Saddle Up a While After Down

Let’s say you expect sales to continue growing for a particular item, yet turnover drops sharply. You’re stuck with surplus inventory, which eats into your profitability. Then after a period, when you’ve trimmed down carrying that item, sales pick up again, catching you in short supply. You miss out on sales, again eating into your profitability.
     When this happens to you, you’ve been a victim of the “saddle.” That’s the name researchers like those at Lehigh University and University of Southern California use to refer to a sudden deep drop of sales followed at a point later by recovery to the former peak. In a sample of 23 products sold in America, the saddle was seen in all but one of them. Understanding the dynamics of the saddle equips you to ride through the changes more smoothly.
     The Lehigh/USC researchers hypothesized three explanations for the saddle:

• Business cycles. Ups and downs in the economy are inexorable. Perhaps the saddle’s dip occurs at the first economic downturn after product introduction. Then at the next upturn in the economy, the shape of the saddle is completed with improved sales. 
• Technological improvements. A technologically sophisticated item will sell well. But news of the next generation will chill sales of the current technology, even before the next generation is available. Then when it does become available, two related factors can lift sales of the former-generation item. First, the price is likely to drop sharply, increasing demand. Second, consumers may learn from friends and product reviews that the fresh version is buggy. 
• Diffusion chasms. Decades of research indicate that when a new product is introduced, sales depend upon adaptation diffusing through consumers with a range of attitudes. Venturesome innovators say, “I want the latest features, even if all the problems with the item haven't been worked out yet.” Their influence flows to respectable early adopters, who say, “I want a taste of where the world is heading.” On to the deliberative early majority who say, “I'll buy after it's proven to reliably meet my needs,” and the skeptical late majority say, “Let lots of other people use it for a while before I buy.” This diffusion doesn’t happen smoothly. Whenever it stalls, sales drop for a while and then pick up later. Voila, the saddle. The stall is most likely to occur when about one-third of potential consumers for a product are using it. 

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