Efficient production can only partially explain the success of a product. Often, it is marketing which holds the key. marketing, however, involves several uncertainties. This article explains the risks involved in product development, pricing and distribution, and how they can be mitigated.

In this second and concluding part of the series on marketing risks, we examine product development risks, pricing risks and supply chain risks.

Strong new-product planning is required to improve the probability of success. The top management must define the markets and product categories that the company wants to target. It must set specific criteria for new-product idea acceptance, based on the specific strategic role the product is expected to play. A new product can help the company to remain an innovator, to defend its marketshare position, to get a foothold in a new market to take advantage of its special strengths or to exploit technology in a new way.

The amount of investment is a major decision in product development. Outcomes are so uncertain that it is difficult to use normal investment criteria for budgeting. Some companies encourage as many projects as possible, hoping that a few will click. Others set their R&D budgets as a percentage of sales or by looking at how much the competition spends. Alternately, companies can decide how many successful new products they need and work backwards to estimate the required R&D investment.

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