Risk is a measure of the extent to which an investment’s actual return could differ from its expected return.
While there are no universal or absolute definitions of risk, several definitions have been adopted by scholars and market participants. The most widely used definition of risk is the probability of adverse loss therefore you ask yourself how do you reduce market risk?.
Market risk is seen as a phenomenon that results from uncertainty about the future direction of prices, i.e., unknown future prices for securities in a market portfolio. Market risk can be further classified as systematic and unsystematic.
Table of Contents
Analyze your target market
- Analyze the market segmentation in order to identify opportunities for your product.
- Analyze the market in terms of size, growth potential and intensity of competition.
- Understand what your target customers’ needs and wants are.
- Know how the market is distributed between retail stores and online sales channels as well as which type of advertising is used most often (radio, newspaper or television ads).
Identify your competitors
Before you start, it’s important to think about what your goals are and how you will achieve them.
The first step is identifying your competitors. Who do you want to compete with? What is their mission statement and strategy? How can you beat them at their own game?
Example: You could aim for a marathon in 6 months or less, or become stronger than anyone on your team at the gym.
Know your competition’s strengths and weaknesses
- Strengths and weaknesses analysis. To assess your market risk, it’s important to know what makes you and your competitors unique. A SWOT analysis can help you identify these strengths and weaknesses. In short, strengths are things that you do better than the competition (e.g., customer service is a key strength of yours), while weaknesses are things that the competition does better than you (e.g., their packaging stands out more than yours). This information will help guide how you differentiate yourself in the market—and also determine what areas need improvement if they aren’t already strong areas for your company.
- How do other companies position themselves in relation to one another? The best way to see how other companies are positioning themselves is through an online search engine like Google AdWords Keyword Planner or Bing Ads Intelligence Tool.
You’ll want to look for keywords related to each of your products or services; this will give insight into which words people use when searching for what kind of product or service they’re looking for.
Create a marketing plan
A marketing plan is a document that outlines the strategic direction of your business. It includes information about who you’re targeting, what benefits your product or service offers, how much it costs to provide those benefits and whether there’s enough demand for them in the market. A well-crafted marketing plan will help you make informed decisions about where to invest time, money and effort in order to achieve desired results.
If you don’t have experience creating a marketing plan from scratch—or simply want a template that breaks down each step in detail—you can find helpful templates online at places like Staples or Mint.com.
Study your market to identify any trends or shifts that may affect your industry.
To reduce market risk, you need to study your market, understand the competition and their strengths and weaknesses, know what your customers want and expect. You should also be aware of the economic and political environment as well as be flexible with your strategy.
Develop a flexible strategic plan that you can adjust as needed.
Developing a flexible strategic plan is important because it’s never possible to know exactly what will happen in the future. You can’t predict every single change that will occur, but you can work to prepare your business for any outcome and keep it strong as you go through changes.
The best way to prepare is by developing a flexible strategic plan that includes goals and resources, along with some options for how you’ll respond if things don’t go according to plan. This should include:
- Your target market(s) (and their needs)
- What makes your company different from its competitors? What do they offer that yours doesn’t?
- How do customers perceive your brand? Do they understand who you are? Are there any misconceptions about who they think the company is or what they offer? How might this impact their relationship with clients/customers/the public at large over time if not addressed appropriately now before problems increase exponentially down the road when correction becomes too costly financially speaking due to lost business opportunities due to poor reputation management tactics employed by competitors who have better communications strategies than yours does right now.”
How do you reduce market risk?: Conclusion
Risk is an element in every business activity, but proper planning can mitigate most problems.