The Wonderful Guide to Industry Trends Analysis
Consumer attitudes and behaviors change quickly in today’s world of instant gratification. Companies that want to stay on top of what their consumers need must be adept at identifying current or future patterns that suggest trends that can be capitalized on. The earlier a trend can be spotted, the better positioned a business is to adjust its strategy and deliver new products and services that cater to this evolving demand.
Here are some terms to know before we begin.
Quick Reference Glossary
Trend: A trend is the general direction in which behaviors, expectations, needs, or metrics are moving, changing, or developing over time.
Trend Forecasting: Trend forecasting is the use of developing patterns to predict the future direction of behaviors, expectations, needs, or metrics.
Linear Pattern: A linear pattern is the consistent increase or decrease of data over time. This type of trend is typically slow and steady (see Average Annual Growth Rate)
Exponential Pattern: An exponential pattern is one that suggests that data is rising or decreasing at an increasing rate over time. For example, an exponential trend may show sales for a company were slow in the beginning years, but as its product became more popular with consumers, sales increased more and more each year. In the startup world, this kind of growth is fondly referred to as “Hockey Stick Growth.” (see Compound Annual Growth Rate)
Average Annual Growth Rate (AAGR): This is a linear metric that measures the average annual increase in value of any series of numbers over time. It is the straight mathematical mean of annual growth rates that does not take compounding into account. The formula for calculating AAGR is: AAGR = (Growth Rate in Period A + Growth Rate in Period B + Growth Rate in Period C + ...Growth Rate in Period X) / Number of Periods
Compound Annual Growth Rate (CAGR): This is an exponential metric that measures the constant growth over time that takes volatility and periods of extreme growth or decline into account. The formula for calculating CAGR is: CAGR = (End Value/Start Value)^(1/Years)-1.
What Does Trend Analysis Mean for You?
A trend analysis helps you refine your business strategy by showing you how your company is performing against your competitors and against your industry as a whole. It also identifies areas of opportunity that can inform your company’s future direction. If you can capitalize on an emerging trend, you might just capture magic in a bottle.
As with other types of market research, trend analyses can help improve businesses by providing evidence of the areas where a company:
Aligns with current trends.
Is set up for success for future trends.
Needs to improve to align with current trends.
Can shift its strategy to capitalize on future trends.
Certainly, it can be difficult to determine exactly what a trend is. For example, a trend is not the same as a fad, although the two terms are often equated with each other. A fad is short-lived and, while some businesses can take advantage of a fad by getting in quickly and getting out quickly, most companies can’t switch directions that fast. Fads are often not worth investing a lot of time and money in because they’ll fade before you’re even able to ramp up.
On the other hand, a trend lasts longer than a fad and develops gradually over time. Fads usually cannot be predicted, as they are like wildfires: no one knows when or where they’re going to occur. However, by using historical data and current innovations, we can predict trends.
Quantitative Trends
Quantitative trends are those that can be measured objectively and often include the following:
Sales
Revenue
Cost of Goods
Overhead
Cash Flow
Net Profit
However, they can also include other types of numerical data that can be measured over time, including:
Number of employees
Number of customers or users
Number of locations
Churn rate
Market share
Staff turnover
Marketing spend (or any other spend)
Etc.
Quantitative trends are best analyzed at least once a year. More often than that and data may be skewed by seasonality, fads, or brief economic disruptions. Less often than that and trends you may have been able to take advantage have already passed you by. But, this doesn’t mean you should only collect data once a year. It’s important to collect data as frequently as possible, so you have the largest data set from which to conduct your analyses. Ensuring you have enough data for your trends analysis is critical. For example, if you are looking at staff turnover and you have the following data:
2016 2017 2018 2019
Quarter 1 2% 6% 3% 4%
Quarter 2 5% 6% 10% 7%
Quarter 3 17% 13% 15% 9%
Quarter 4 3% 5% 11% 9%
When looking for trends with this data, you can see that quarter three is higher for staff turnover than any other quarter and that this is a pattern year after year. Knowing this can help you determine what is causing this turnover at this time of year and put a plan of action in place to lower those rates. This data can also help you measure growth or decline year-over-year to understand whether your company is improving in that area or if it still needs attention.
Qualitative Trends
There is little doubt that quantitative trends are critical for any business, particularly because they are objective. The hard data tells a story that cannot be refuted and that story is necessary for strategic planning and decision-making. However, trends that are less measurable, also known as qualitative trends, are just as important to a company’s success. These trends are difficult to measure because they aren’t numerical, but they can be found and used to steer your company in the right direction for growth.
Qualitative trends include data such as the following:
Popular materials, colors, toys, cars, dress lengths, styles, vacation spots, etc.
Shopping behaviors (online versus offline, delivery, research methods, etc.)
New technologies
Working arrangements (remote versus onsite, gig economy, etc.)
Regulations (new laws or restrictions, etc.)
Politics (left, right, independent)
Environmental issues
New startups
Travel preferences
Economic factors
Etc.
Since they don’t always have hard data associated with them, qualitative trends are measured in other ways. For example, industry experts may have identified a pattern that indicates millennials are choosing to stream their movies instead of downloading them to their devices, or that people who live in the South are traveling more often to Montana than they used to. For this reason, it’s important to be knowledgeable about what’s happening in your industry in general. Reading a variety of industry publications and documenting the number of times a specific item is mentioned can often indicate a trend, especially if it’s mentioned by several different experts. Note that proprietary research from market research companies is an easy way to identify trends, but it often comes at a steep cost.
Another way to identify qualitative trends is through social listening and influencers. Analyzing popular keywords on Twitter and Facebook can give you insight into what people are talking about online. Likewise, identifying who the influencers are in a specific space can tell you who people are following on social media and what information or products they are getting exposed to. Be sure to read influencer blogs to grasp what they are saying about you, your competitors, or the industry. What they write about is often taken as gospel by consumers, which can trigger a trend or speed one up.
Sometimes, qualitative trends can be supported by quantitative data, which is always the best case scenario. For instance, if industry experts are calling electric cars a trend and there has been a CAGR of 15.7% in the industry, there is a high probability that electric cars are indeed trending. However, you might want to dig in deeper to see if they are trending with a specific demographic or in a certain geographic region. So, even if a trend is identified, it is still necessary to provide additional context such as with whom is it trending and where?
How to Conduct a Trend Analysis
Step 1: Consider Using a Third Party
As with other types of analysis, it’s often better to get an objective trends assessment of your industry from a third party. Companies can become so focused on one aspect of their business that they can be blind to trends occurring elsewhere. While quantitative trends may be easy to identify and analyze, qualitative trends are often more difficult to pinpoint, especially if you aren’t looking for all possibilities.
Wonder analysts make it their business to keep an open mind about the data they find. With no stake in any specific industry, our analysts can provide you with a fresh perspective on trends that may take your business in a new and profitable direction. Alternatively, they may identify downward trends that could steer your business away from the cliff before you find yourself on the wrong side of a trend. Remember that it’s just as important to know when to get out as it is to know when to jump in.
Step 2: What Does Your Data Say?
To begin analyzing trends, you will want to gather your data and organize it in a meaningful way. This may be by quarter or month, but it needs to be ordered so that patterns can emerge. Data such as revenue, sales, CAGR, employee count, cash flow, cost of goods, and other financial metrics are often a great place to start a trend analysis. Get these numbers for your company and for your industry as a whole. It is even beneficial to get your competitors’ numbers as well, since you will likely want to see how they stack up once you identify the trends.
Remember, while you’re conducting your analyses, two of the key metrics you’ll need to find are AAGR and CAGR. You can find those using the following calculations:
AAGR = (Growth Rate in Period A + Growth Rate in Period B + Growth Rate in Period C + ...Growth Rate in Period X) / Number of Periods
CAGR = (End Year/Start Year)^(1/# of Years)-1.
Step 3: What are the Experts Saying?
Industry experts have their fingers on the pulse of your industry at all times. They live and breathe the various movements of all types of industry data, and what’s more, they write about it. Whether it’s in company blogs or for industry magazines, knowing what the experts are saying can allow you to identify current and potential trends. The key to identifying trends with this method is to ensure you read a variety of experts to ensure multiple perspectives are factored into your analysis. This way, you can quickly dismiss outliers and focus on those that find consensus.
Step 4: What are the Consumers Saying?
Here’s where social listening comes in, along with purchasing behaviors, influencers, and website analytics. Keyword searches, sales numbers, influencer blogs, and website statistics can all give you insight into what people are talking about. These are your actual and potential customers and they are where your external trends come from. You simply have to know what they are saying to be able to identify trends. Influencers may not be your target audience, but they likely can sway your target audience in one direction or the other. It would be a mistake to discount their impact on trends, so be sure to identify the influencers in your industry and keep up with their blogs, videos, and social media accounts.
Step 5: Analyze the Data
Once you’ve identified both quantitative and qualitative trends, it’s time to analyze your findings. Just knowing the trends isn’t going to help you much unless you understand the following:
What is driving the trend?
What impact is the trend having on the industry?
What impact is the trend having on my company?
What impact is the trend having on my competitors?
How long has this trend been occurring?
What is the expected future of this trend?
Answering these questions can give you insight into how your business strategy can be adjusted to best take advantage of these trends. Even if you’re not quite ready to jump into a trend with both feet, just knowing where the industry is headed can arm you with information that will help you make solid decisions when the time is right.
Step 6: Predicting the Future
Of course, knowing current trends may not always be helpful, especially if you missed out on the genesis of the trends. However, current trends can often be predictors of future trends, and this is where they can have an impact on your company. Often, trends are not new, but instead, are reiterations of past trends. They only seem new because they are affecting a different demographic or they are appearing in a new environment, or they are being applied in a novel manner. Therefore, by looking at the past, we are able to see what could happen in the future.
For instance, when a new type of vehicle is introduced, it is often very expensive. Hybrid cars were prohibitively priced for most people when they first arrived on dealership lots. However, over time, we have seen those prices decrease to where these cars are now affordable for many more drivers. Today, the electric car is right where the hybrid was back then. Using what we know about technology becoming cheaper over the years, we can predict with some certainty when electric cars will become a trend among various income brackets as the pricing changes.
Additionally, most major trends are the result of several smaller trends merging together. This means that the major trend is just a logical extension of the smaller trends. An example of this is e-tax filing. If we backtrack from e-tax filing, we can see that the trend before e-tax filing was using software to prepare tax returns so they could be handled by average taxpayers rather than paying an expert to prepare them for a fee. We can backtrack even further and see that the trend before software was using a spreadsheet to organize tax data. Therefore, the software trend built on the smaller spreadsheet trend and the major e-tax filing trend built on the smaller trend of using software. Using this method, we can look at related current trends and use logical thinking to determine how they might link together or build on each other to create a bigger future trend.
Wrapping It Up
Some trends are easy to spot, particularly if you have hard data to match; however, others are less visible and require more research to verify. Not every trend is going to change your business’ direction or your strategy focus. It’s crucial to invest time in conducting research to identify trends, analyze how they relate to your business, and build strategies that allow you to thrive. The key is to regularly assess industry trends so you can stay on top of the wave and ahead of your competition!
Want to see industry trends analysis in action? Check out these reports from the Wonder Library!