Definition
The term harvest strategy refers to the planned discontinuation of new investments in a line of business or product so the maximum profits can be extracted from it. Harvest strategies are oftentimes used when a product is nearing the end of its lifecycle, or the usefulness of a service is nearly over.
Explanation
As a product or line of business approaches the end of its useful life, companies will employ a harvest strategy. This occurs in mature businesses or products deemed unlikely to continue a growth trajectory, even with an infusion of additional capital. The objective of a harvest strategy is to maximize the profits that can be extracted from the product as its popularity winds down.
When executing against a harvest strategy a company has several options, including:
Lowering or eliminating marketing / advertising expenses, and relying on brand loyalty to help generate new sales.
Lowering or eliminating new capital expenditures, allowing existing equipment to run to failure.
Lowering or eliminating operating expenses; spending money only when the payback on a new investment is extremely high.
The telecommunications landline business is a frequently cited example of a harvest strategy. As the availability of wireless signals expanded across the United States, it was no longer necessary to have a landline telephone. Telecommunication companies continue to support the technology, but as infrastructure is destroyed by storms, they are not rebuilding their wired network; instead, they are improving and expanding wireless coverage.
Related Terms
The term Halloween strategy refers to the selling of stock before May and not investing in equities again until the end of October. The Halloween strategy is based on a theory that the months of November through April provide investors with stronger capital gains than the remainder of the year.
Moneyzine EditorJanuary 19th, 2024
The term fixed income strategy refers to several options an investor has when purchasing securities such as bonds. The three primary fixed income strategies include ladders, barbells, and bullets.Moneyzine EditorJanuary 18th, 2024
The term exit strategy refers to a process by which an owner plans to withdraw their investment in a business. Exit strategies are important to venture capitalists, since extracting their money from a business allows them to reinvest those funds elsewhere.Moneyzine EditorJanuary 17th, 2024
The term event-driven strategy refers to an investment approach that attempts to exploit pricing inefficiencies that occur after significant corporate announcements. Event-driven strategies are used by large institutional investors when a company notifies the public of plans that will impact their future earnings potential.Moneyzine EditorJanuary 17th, 2024
The term bullet strategy refers to an investment approach involving the purchase of fixed income securities that mature in the same timeframe. The bullet strategy is oftentimes used by investors that need funds on a certain date.Moneyzine EditorJanuary 9th, 2024
The term bond ladder refers to an investment strategy involving the purchase of fixed income securities with staggered maturity dates. The bond ladder strategy helps investors to manage interest rate risk and provides them with the opportunity to make a series of reinvestment decisions over time.Moneyzine EditorJanuary 9th, 2024
The term barbell strategy refers to an investment approach involving the purchase of fixed income securities with both long and short term maturities. The barbell strategy typically applies to bonds, and is thought to provide the investor with a portfolio that balances risk and reward.Moneyzine EditorJanuary 8th, 2024
