Fads are hard to miss. Whether it’s this summer’s craze — Silly Bandz, the rubber-band bracelets that have become a must-have accessory for children — Beanie Babies or the Rubik’s Cube, they take off like a rocket in popularity and then seem to fizzle out just as quickly. You might think fads are kids’ stuff. But adults aren’t immune to the fad machine — remember all those grownups sporting Crocs a few years ago? And while fads present challenges to businesses riding that wave, they can also spell opportunity if managers are smart about taking the cash generated by these crazes and using it to build a sustainable business.

So what is a fad exactly? Bryan Lilly, a marketing professor at the University of Wisconsin, describes fads as a sudden and unpredictable spike in sales in which consumers are buying a product as much because of its popularity as its usefulness. Lilly notes that while fad products eventually experience a rather abrupt decline in sales, revenues don’t necessarily fall to zero.

The latest must-have item for a growing number of kids — and more than a few adults — are Silly Bandz, brightly colored bracelets shaped like animals, letters, princesses and dinosaurs, among others. A pack of 24 Silly Bandz — which have spawned numerous imitators — sells for around $5 and can be found at toy stores, drug stores and even hardware stores. Robert Croak, founder of Silly Bandz maker BCP Imports, told The Wall Street Journal earlier this month that the bracelets have generated more than $100 million in annual sales. A former concert promoter from Toledo, Ohio, Croak began making and selling the bands after seeing a similar product from Japan. Although Croak told the paper that BCP is trying to diversify with other “silly” accessories including buttons and necklaces, and even taking design suggestions from fans via the Internet, many observers warn that history shows the bracelets’ popularity is a bubble waiting to burst.

Wharton marketing professor Jonah Berger points out that fads aren’t restricted to toys and gadgets. He says that fads also crop up in areas such as education and management. For example, Six Sigma, the quality management strategy introduced in 1981 by Motorola, became a craze after it was adopted by companies such as General Electric, but doesn’t generate quite the same buzz now. And Berger suggests that fads typically develop around products that communicate something about social identity. “Fads tend to arise in situations where people imitate the behavior of others. They are particularly likely in situations where one group might have high status or exclusivity that others want.” Clothes and music are fertile ground for fads because they are a way to communicate something about a person’s identity and style, while more utilitarian items — a refrigerator, for instance — do so to a lesser degree and are thus less prone to spawning trends.

The connection to social identity can also drive the decline of a fad. In a 2008 paper co-authored by Berger, he and a colleague tested how this works in the real world. They sold the yellow Livestrong wristbands popularized by cyclist Lance Armstrong to residents of a dorm at Stanford University. A week later, the researchers sold the same bands to students living in another residence hall, which was known for its academic focus. Students in the “academic” dorm had a reputation for being a bit geeky; one week after they adopted the bands, there was a 32% decline in the number of students from the first dorm sporting the accessory. “Styles often start with one group, and another group starts to use it because they want to look like that first group,” Berger notes. But when that second segment adopts the trend, “the meaning may be lost.”

In fact, Berger’s work shows that marketers need to be very careful about driving an overly rapid adoption of a new product. A 2009 paper he co-authored examined the popularity of first names in the United States and France over 100 years. The finding: The faster a name took off, the quicker it subsequently trailed off in popularity. “A lot of times, marketers want products to catch on quickly,” Berger stated. “They think the more people know about something, and the more word of mouth you get, the better. But in certain domains, particularly those areas connected with identity, whether it is names, music, cars or clothes, faster adoption is linked to faster dying off.”

The trend is seen over and over. In 2008, Nielsen SoundScan and Billboard published a white paper that studied sales of more than 1,000 recording artists between the years 1992 and 2006. The research concluded that more artists were debuting near the top of the Billboard 200 albums chart, but collectively were selling fewer records. In contrast, those who started lower on the charts but built a following more slowly ultimately sold more records.

Walking a Mile in Hush Puppies — or Crocs

In some cases, however, fads thought to have died a premature death enjoy a rebirth. Juanjuan Zhang, professor of marketing at MIT’s Sloan School of Management, points to the resurgence in popularity of Hush Puppies. The brand, created back in 1958, was outdated by the 1990s. But in 1994, the shoes suddenly became popular with Manhattan club goers. High profile fashion designers including Anna Sui, featured the shoes in their collections and just like that, Hush Puppies were hip again.

That trend, featured in Malcolm Gladwell’s book, The Tipping Point: How Little Things Can Make a Big Difference, gave a huge boost to Hush Puppies corporate owner Wolverine World Wide. The fad eventually burned out, followed by the expected oversupply problem and subsequent price cuts. Still, while the shoes aren’t quite the craze in the U.S. that they were a decade ago, they remain a solid business. And Wolverine is seeing strong growth for the brand outside the United States. “In terms of awareness of the brand there may be a longer-run benefit than we think,” Zhang says.

In fact, experts suggest that smart managers can find opportunity even when a fad is on the wane. If marketers understand the various buyers who jump on fads, for example, then they can do a better job of maximizing their reach to those different audiences, Lilly noted. In 2003, he and co-author Tammy R. Nelson published a paper in the Journal of Consumer Marketing that used surveys of 146 people to break down buyers of fad products into seven categories. Among them: the enablers (or the parents who actually do the purchasing of trendy products for kids caught up in fads), the status conscious (those who buy suddenly “cool” items in hopes of making some sort of statement) and the nonchalants (those who bought an item simply because the product met their needs, not because it was all the rage). Even when a fad fades, Lilly suggests, there may be a smaller but sustainable business to be carved out by selectively targeting some of these segments, particularly with a group he calls “hobbyists,” or people who bought the product at the peak of its popularity but didn’t burn out on it when everyone else did. “Within the last 10 to 15 years, because of the advances in databases [and technologies to mine those listings], companies are much more sensitive to that core base of buyers.”

Reaching beyond this band of hard-core fans, however, requires some sharp product development and marketing. Leonard Lodish, a Wharton marketing professor, points to Facebook as a good example of a company that avoided flash in the pan syndrome. Lodish recalls a member of his family — someone he considers very plugged into what is hot and current — predicting that Facebook would be a passing fad. “The reason she was wrong was that, right around that time, Facebook really changed,” Lodish says. “Facebook [management] increased its functionality and [the site] became more valuable in terms of what it was offering users. The big difference between fads and other products and services [that endure] is that these others find ways to renew themselves.”

The critical task for business owners is to understand the potential value of a product before pouring money into keeping it current. “You should only invest in things where you can do a credible job of forecasting that the perceived value of your offering compared to your competition will be sustainable,” Lodish adds. “You need to understand the factors that will make that happen.”

Some companies are clearly masters of this. Zhang points to Apple as an example of a company that knows how to avoid burnout with its products. She attributes Apple’s success at keeping consumers interested to the company’s ability to create buzz around its latest products, such as the iPod or iPhone, so that they almost become mini-fads. The key is that the company introduces a new and enhanced product soon after to keep techies loyal and unlikely to lose interest. “It’s as if they want each generation [of a gadget] to be a fad, generating a lot of sales and profit in the first year with an almost planned obsolescence ahead of the next product.”

Of course, keeping consumer eyes from wandering is a lot harder than Apple makes it look. Marshall Fisher, a Wharton professor of operations and information management, includes a detailed study of Crocs — the plastic shoes that are a cross between clogs and sandals — in one of his courses. Fisher says Crocs are the epitome of a fad; sales exploded eightfold between 2005 and 2007, when shoes that had once been the purview of nurses and gardeners were suddenly popping up on feet everywhere. But Fisher points out that such hot streaks are “like an airplane. If it stops operating at a certain speed, it falls like a stone.”

That’s in essence what happened to Crocs, although Fisher adds that the company tried, unsuccessfully, to diversify by introducing a line of boots that bore little resemblance to its trademark plastic shoes. “What could Crocs have done differently?” Fisher asks. “They accumulated a lot of cash, thanks to their high stock valuation. They could have used that perhaps to buy another company that was less fadish.” The company has survived but is now much smaller. Fisher suggests that the Crocs boom and bust highlights how treacherous it can be to turn a fad into a sustainable business. “The fad gives you a running start. The trick is to turn that into long-term sustainability. It seems there are a lot more failures at that than there are successes.”

Control vs. Authenticity

The advent of social networking and the increased importance of the Internet have changed some of the rules for fads. Cassie Mogilner, a Wharton marketing professor, notes that the Internet “increases the speed with which things catch on because information is communicated so broadly and so quickly. You will see [a certain style] on the runway one day and because of bloggers, as well as the availability of quick production capabilities, it will show up in a mainstream store one month later.” Although fads can build more quickly through the power of the web, Mogilner believes they fade more quickly, too. Fads are “an information game,” Berger adds. “Things that lower the barriers to entry and speed the flow of information will drive faster adoption [of a fad]. So those things will die out faster. The Internet quickens the cycle of fads and fashion.”

That’s why Berger argues that marketers need to factor a speedy build and burnout into their plans for supplying an item to retailers. “I’m not suggesting you don’t want anyone to actually be able to get the product [because there are none in stores],” Berger says. “But you see that products that are a bit hard to get in the beginning [often have staying power].”

And the power of online communities means that companies need to be comfortable with engaging — but not controlling — consumers on the web. MIT’s Zhang notes that, “because we have consumers talking more and communicating directly via the Internet, they tend to trust peer-generated content more than firm-generated information.” For that reason, “it might be better for firms to retreat from some of the push marketing strategy and let consumers form and govern the fad themselves.”

Mogilner thinks companies need to join the conversation — but not direct it. “If brand managers stay completely out of the conversation, they lose all sense of control,” Mogilner contends. “But if they control it too much, they risk losing the authenticity.”