A harvest strategy or harvesting strategy is a business plan for either canceling or reducing marketing spending on a product. Marketing executives choose a harvesting strategy when a product has reached the end of its life cycle. They aim to extract maximum profit from any remaining sales.
What is a Harvest Strategy?
Harvest strategy is a business strategy that is used to phase out a product from a market. This is done in an effort to try and continue to sell the product before it becomes obsolete. Harvesting is not a strategy that can be planned ahead of time, it is a reaction to the market that answers the question of when a product should be abandoned. Harvesting is also a steady strategy, not seasonal, so it begins after sales start to fall off and continues until the goods are gone. Harvesting is sometimes made necessary or advisable by a patent or copyright in the product, and this will be the case describe here.
Harvest strategy (also referred to as harvest timing) refers to the decision taken by a firm at the appropriate time to reduce the level of marketing expenditures being made for a product at or near the end of the product’s life while still attempting to collect maximum revenues from the remaining sales.
Objectives of Harvest Strategy
Harvesting has one primary objective: to maximize sales revenue that can be earned from a product before abandoning the product. It’s important to note that harvesting does not guarantee maximum sales revenue from a product, but it provides a good chance of achieving it.
A product is nearing the end of its life if sufficient sales volume to recover costs is unlikely. To determine the appropriate time to harvest a product, one must project when sufficient sales would be obtained to recover costs. This is easily done by considering the strategy and tactics used to market the product as well as the market that the product is sold to. After this information has been collected, the sales that would be required to recover costs can be calculated by multiplying sales volume by average sales prices. This information dictates when to initiate the harvest strategy. For example, if cost recovered goal is 50,000 sales and the product is estimated to only generate 40,000 sales, then harvesting would not be suitable.
Conditions to Consider When Designing a Harvest Strategy
A manufacturer must collect market information regarding the product in order to make appropriate business decisions. This involves monitoring such aspects as sales volume, price levels, promotional activities of competitors, and so forth. All of this information should be considered when designing a harvesting strategy.
There are no specific conditions that apply to harvesting; however, some factors may make harvesting appealing to a manufacturer. These include:
Limitations of Harvesting Strategy
Harvesting can be effective when applied only to a single product or small group of products. Not only does it require detailed market information that may be costly to gather, but gathering that information is not feasible if multiple products are involved in the strategy. When several products are involved, a fallback position for the company to turn to when one product is abandoned is usually necessary.
Growth strategies are strategies that are used to increase market share for a particular business. These strategies are not limited only to small businesses, but are used by much larger corporations as well. As long as there is a demand in the market for a certain product, or as long as a product can be made at a cheaper price than the competition, there will always be an opportunity to grow a business.
Some of the more common growth strategies that are used by businesses are:
Product Diversification, or product line expansion, is a strategy that a company can employ in order to increase their overall sales revenue. Product diversification is when a company produces a variety of products that are related to one another. This may include variety of a certain product as well. For example, an athletic shoe company that produces running shoes, cross-training shoes, walking shoes, and such would be considered to be a company that is diversifying their product line.
Product Diversification allows a company to enter into different market segments as well as increase their gross-margin proportion of the overall sales because they are not selling a single product. There are several strategies that a company can employ to gain market share via product diversification, such as line extensions, brand extensions, and category extensions.
Line extensions involve the addition of new products to an existing product line. Line extension may involve making a few changes to a product that already exists, or it may involve taking a product that was previously marketed in a completely different market segment and entering into the one the new product is being introduced into. For example, a line extension may be used to create a children’s version of the product. Another example would be the introduction of a higher version of the product, claiming that it is more advanced.
A brand extension is used by a company to extend their brand attributes to other products outside of the current product portfolio. New products that are introduced via brand extension are directly related to the brand.
Brand extension would not include products that simply share the same consumer segment as the main product portfolio. The new products introduced under brand extensions are always extensions of the brand identity.
Category extension occurs when an existing product is repositioned. Instead of positioning the product for an existing market (extra small cars), a new market segment is targeted, with a different set of consumers (midsize cars). Therefore, a new product is introduced into the new market segment.
Advertising is a type of marketing communication that is used to inform or persuade an audience to take an action regarding a product or service. With product advertising, a company is trying to inform their potential audiences of the products that they make. If a company wants to advertise a product that is not currently being sold to the public, they would engage in a type of advertising called product line advertising to inform the public of their product.
There are several types of product advertising, such as product sampling, product demonstration, and product exhibitions.
Product sampling is a strategy that is used to allow a potential consumer to evaluate the product prior to making a purchasing decision.
Product demonstrations are often a necessary part of product sampling. Product demonstrations take place in front of or around the product itself in order to show and explain how the product works.
A company can choose to not only use advertising as a source of information about their products, but they can also choose to break them and set them up as well.
Businesses spend billions every year spreading the word and fostering the growth of their brand through advertisements, commercials, product samples, and demonstrations which provide information and create awareness for consumers to make a purchasing decision. Often times businesses will use promotions to generate traffic to their own website or onto social media.
Word-of-mouth is a strategy that is used by business to create a brand image. Word of mouth advertising is for a company to get consumers to advertise their product. The company would get the consumers to talk positively about the product to other people. Therefore, people will become interested in the product and go out and buy it. Word-of-mouth is not limited to online forms of communication such as social media, but also focuses on face-to-face communications such as phone calls or even casual meetings.
Public relations is not a directly profitable method of generating sales. However, there are several reasons why one should consider using the public relations strategy for their business.
Public Relations is not a directly profitable method of generating sales. However, there are several reasons why one should consider using the public relations strategy for their business.
If you are involved in a tight advertising budget, or you’re a business too small to pay for ads or if your niche isn’t profitable to advertise to, then public relations can be a very beneficial strategy for you to use.
The main idea behind public relations for a business is to focus on interesting aspects of the product. Interesting aspects of the products can range from interesting insides to even just showcasing non-product related items in order to promote products.
For example if your business is selling large, mainframe computers; you could create stories about employees who use the computer to do amazing things such as winning a chess tournament, creating a festival of art, and etc.
Responses To Public Relations
There are several different responses that a target audience can have to a product.
Response Directly Related To A Product
A consumer might say that a product is a good product for a certain demographic, such as teens or older generations. A consumer might also say that the product is a bad product for his/her own demographic.
Response Contradicted By Other Consumer/Response
Sometimes, people say that they like a product, but they show signs that they do not like the product. The information gathered could be blatant contradictions, such as saying, “The product is great!” but “I will never buy it.” Or it could be subtle contradictions, such as, “The product is good, but I would never buy it with the price that it is.”
Response That Causes The Consumer To Think
A consumer might say that they would buy the product if the price was lowered, but they will still not be completely satisfied with the product. Or, a consumer might say that they will not buy the product with the price that it is based off of the information that they have. A consumer might also mention how they will never consider buying the item, but might change his/her mind later. For example, a consumer might say that he won’t buy pasta from a certain brand. He might even say he considers it inedible. However, he might buy it the next week.
Measuring Business Growth
How do you know if business is booming? This question can be effectively answered by the positive response to the marketing strategy resulting in long term growth of a company. In order to understand the value of business growth, it is necessary to obtain an understanding of specific business models. There are a number of business models used for overall profits. The vast variations of each type of business model is the basis for dividing your business’s marketing approach by the model the competition uses.
This type of business model is primarily used by service industries who have low ability to transport products. With this model, you provide the product to the consumer. The customer pays only for usage and often pays a deposit at the start for usage measurements. Most service industries have customers who pay in advance. The term “capital expenditure” refers to the arrangement of depreciating the initial cost of the service over the length of the contract by spreading the cost. Different businesses will assign different cost over the course of the contract. This type of service business model will include the following service oriented factors:
- Fixed costs
- Variable costs
- Recurring costs
Ask yourself the following questions in regard to your business model questions:
How does the capital expenditure business model differ from the cost-plus pricing model?
What are the advantages and disadvantages of the capital expenditure business model compared to the other business models?
If you were in charge of implementing a new business model for your company, which type of model would you implement, and why?
Cost Plus Pricing
Cost-plus pricing is a business model that calculates costs along with potential future profit, and adds a markup to come up with a price. Pricing products holding this model is pretty simple; prices are set based on the cost of the product, plus a percentage representing the company’s desired profit. Ask yourself the following questions in regard to your cost-plus pricing model questions:
What are the advantages and disadvantages of the cost-plus pricing model compared to the other business models?
How does the Cost-plus pricing model differ from the capital expenditure business model?
If you were in charge of implementing a new business model for your company, which type of model would you implement, and why?
Relationship selling, or consultative selling is a sales strategy that focuses on building trust and a relationship between the salesperson and customer. This strategy is mainly used by sales people who make their commissions in the form of a percentage of the gross revenue and not simply on the volume of sales they make. There are several different aspects to a relationship selling approach:
- Building trust
- Based on trust and relationship
- Long term commitment
- Comprehensive selling
- High perceived benefits
There is a specific amount of time and effort required by both parties to establish a solid relationship.
Ethos or Image
Usually a company’s ethos or image is defined by the public. The public will judge your company based on different aspects of your business such as your ethical values, quality of products and services, and how you relate with your customers. Ask your students the following questions regarding your ethos or image questions:
How do you define your company’s ethos/image?
What are the advantages and disadvantages of an ethos or image that is based on trust and relationship?
If you were in charge of the image of your company, what would you do to change it?
Many endorsement companies like Quaker Oats, Microsoft, Apple, IBM, and Kellogs are large enough to have marketing strategies directed at the overall public via TV commercials, but with no intended customer segment. Their marketing strategy is very large scale and targets a market of consumers who are not loyal to any one product. The endorsement companies market their product to the public and ask the consumers what their opinions are on their product. Ask yourself the following questions in regard to your endorsement questions:
What are the advantages and disadvantages of relying on your public’s endorsement as a marketing strategy?
If you were in charge of hiring someone to endorse your company’s products, what sort of characteristics would you want to see from them?
Personal sales is the art of making face to face calls to potential customers and attracting them to the positive aspects of your product or company. This often requires listening to their concerns and questions and addressing them effectively. In the process of doing this, the salesperson needs to be confident and competent in his/her product.