Despite the loose use of the terms by some, markets and products are not the same thing. Markets are groups of people with related needs; products are bundles of benefits that might meet those needs. Market risk arises when a company attempts to match one to the other.
Market risk is the risk that the market size will not be as large as hoped for by the plan, as a result of which the intended shareholder value would not be created. It is distinct from, but aggregates with, share risk and profit risk. In short, market risk arises when the market projections turn out to be wrong. This happens for a number of reasons: the targeted market is very new; the product category is very new; the product enters a new stage in its life cycle; or the uncertainty arising from this ‘newness’ is not compensated for by effective research and analysis.
Market risk is the cumulative risk of five component risks: