How Companies Can Befriend a Trend (with M. Schrader)
American Marketing Association, February 2015
. . .Only if companies identify trends early on and draw the right conclusions. But what is a trend, and what are its consequences for multinational corporations?
Trend research is a booming business. Many agencies and self-appointed gurus announce their latest trends to generate publicity and awareness. This can be particularly confusing for MNCs: apart from local and regional trends they have to identify international and cross-regional trends and incorporate them into their strategic planning and decisions.
Companies must deal with trends and trend research. If they miss out on market developments which fundamentally change customer interactions, they are doomed to fail. Just think of Kodak’s neglect of tectonic shifts in the photography market to its major detriment. Yet, misjudging a blip for a trend may cost a firm critical amounts of money and reputation. Even today people still cite the warning 1958 example of the Ford Edsel which, though leading edge in technology, did not appeal to buyers. On the other hand, a trend identification at an early stage can significantly help a firm to distinguish itself from competitors and to lastingly strengthen its brand. Toyota demonstrated this with the Prius. The Japanese carmaker realized early on that fuel efficiency and “green driving” is not only an ecologic necessity, but also a customer preference. That is why Toyota’s decision to be the first to launch a hybrid car in mass production had such a positive impact on its brand image.
What Exactly Is a Trend?
Merriam-Webster defines it as “a line of movement and development or a prevailing tendency.” This makes a trend not a future occurrence, but rather an event line which becomes apparent through current incidents which point into the same direction. The challenge is to filter out of a multitude of ambivalent incidents those who eventually will become a straight line of change. Single events do not make a trend, but may well mark the beginning of it and therefore need to be tracked.
Trends impact marketing actions in various ways: Product technology can be influenced and changed by a trend. Take electric mobility as a current example. The electric impulse in new automobiles differs fundamentally from the traditional fuel engine. Companies must acquire completely new technology competences in order to compete. In the electric car the energy storage in the battery is the decisive component. Those car companies which engaged full-fledged with this technology early on, acquired know-how and cooperated with partners, developed and maintained key competitive advantages.
Technology changes can also lead to different pricing models due to a change in cost structures. Particularly newly emerging competitors may develop entirely new pricing usance in an industry. A trend may influence the way MNCs interact with their clients, or lead to new customer needs and preferences. Trends can cause the development of new distribution or sales channels or lead to changes in the existing sales structure.
Technologic and Socio-cultural Trends Are Especially Relevant
Technological or socio-cultural changes in particular must be on the MNCs radar, since these shifts are most frequent and often most discontinuous in the international realm. Do new technologies emerge that entirely replace the existing product technology or functionality, such as, for example, driverless cars? Are there social changes, which point to new consumption needs or habits? Technology-driven companies and life-style firms, such as MNCs operating in the smart communication, automotive, or fashion business, are in special need of professionally organized trend research. This is especially true for firms in markets where consumer desires and preferences may change quickly. Pret A Manger, a global sandwich restaurant chain emanating from the UK, is constantly in search of new food trends by monitoring food blogs or visiting health shops. If a new ingredient becomes notably popular, it is rapidly considered in the firm’s offering. Pret A Manger pays special attention to the timing of change introduction. “We have the most success at the middle of the curve,” a company spokeswoman recently told the Wall Street Journal.
In our experience it is not a lack of trend information, which is problematic. To the contrary, many large MNCs have a significant amount of trend-relevant data. But there is a lack of a comprehensive and systematized data analysis, extraction, and condensation. Such steps, however, are crucial for identifying sustainable international marketing strategies.
MNCs need trend scouts or trend specialists who deal with trends in their respective domain. Specific employees will be responsible for trend research in Marketing, in R&D, in manufacturing, and so on. This allocation is necessary because business functions have become so specialized that in order to furnish meaningful analyses, trend researchers need to be grounded in specific field. While outsourcing of trend research to third-parties, may make sense in widely diverse markets, the interpretation of data and events needs to be done by the MNC itself, if it wants to identify a trend early, recognize the cross sections between trends, functions and corporate activities and use these insights to generate a competitive advantage.
If trend research is split between parts of the organization, it requires a mechanism that consolidates, compares, and jointly interprets the work and insights of the different trend specialists. A Head of Trend Research as coordinator should oversee the firm-wide activities in the single lines of business. That person should also ensure at the ‘C’ level within the firm that there is corporate follow-up, including investment decisions using the trend findings.
Standardization Versus Adaptation and Its Effect: A Trend Research
Trend research is no easy task. It is ambitious and requires considerable resources. The challenge is even bigger for MNCs because they need to recognize and distinguish between local, regional, and global trends. For example, how does one understand whether a particular phenomenon is a singular aberration or a “black swan” presaging an entirely new context, and how are insights communicated best within the firm? It becomes important to understand whether an MNC’s marketing program is standardized across regions or whether it is adapted to and from local preferences or requirements. If standardized, the MNC perceives customer preferences as identical across the world, thus pursuing a homogeneous marketing program and a global product. In this case, the MNC tends to turn its focus toward global trends, looking for application in a diversity of markets.
If the marketing program is adapted, the research scope requires to be differentiated, that is trends need to be researched on a region- and market-level. As MNCs are usually active in several foreign countries, firms following the “adaptation” approach typically develop trend research targets will be those markets of special importance, based on revenue, profit, or strategic considerations. For most European MNCs for example, China will be on top of the list.
Strengthening One’s Trend Research Capability
One of the major decisions in international marketing concerns the entry mode used to conquer a new market. The options range from simply shipping to foreign customers (direct export) to licensing and, finally, the complex and resource-intensive establishment of own subsidiaries. The entry mode choice has implications on the trend research capability. If the MNC is not active in the foreign market (as in the case of direct exporting or licensing), reliable trend research for this market is quite difficult. Dependence on secondhand information makes for with a difficult interpretation due to a lack of local market knowledge. The more engaged the MNC is, the easier it is to interpret events early on and to identify a trend. Only presence in a foreign market enables to gain local (trend) know-how. That is why many Western MNCs should exploit their recently built-up Sales and Research & Development capacities in emerging markets for trend research purposes.
Much work done on trend identification suffers from key drawbacks. One is the limitation of the work to one country only, even though trends are often a global phenomenon. Often one can sense that the time is ripe for a change, but the actual shift may occur in a variety of countries. Unless there is good awareness of diverse markets, one risks losing out on the trend signals. A second shortcoming concerns the constituencies of the international marketing process. Even though trends in international marketing are driven by the interaction of the business, policy and scientific communities, firms typically query only one group of these players. In consequence, the insights obtained are limited to the views of the one group investigated, and do not reflect the important and possibly different perspectives of the two groups left out. It is important to have trend research reflect the interaction between the business, policy, and scientific communities to obtain reasonably accurate and calibrated insights into impending metamorphoses. Twenty years of research on trends conducted by us have shown that the use of such a differentiation into these three communities has generated an average trend forecasting accuracy of 76 percent.
It is now time to pay attention to the importance of trend research for competitive international business strategies. If MNCs start to systematize their trend research and align their trend research scope and capability with their product strategy and do so across different constituencies, then the trend may well become their very best friend.