to be no longer useful and profitable for the investor, they stop making investments. The harvest strategy can be defined as the decision of not Investing in the product that is nearing the termination of its life cycle. In other words, harvest strategy is used on the line of products that cannot benefit the investor. Commonly called the Cash Cow stage, the harvest strategy is adopted when the securities are paid off.

How does the Harvest Strategy Work?

The businesses and investors are highly likely to implement the harvest strategy to make the best of the products or securities before these items reach the cash cow stage. Now, the benefits they get from these products are used for designing and developing new and innovative products. The companies can also use these funds to finance the distribution as well as the promotion of the products that still have the growth potential.

Let’s understand it with an example. Suppose a company selling soft drinks decide to end, the investments in carbonated drinks and use these funds to develop the energy drink. By terminating the investments on the existing products that are already nearing the end of their life cycle, businesses and investors can save money that could be re-allocated to the development of another product. They can save the money on equipment, distribution, promotion, and Capital required for the existing line of products that no longer has the growth potential.

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Is Harvest Strategy Effective?

The implementation of the harvest strategy often results in the gradual termination of the particular product. Simply put, the strategy helps you avoid investments in the products that are expected to turn obsolete soon and rather have the capital invested in the line of products that have a high potential of growth. Besides that, a company may decide to terminate the investments in the product when the sales performance of the specific product keeps falling below the expected sales level. It makes sense to eliminate such products from the company’s Portfolio and use the money to fund the products that have a high demand in the consumer Market.

The harvest strategy is quite effective for investors and businesses. It helps you save money on the line of products that are no longer profitable for your brand. Harvest Strategy is also used by investors. They use this strategy to exit the investment after collecting profits. They can allocate the profits from a particular investment into a new project. A harvest strategy is often applied to the products that get outdated soon, such as smartphones, computers, laptops, and other such electronic gadgets.

Disclaimer:
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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