I am frequently asked about the difference between a trend and a fad. Confusing the two can be very costly, as you might invest in new products that you believe are likely to be trends. However, if you are wrong, you may have just lost your investment.
For the record, there is nothing inappropriate about investing in fads. That is the major activity in the beauty and fashion industries. A major difference is that these companies know it is a fad and they act accordingly.
When there is a change in the market (either up or down), how do you tell whether it is a trend or fad? I believe that in order for something to be a trend, a few conditions must be met.
The first condition is the change should be visible in categories besides just the one under consideration. That is, if one thinks there is a trend toward exotic tastes and flavors, one should be able to see this in multiple categories. I believe this is a trend, as you can see sales of these products increasing in fresh produce (mangos, papaya, passion fruit), in dairy products (exotic flavors in yogurt), in candy, baked goods and many of the sauces served in restaurants, etc. Whereas a fad is often (but not always) restricted to one or two categories.
A second condition is the base measure of sales must be at some significant level. In many cases what appears to be a trend in a product’s sales growth is often just moving from a very low base to a slightly higher number yielding a high growth rate but low sales. This is particularly important because all trends usually start at a low sales level.
In the case of the dairy industry, milk producers were concerned about the huge growth in plant-based beverages. Any sales increase in this category would appear to be major growth. This does not mean the growth in small base categories should be ignored, but it shouldn’t be anointed as the second coming when growth rates are based on low sales levels. For example, after all the fanfare, plant “milk” is still less than 10 percent of all milk sales.
The third condition is that sales growth must be under normal or at least comparable marketing conditions. If a company has just introduced a new product and with a major advertising program and levels of promotion and trade activity that will not be in place over the life of the product, or very aggressive pricing, one cannot assume the sales are a trend but rather the result of a temporary push through the channel. For example, are healthy snacks a fad? “Healthy snacks” may be growing but they are still far behind that old favorite potato chips.
The fourth condition is over what time period is the increase measured. While there is no specific number of months, there are some time periods that do make sense. The time periods must be related to the frequency of purchase for the category.
If a product is increasing in sales for six months can it be called a trend? Equally important is who are the buyers that make up the increase. In most cases a trend should be defined in cases where not only trial purchases increase but also repeat sales, and there should be a strong depth of repeat. If you have all trial and little repeat it sounds like a fad to me.
As an example, consider soy milk again. Panel data shows most of the sales growth is trial purchases and there is little repeat. Aggressive marketing and the promise of a “healthy” product gets more trial sales each month, and this appears to be driving sales growth. If it has high trial and decreasing repeat it may look like a trend but most likely a fad.
Finally, a trend should stand the test of “smoothed data,” which has statistically removed the effects of random movements in the data, seasonal and/or cyclic events. I have found very few companies really use smoothed data. While there are a number of ways to smoothe the data, most are very simple to both understand and calculate. The idea is that if the data is reported as an average over say six months, then changes may be attributed to something other than marketing programs, bad/good weather or any other temporary variation. It may be a trend!
Following trends is like surfing. You have to catch the wave just right. Move too soon and you likely will wipeout. Wait too long and you will miss the wave. Every food company should have a trend team that identifies trends. It is important someone on the team argues against the trend and provides data counter to the trend, while others argue for the trend. From this dialogue, the truth will emerge and profit will be right behind.