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Harvesting Strategies

Harvesting Strategies

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Harvesting Strategies for Weak Products

Harvesting is a neglected area of study despite its increasing use, says the author, who offers a detai~ed analysis .of this strategy and advice on when and how to implement it successfully.


Philip Kotler teaches marketing at the Graduate School of Management, Northwestern University.

A division manager in the XYZ Company broke the news to Jim Smith that the company had decided to "harvest" his business unit. Smith had been running his business in the "maintenance mode" for years. Now he was told that his budget for the next year would be cut 20 percent, yet he should not let sales revenue slip by more than 10 percent.

Smith was shaken by the company's decision, especially since he saw some new opportunities on the horizon. He outlined them to the division manager, but in the end the "harvest" decision stuck. Top management was set on reallocating resources from his business to other businesses with a brighter future in the company. Smith's mandate was to maximize the short-term cash flow from his business. Smith thought over his options: raising prices, cutting promotional expenses, reducing product quality, or reducing technical service. He decided in favor of a personal option: He quit.

The decision to harvest a business entity-

NOTE: The author wishes to thank the following persons for their helpful comments during the preparation of this article:

Paul N. Fruitt, Sam R. Goodman, Elmer P. Lotshaw, F. Kent Mitchell, and James R. Tindall.


whether a division, product line, specific product, or brand-is clearly a controversial step. After all, management has three other options for handling a weak business entity. It can pour money into this unit to make it stronger (building strategy), it can budget enough money to maintain sales and profits at the present level (maintenance strategy), or it can abandon the business (divestment strategy). Harvesting the business is a fourth choice by which the company decides to reduce its investment in a business. while hoping to "harvest" reasonable earnings or cash flow.

Although much has been written about building, maintaining, and divesting strategies, little has been written on the theory and practice of harvesting. This neglect is surprising in view of the growing application of this strategy and the many subtle issues that it raises. General Electric was one of the first companies to assign harvesting missions on a planned basis to its weaker business entities. 1 The Boston Consulting Group popularized harvesting in application to what it called "weak cash COWS.,,2 H. J. Heinz Company


1. See "Strategic Planning: Three New Slants," General

Electric Monogram, November-December 1973: 2-6, .

2. The Boston Consulting Group, The Product Portfolio, No. 66, 1970.

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uses the term "milkers" for those businesses that it wants to manage for cash flow. General Foods uses "harvest business" as one of its category management concepts. One business executive told me:

Many businesses are attempting to make deliberate decisions using these four strategies, but this is all rather new and I'm not sure how well it has been thought out. Of the four, harvesting is most difficult because of the delicate balance required and also because it implies ultimate decline and liquidation. The decision to liquidate is much easier-get out of a bad situation and go on to something better.


Companies applying harvesting strategies have not always been happy with the results. Some business entities should not, in retrospect, have been harvested because total demand later turned around. Other businesses that were put into a harvesting pattern promptly nose-dived· into oblivion and destroyed the cash flow expectation. Harvesting is not a strategy to be undertaken lightly. Let us consider the following questions:

- How does harvesting differ from maintaining a business on the one hand and abandoning a business on the other?

- What kinds of products and businesses should be harvested?

- What strategies are effective for harvesting a business?

- What is the best way to implement and control a harvesting program?


Harvesting is not a newly discovered business strategy. The vice president of marketing for a major food company told me that his company has been harvesting products for years without ever calling it that. Unfortunately, the company seemed to have a knack for assigning entrepreneurial managers to manage harvested businesses and maintenance managers to manage growth businesses.

One of the first things to recognize about harvesting is that it is a fuzzy term. "Harvesting" conjures up the image of gathering up'


the crops after a long season of growthwhich suggests, in the business context, that the product has matured and the company is now going to extract the remaining value from the business. Thus harvesting implies the sunset or twilight stage of a product or business in its life cycle. Milking-a term used interchangeably with harvesting-suggests drawing the "milk," or value, from an assetthe opposite of investing or feeding the asset. These two terms are semantically colorful but functionally fuzzy for business decision purposes.

F or our purposes, I will define harvesting as a strategic management decision to reduce the investment in a business entity in the hope of cutting costs and/or improving cash flow. The company anticipates sales volume and/or market share declines but hopes that the lost revenue Will be more than offset by the lowered costs. Management sees sales falling eventually to a core level of demand. The business entity will be divested if money cannot be made at this core level of demand or if the company's resources can produce a higher yield by being shifted elsewhere.

Harvesting steers a middle course between a maintenance and an abandonment objective. Maintenance of a business entity requires an adequate level of reinvestment to keep up product quality, plant size and efficiency, and customer services. A maintenance objective is appropriate for business units enjoying a stable market, a good market share, and an important position in the company's lineup. "Strong cash cows" are not harvested-they are maintained.

Harvesting differs from abandonment in that the latter decision calls for finding a buyer or arranging for asset liquidation. The company will normally prefer abandonment to harvesting for business units that are losing money. If the company cannot find a buyer, it may sometimes harvest the business temporarily.

The main reason for harvesting a business entity is to pull out cash that can be put to better uses in the company. Too many of

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Harvesting Strategies for Weak Products

yesterday's breadwinners absorb company resources at the expense of keeping the organization from focusing on high opportunity areas. As Peter Drucker has suggested, "When an organization focuses on opportunity, alsorans have to make do with what they have or with less." Harvesting amounts to placing a tax on products that are going nowhere to support the creation of tomorrow's breadwinners.

It should be noted that harvesting can be implemented at different rates. Slow harvesting means very gradually reducing the budget support for the business unit so that it almost appears to be a maintenance strategy. Fast harvesting means substantially reducing the budget support for the business unit so that it almost appears to be an abandonment strategy. This distinction is reflected in Union Carbide's description of its Category 4 and 5 products.i

Category 4: Strategic planning units (SPUs) are assigned to this category when the primary objective, and the criterion on which performance is evaluated, is maximization of cash flow. These SPUs will receive limited resource support.

Category 5: SPUs in this category are candidates for withdrawal either because of competitive weaknesses, incongruence with corporate objectives, or projections of unsatisfactory financial performance. These SPUs will receive limited resource support for a defined period of time.

Thus one of the major decisions in a harvesting strategy is the rate at which investment in the business entity should be reduced.


Management gets interested in harvesting a business under three different circumstances. In the first instance, the business may be one that is losing money in spite of a heavy budget and which has little prospect for a turnaround. Harvesting seems to be a way to lower the costs and cut losses. However, it can be argued that termination may make more

3. David S. Hopkins, Business Strategies for Problem Products.(New York: The Conference Board, 1977);. S.


sense in this case than harvesting. In one executive's words, "It is hard to milk a dog. The best thing is to get rid of the dog."

In the second instance, the business may be making money but not going anywhere, and the company may see better opportunities elsewhere. So instead of maintaining the cash cow indefinitely, the management decides to milk the cow for needed funds to invest in more promising areas.

In the third instance, the business entity may be a product that is about to become obsolete. Management will soon have a replacement product ready and therefore decides to harvest the existing product. A divisional manager at General Electric told me:

If a dominant product of ours is facing sharp price cutting by competitors, we won't necessarily lower our price to save our market share. If we have a new and better product in the works, we will lose market share knowing this is only temporary. We will harvest the old product until the new one comes along.


"The main reason for harvesting a business entity is to pull out cash that can be put to better uses in the company. Too many of yesterday'S breadwinners absorb company resources at the expense of keeping the organlzation from focusing on high opportunity areas. As Peter Drucker has suggested, 'When an organization focuses on opportunity, alsorans have to make do with what they have or less.' "

Thus, a harvesting strategy may be resorted to in quite different business situations. There is no single indicator that reliably points to candidates for harvesting. Any identification scheme must rest on a multiple set of indicators. The following seven indicators are the most important:

1. The business entity is in a stable or declining market.

2. The business entity has a small market share, and building it up would be too costly;

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or it has a respectable market share that is becoming increasingly costly to defend or maintain.

3. The business entity is not producing especially good profits or may even be pro- , ducing losses.

4. Sales would not decline too rapidly as a result of reduced investment.

5. The company has better uses for the freed-up resources.

6. The business entity is not a major component of the company's business portfolio.

7. The business' entity does not contribute other desired features to the business portfolio such as sales stability or prestige.

If· all seven conditions are present, the business entity appears .ideal for harvesting. If fewer conditions are met, the harvesting decision becomes more debatable.

Indicator three warrants a comment. The


actual impact of a harvesting decision on profits should be evaluated on both an mcremental and fully-allocated basis. 1f, by reducing sales volume, allocated corporate expense carried by that business is reduced and the noncancellable portion is spread to other growing parts of the corporation, there could be an attractive paper profit improvement but not a penny more in the bank.

Indicator four is perhaps the hardest to evaluate. What will happen to sales volume. and revenue if the harvesting decision is implemented? Much depends on the specific harvesting strategy chosen and on the speed and vigor of competitive reaction. Ideally, sales should not fall far below their current level, at least in the short run. If they are expected to fall precipitously, the company should consider instead a "maintain or abandon" decision.

One clue as to where sales will settle can

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Harvesting Strategies for Weak Products

be found by looking at the number of entering and exiting customers from period to period. Suppose 15 percent of the customers in a typical period are new. When the budget is cut, the percentage of new customers will fall since the company will probably reduce its spending to attract new customers. Sup-, pose, also, that old customers fall away at the rate of 5 percent each period. This customer loss rate will continue after harvesting is introduced, and may accelerate if price is pushed up or product quality and service are noticeably reduced. By estimating the likely impact of the particular harvesting strategy on the customer attraction and holding rates, respectively, management can develop a "guestimate" of the expected sales decline.

Some harvested products have displayed a remarkable staying power long after their marketing support levels have been reduced or removed. Consider the following:

- Bristol-Myers sold the venerable Ipana toothpaste brand rights to two entrepreneurs who continued to produce it and to stock distributors while stopping all advertising. The brand's sales continued for years at a "hard core" level, making good profits for the two entrepreneurs/'

- General Foods produced La France (a bluing agent) and Satina (a starch) long after they were superseded by more effective aerosol products, and they continued to sell-at somewhat reduced levels-with virtually no marketing support.

-Lifebuoy, a successful soap in the 1940s, fell into disfavor later because of its strong medicinal smell. Yet Lever Brothers continues to distribute Lifebuoy with virtually no advertising or promotional support. Because the product is priced higher on a per-ounce basis than many leading soaps, it produces enough profit for the company to justify its continuation.

- General Electric decided several years ago to harvest its artillery manufacturing

4. "Abandoned Trademark Turns a Tidy Profit for Two Minnesotans," WaU Street Journal, October 27,1969: 1.


division located in Vermont. Although the division was profitable, GE did not want to risk bad public relations by getting deeper into the arms business. In spite of reducing its investment over a number of years, letting the plant run down, doing little research and development, and raising prices, GE found the demand for these products persisting at a high level. Ironically, the decision to harvest produced a substantial increase in profits.

Thus, the sales of a product can decline to a level of "petrified demand," the term suggested by one marketing investigator as a contingent stage in the product life cycle following a sales decline.f


The marketing plan for harvesting a product should contain the same elements that are found in any marketing plan. The manager decides, or is told, to sell a certain volume or produce a certain revenue with a stated budget. If objectives are set for both volume and revenue, the setting of a certain price in the harvesting strategy is implied. If only a revenue goal is set, the harvesting manager is free to set the price-volume objectives on the basis of his or her understanding of the demand curve.

The harvesting manager faces a number of options in formulating a plan to achieve the given sales and profit objectives. Every line . item in the budget is potentially reducible. One useful way of classifying the available actions is by their degree of competitive visibility. Ideally, the harvested business does not want to alert competitors to its intention. Reducing the plant and equipment expenditures and reducing research and development expenditures are two actions that have minimal competitive visibility. These actions are normally not detectable by the' competition.


5. George C. Michael, "Product Petrification: A New Stage in the Life Cycle Theory," California Management Review, Fall 1971: 88·91.

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A more visible action would be to reduce certain marketing expenses such as sales force effort or advertising effort. If these expenses are reduced in select cities where there is lower profitability to begin with, they would not necessarily alert competitors to a harvesting intention. Still another action is to raise the product's price. The most visible indications of a harvesting intention are actions taken to trim. the quality of the product, reduce the number .Df items in the line, or cut certain services. If, furthermore, price is raised along with service and marketing cuts, this could clearly indicate a harvesting strategy.

Although a harvesting decision calls for reduced levels of marketing support, the marketing tools at the given resource levels must be handled creatively in order to keep sales as high as. possible. It is a good idea, for example, for management to occasionally "splash" some advertising. Sporadic spurts of advertising will recapture consumer and dealer attention and indicate an intention to continue the product in the line. In the same vein, the company should extend occasional deals to the trade to maintain its interest in stocking the product. It is even conceivable that packaging might be freshened or the advertising message altered in order to maintain as much interest in the brand as possible.

If the harvest manager decides on a fast harvest, the best move is to cut all plant, equipment, and research and development expenditures; reduce the marketing budget; reduce product quality and service; and raise prices sharply. This will produce a large cash flow increase, albeit for only a short time. If the harvest manager decides on a slow harvest, the first stage calls for expenditure reductions in plant, equipment, and research and development. Later, marketing expenditures can be reduced and prices slightly raised. Still later, product quality and service can be trimmed. This approach produces a smaller increased cash flow but one lasting over a longer period.

Formulating the optimal harvesting plan is not easy. Considerations will differ according to whether the business entity is a division,


"It is a good idea ... for management to occasionally 'splash' some advertising. Sporadic spurts of advertising will recapture consumer and dealer attention and indicate an intention to continue the product in the line."

product line, product, or item. If the business entity is a single product, the management may be able to test alternative harvesting strategies by trying them out in different cities to gauge their impact on sales and profits. If the business entity is a division, the decision has more finality, involves more cost and more people, and must include a larger set of considerations than does the decision to harvest a single product.


Company management can proceed to implement a harvesting decision in one of three ways. The first way is for management to gradually reduce the budget of the business entity's manager without claiming to harvest the business. As George C. Michael has written, "It is the policy of several corporate managements not to disclose to operatinglevel management a formal decision to harvest or withdraw support from a product line in order to avoid friction or loss of morale at that level. l' It can use all kinds of excuses, such as tight money, the need to finance other parts of the company, or the amount of current uncertainty surrounding the business. The manager will be upset about the budget crunch, but not as demoralized as he would be if informed of the harvesting decision. The cost of doing things this way, however, is to cause erratic planning from year to year and a loss of the unit manager's confidence in corporate management.

The second way to implement a harvesting decision is to appoint a new manager to head

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Harvesting Strategies for Weak Products

the business unit, one who is an experienced harvester. Just as some executives are good at producing growth and others at maintaining sales, still others are good harvesters. The problem with this solution is that these harvesting managers become well known inside and outside of the company and signal the company's decision to harvest the business. The harvesting executive's appearance, like that of the Grim Reaper, has serious repercussions for morale and productivity. It might be better to use him as a backdoor consultant than to give him operating 'responsibilities:

The third way calls for top management to inform the business unit manager of the harvesting decision. Top management will present the reasoning in the light of all the indicators of a harvesting situation. The unit manager will normally ask for a chance to argue against this decision and should be given this opportunity. If the unit manager can convince company management that the business has more potentiai than they recognize, they may be willing to change their mind and provide adequate funds on a trial basis.

When the unit manager and company management agree on a harvest decision, the 'decision should be implemented as inconspicuously as possible. The unit manager may share the decision with one or two close associates, but it is not advisable to spread the word broadly. Employee morale is likely to deteriorate in a business unit that is programmed for harvesting. More able employees may leave for other jobs, while others may slacken their productivity.

However, if the company is large and can reassign employees to other jobs, the demoralization impact will be lessened. The unit manager will be judged on the ability to meet the revenue and cash flow objectives set for the harvested business. The manager's reward is based on success in accomplishing the planned objectives. At General Electric, the harvest manager receives a bonus based on meeting the harvesting objectives, with 72


percent of the weight based on current financial results, 16 percent on future benefit performance, and 12 percent on other factors.f If the business is harvested successfully, the manager's career opportunities will be as good as those facing other managers in the company.

Competitors must be prevented, as long as possible, from learning of the harvesting decision. Competitors will normally increase their attack on a business that has been put into a harvesting mode. They will increase their marketing expenditures and lower their prices, forcing the harvested unit to "put up or shut down." The harvest manager will need reinforcements to fight back or will have to consider product abandonment. Therefore, competitors must be, kept guessing about management's real intention.

"The harvesting executive's appearance, like that of the Grim Reaper, has seriousrepercuss ions for morale and productivity. It might be better to use him as a backdoor consultant than to give him operating responsibilities."


Is it possible to hide the harvesting decision from the competitors for very long? This varies in different industries. A consumer packaged goods executive . said that his company always made an effort to minimize the visibility of the harvest decision but went on to say:

I also believe that the decision to harvest or not to harvest must assume that competition will learn of the decision instantaneously. If the success of our harvesting strategy depends on competition not learning of our decision for some period of time, divestiture is a more appropriate course of action.

The company will also want to keep customers in the dark about the harvesting as long as possible. Customers will lose their confidence in a company that has decided to let its plant run down, stop its search for

6. Michael G. Allen, "Diagramming G.B.'s Planning for What's Watt," Planning Review, September 1977: 8.

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product improvements, reduce its sales force and service, and in general, take steps that reduce the value of the offer. To the extent that customers learn of the harvesting decision, their rate of switching to competitors will accelerate and bring about a faster sales deterioration than anticipated.



A harvesting decision must not be undertaken lightly. It should be based on convincing indicators that the business should be harvested. Once decided, the company should stick to this decision unless there is overwhelming new evidence that 'the decision should be reviewed. A company that vacillates between a harvesting and a maintenance decision-and even a growth decision-is responding too much to current events. It finds itself building up market share at a great cost after giving it up so easily.

At the same time, the company has to be alert to signs that the harvesting decision may have been a mistake and that profits can be made by reversing the decision. This can happen under two different circumstances. First, management may discover that its decision was based on erroneous 'information about the current situation. The present sales potential may have been underestimated, or the costs of doing business may have been overestimated. Or management may have thought that a competitor was coming into the market or that a new technology was going to make the business obsolete.

Second, management may have made the correct decision at the time, but new factors caused the marketing environment to change drastically. The sudden onset of inflation and recession in the early 1970s led a lot of consumers to rediscover less expensive products whose sales had been slipping in the affluent 1960s, products like oatmeal, KoolAid, and home permanents. Price-conscious


consumers migrated to products and brands which in many cases had been put into a harvesting mode. Increased _ publicity about public health problems was another factor leading consumers to shift to neglected products such as filter-tipped cigarettes and decaffeinated coffee. One frequent argument for harvesting instead of terminating a product is that sudden macroenvironmental changes may bring the product back into favor. At the same time, this argument is used too often by management as an excuse for not vigorously pursuing new opportunities.

Harvesting is not so much a new strategy as fa fuzzy strategy. Companies have been using it for years without having a systematic grasp of its principles and procedures. The Boston Consulting Group, General Electric, and other companies have recently called attention to this strategy. However, very little is known about what, when, and how to harvest.

Most companies today manage a line of products in different stages of their life cycle. They deserve differential resource support depending on their profit outlook and their importance in the company's product portfolio. Between the decision to maintain a product and to phase out a product is the decision to phase it down. Reducing the support given to a product, if the reduction is going to kill the product overnight, does not make sense. However, reducing the support makes sense if the cost can be brought down without sales falling by as much. This is the harvesting solution. It calls for the effective identification of those products that warrant harvesting, the development of an optimal harvesting plan, and the implementation of a harvesting action program that does not alert competitors or alarm employees or customers. As companies gain more experience with harvesting, they will place more of their products in this decision mode and presumably enjoy comparable increases in economic efficiency. 0

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