Which of the following would a company do when it decides to 'harvest' a product made by an SBU?
A. Spend as little on advertising and promotions as possible
B. Focus on growing the product's market share
C. Increase spending on developing a social media presence
D. Close down the SBU as soon as the product inventory is sold
E. Put the SBU up for sale
Answer (2)
A company that decides to 'harvest' a product prioritizes short-term profitability by minimizing advertising and promotion costs. Therefore, the best choice from the options provided is A. Spend as little on advertising and promotions as possible. This approach focuses on getting the most financial return from the product before it is phased out.
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When a company decides to 'harvest' a product made by a Strategic Business Unit (SBU), it means they are trying to maximize short-term profit from the product by reducing expenses. The goal of harvesting is not to grow the product's market share or invest in long-term opportunities. Instead, the company seeks to generate as much profit as possible from the current market position before the product or its market declines.
Let's break down the options given:
(A) Spend as little on advertising and promotions as possible : This is the correct option. Harvesting involves minimizing costs associated with marketing and promotions. By reducing these expenditures, the company aims to increase immediate cash flow and profitability from the product without investing in its growth.
(B) Focus on growing the product's market share : This option is incorrect. Growing market share requires investment in marketing, sales, and possibly product development, which contradicts the harvesting strategy aimed at cost reduction.
(C) Increase spending on developing a social media presence : This is not aligned with harvesting. Developing a social media presence often involves strategic marketing efforts and thus increased spending, which opposes the goal of reducing expenses.
(D) Close down the SBU as soon as the product inventory is sold : While eventually closing down may happen, it’s not the immediate focus of a harvesting strategy. The focus is on reducing costs and maximizing profit first.
(E) Put the SBU up for sale : This is not specifically about harvesting a product; rather, it is a strategy to divest the SBU completely, which is a different approach.
Harvesting is a strategy often used for products in the decline stage of their life cycle, where the company wishes to extract maximum profit with minimal additional investment.
