Product Risk Management - Managing Market Risk in New Product Development

Product risk management can broadly be divided into managing market risk and managing technical risk in new product development. Market risk is the risk that the new product once developed will not meet the needs of the market and will not be bought by customers. Technical risk for the product is the risk that the product once developed will not meet its technical specifications.

Of the two risks, in our experience, market risk is greater and more likely to cause a loss. Market risk is usually much larger than technical risk because

  • Many companies, especially small companies and new ventures do not even realize the magnitude of market risk. They start developing a product without adequate research.
  • Even when the organization realizes market risk and do market research, such market research often does not give accurate answers. There is often a difference between what customers say they will do, and what they actually do. The best way to capture market reality is to track actual buying behavior.
  • Market needs change over time so a product which is right for today's market may not be right for a market six months from now when the product is actually introduced.

We discovered some of these facts from costly experience. Hopefully this article will be able to make the path easier for you.

Tactic 1: Conduct surveys and focus groups

You can conduct surveys and focus groups among target audience. The risk here is that prospects often behave differently from how they say the will behave. However talking with prospects gives us a subjective idea of their views on the product and the features they consider important.

Tactic 2: Sell a competitor's product in the market

The only true way to gather objective information is to actually sell to the market. One way to do it is to sell a competitor's product or an OEM product. One can of course conduct marketing and stop just before the final step.

Tactic 3: Evaluate market reactions to individual product attributes

We need not develop the complete product to evaluate customer reactions to a particular product attribute. It might be possible to evaluate product attributes individually. For example, for software just the user interface with dummied up functionality may be presented to the user. For physical products, just the enclosure with the screens and buttons and the appropriate weight inside it may be presented to the user.

Tactic 4: Prototype and gauge customer reaction to prototypes

Rapid prototyping techniques can help a lot here. It is advisable to develop those features first in a prototype that are at market risk. Early validation of these features will cut down market risk considerably.

Tactic 5: Develop and release products fast

Developing and releasing products fast avoids product risk due to changes in marketplace.

Tactic 6: Make the product flexible

Different segments of the market may have different needs and certain features may be subject to rapid change. A product may be designed to be flexible enough that it can be changed to meet different needs. Please note that such flexibility often, but not always, comes at additional cost and expense due to increased capacity available. Occasionally the cost can be lower for a flexible product because the final configuration of the product can be left to the user.

You may also find our product design ideas article relevant for product risk management.

As we can see fast product and prototype development is an essential component of product risk management.

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