Contents
- What are marketing risks?
- Causes of marketing risks
- Factors influencing marketing risks
- Types of marketing risks
- Management of marketing risks
What are marketing risks?
Marketing risks represent potential threats that can hinder a company from achieving its financial and marketing objectives. These risks arise from changes in the market environment or errors made during the marketing decision-making process. There are two main approaches to defining marketing risk: the first interprets it as the risk of profit loss due to decreased sales volume, while the second encompasses all risks associated with the company's marketing activities. Regardless of the chosen approach, the consequences can be severe, including loss of customers, financial losses, and damage to reputation.
A vivid example of marketing risk is the case of Colgate, which in 1982 attempted to introduce frozen dinners to the U.S. market. Consumers did not embrace this idea, as the associations with toothpaste were too strong. This became a clear example of a conscious but unsuccessful marketing risk.
Causes of marketing risks
The concept of risk is closely related to uncertainty. In the market, companies often face a lack of information about the external and internal environment, making it difficult to predict consumer behavior, competitor actions, and the political situation. The main causes of marketing risks include:
- Lack of complete information about the market situation;
- Changes in the market environment and consumer behavior;
- Inability to account for all factors;
- Errors in marketing decision-making;
- Inability to forecast random events.
Factors influencing marketing risks
The likelihood of adverse events is influenced by both objective and subjective factors. Subjective factors depend on the actions and decisions of the company itself:
- Insufficient information about consumers, the market, and competitors;
- Errors in defining the target audience and pricing policy;
- Ineffective promotion strategies;
- Errors in production and logistics management;
- Lack of attention to consumer feedback.
For example, the company "Gurmanya" did not consider the cultural specifics of the Russian market when launching its product, which led to its failure. Conducting marketing research could have helped avoid this mistake.
Objective factors, in turn, include:
- Economic crises and instability;
- Changes in currency exchange rates;
- Political changes;
- Changes in consumer preferences;
- Unexpected natural or technological disasters.
For instance, the coronavirus pandemic in 2020-2022 had a significant impact on many small coffee shops in Russia, closing them down due to reduced customer flow and rising coffee prices.
Types of marketing risks
Marketing risks can be classified by various sources. The most common types include:
Sales risks
These risks arise at the stage of selling goods and services and may manifest in:
- Errors in organizing the sales system;
- Incorrect market segmentation;
- Errors in choosing a pricing strategy;
- Ineffective sales strategy.
Counterparty interaction risks
These are related to the work of suppliers and contractors, which can lead to:
- Failure to fulfill contractual obligations;
- Low product quality;
- Loss of partners.
Unexpected competition risks
These arise from the emergence of new players in the market, which can negatively affect the market share of existing companies.
Wrong segment choice risks
A product may become unwanted due to changes in consumer preferences or demographic characteristics.
Management of marketing risks
Management of marketing risks includes three key stages:
- Risk analysis and assessment: it is necessary to identify potential threats and assess their likelihood;
- Development of a risk management strategy: this may include avoidance, transfer, acceptance, or reduction of risks;
- Monitoring and adjustment of the strategy: it is important to constantly monitor market changes and adapt the risk management strategy.
An example of unsuccessful risk management could be the launch of a new product at an inappropriate time, as happened with our chatbot in early 2022. Effective risk management can help avoid such situations and ensure sustainable business development.