Posted in Finance, Accounting and Economics Terms, Total Reads: 592
Definition: Low Hanging Fruit
A low hanging fruit generally refers to the easiest attainable rewards. It is a metaphoric expression relating to a fruit in the bottom of a tree that can easily be obtained by someone as against the one on top of the tree.
Even though a low hanging fruit is easy to reach, obtain and enjoy, it has its set of issues. As in the case of a real tree, the fruit that is on the top is usually most ripe and of the best quality, while the one on the bottom is of lower quality and not very ripe. Similarly, easy rewards that are obtained with the least efforts are generally not the ones ensuring maximum returns. Targeting low hanging fruit is only a quick-fix measure and not a long-term solution.
Low hanging fruit can be related to the risk-return philosophy. Basically, higher the risk, greater will be the returns. On the same lines, by taking the risk of reaching the tougher fruits, one also ends up with higher returns.
Say, a government is responsible for improving the state of the economy for which it needs funds. It can obtain such funds by way of improving the industrial base of the country, thereby generating more revenue for itself in the process. However, for the influx of funds, if it simply increases the tax on the common man, it is said to be picking the low hanging fruit, which will not serve its funding purpose in the long run.
In the context of sales, a company that sells to the easiest customers is an example of targeting low hanging fruits. In such a case, if the competitor chooses to target the tougher and more rewarding customers, the competitor is bound to get more returns with time.