What are Industry Trends?
Industry trends are patterns or trends that occur within a specific industry. These trends may relate to price, cost, consumer purchasing, marketing, manufacturing, sales methodology or any number of other areas. Trends occur within every industry and can provide companies with important data to help them remain competitive in the marketplace.
While industry trends can move quite quickly and change frequently, the term is usually used to describe industry activity over time rather than sudden, brief divergences from the norm. For example, if the consumer purchase pattern of a given item has increased about two percent for each of the last five years, an analyst might say that this industry is exhibiting a slight growth trend. If, however, sales of the item remained relatively static for the first two years, saw a sharp increase in year three and then returned to the previous levels for the next two years, no trend is apparent. Instead, the sales spike would likely be considered an anomaly.
Analysis of industry trends can be very valuable to manufacturers and retailers. Understanding how consumers purchase products can help businesses make decisions regarding allocation of funds and labor. For example, if a manufacturer of scrapbooking embellishments finds that online product sales of craft supplies have increased dramatically while in-store sales are decreasing dramatically, the company may want to focus its advertising dollars on web-based ads rather than on in-store displays.
Watching industry trends can also help businesses stay competitive. For example, several years ago, video rental stores in the United States began phasing out VCR tapes in favor of DVDs. The industry trend was toward the newer media. Stores in this industry had to make a decision: They could either follow the trend and continue to compete for the business of consumers who wanted to rent DVDs or they could fight the trend and position themselves as one of the few locations where consumers could continue to access VCR tapes.
Industry trends can be influenced by a number of factors. A trend toward increased safety standards in automobiles might be tied to government legislation, for example. Likewise, a trend toward shorter hemlines in women’s fashion may be the result of the popularity of a celebrity who is known to wear short skirts. Also, a trend toward use of sustainable materials in a manufacturing sector may be the result of both public demand and a decrease in the availability or affordability of non-sustainable materials.
@allenJo - “The trend is your friend.” That is a line from the investment community and I think that it’s mostly true.
What drives trends? Personally, I think that a trend driven by consumer demand is stronger than one driven by government regulation. Government regulations create contrived trends in my opinion.
However, when people en masse choose to do something, it tends to create more permanent results in the end. Take airline industry trends for example.
Government subsidies have not enabled the airline industry as a whole to remain profitable, although individual carries have been profitable. These carriers are not the legacy carriers, but the newer, low-cost fleets catering to budget minded consumers.
So we see that ultimately it’s the consumer who decides. As would expected, consumers want more efficiency and less cost.
@David09 - Yeah, I second that sentiment. Jobs was truly a genius in that regard. It’s interesting that the article talks about the VCR to DVD trend. In the world of home entertainment, I can see another trend that is more potent than the move to DVDs.
It’s the move to kiosk vending machines that rent out movies on DVD for a mere $1. Entire movie rental establishments have had to file for bankruptcy because they couldn’t compete with that business model.
They then set out to roll out their own versions of the DVD vending kiosks. I for one love this trend. I know some Hollywood industry insiders cry foul at having movies dispensed so cheaply, but I look at it this way.
This trend is doing for DVD rentals what iTunes did for song downloads. It’s cost effective, and reduces the need for piracy. Why download a pirated song or movie when you can rent it for a mere $1? That’s my take anyway.
I can think of another reason to watch industry trends, and that is to make good investment decisions. For example, if you were a keen observer of technology industry trends, you would have known that consumers wanted portable electronic devices that could serve their communications and entertainment and productivity needs – all in one.
One such person who was a keen observer was the late Steve Jobs, who turned Apple around by rolling out the iPod, iPad and iPhone. Many people hail him as a genius; but he simply had an eye for what people wanted and didn’t even know that they wanted.
I don’t expect that I’ll be the next Steve Jobs, but as an investor I like to watch the trends to see what companies are likely to do well in the future, and are therefore worth investing in.
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