An Introduction in Assessing Marketing Risk

Managers lacked the necessary tools for measuring risk specific to marketing strategy. Formerly a particular risk in marketing strategies is measurable in three ways. An error committed to estimating market-response parameters is the first, most managers' function in an environment of indefinite settings. The standardized product portfolio contains its inherent strengths and weaknesses, which include the second measure of specific risk. The evaluation of the strengths and weaknesses of the marketing strategy is so subjective that the level of risk is hidden behind an interpretative judgment. The third specific risk is the measure of the systemic risk that managers encounter difficulty to diversify.

There is a difference between the risk in the product's market and the financial market. Managers in a product market exercise a degree of control on the risk-return. For instance, product managers set market prices, and financial managers take the given market price. By the use of resources, product managers can affect project the rate of return through the use of resources. The marketing risk is proportional to the level of marketing investment called the product portfolio, which contains the ability of the business to produce, promote, and distribute. The most significant limitation to the product manager is a competitive investment.

Comparably, marketing management allocates resources to produce for the stakeholders the maximum net present value in the framework of risky product-market investment. Given this standpoint, a marketing manager placed at-risk business resources in search of competitive advantage. The failure to drive away the risk originating from pursuing a competitive advantage, the marketing manager must estimate the risk business needs to commit to maximizing the net present value of any project.

The two primary sources of marketing risk are changes in prime demand and market share. The size or scope of the market based on the firm's life cycle stage and product portfolio are the primary-demand risks. Thus the firm builds harvests and balances decisions based on the status of the market-share risk. The various choices are intended for the management quest for a competitive advantage. These elements of marketing risk are measurable.

A marketing manager's first pivotal decision about marketing strategy is the risk of selecting a target market. If the targeted market segment is exposed to substantial rates of change in primary demand, it is treated as risky. On the other side, a smaller target market with constant demand has a low risk. Inherently, a large market is riskier compared to a smaller one, which is implied in a market niche strategy. In framing a model to measure the primary-demand risk, the scaling factor is an essential indicator to measure the relative position of one segment size with another. The ratio of segment primary demand to the entire industry is the defined weight. The market segment is considered attractive to competitors and possesses demand volatility if the product-life-cycle affects the level of primary-demand risk. In comparing market with the various stage in the product life-cycle, the growth stage which attracts competitors is riskier compared with the market in a mature stage.

With high demand variation, the risk increases in the product portfolio, and the rates of changes increase demand. The percentage change in unit consumption measured the difference in segment demand. The measure is typically distributed for non-durable products in the test of product life cycle validity.