The First-Tagger Advantage: Will You Be Sorry?, by Mark Chussil
Wal-Mart Radio Tags to Track Clothing, reported the Wall Street Journal on July 23, 2010. The giant retailer plans to use radio-frequency ID (RFID) tags in some clothing so it can keep shelves and inventory properly stocked with sizes. There are efficiencies to be had, costs to be saved, prices to be cut, customers to be thrilled.
According to the article, Avery Dennison, which makes RFID equipment, says a “pilot program at American Apparel Inc. in 2007 found that stores with the technology saw sales rise 14.3% compared to stores without the technology.” Looks like an advantage, and not inconsiderable.
Surely the 14.3% boost isn’t because customers prefer clothes with RFID tags. “Look, Ophelia, I got those jeans with an RFID tag on ‘em!” We surmise instead that American Apparel’s sales grew because customers were able to find the sizes they wanted, due to RFID-enabled systems goosing sales clerks to replenish sizes as they are sold. We’ve all had the experience of not finding our size.
Now we get to the strategically relevant point. Who gets to enjoy the 14.3% increase in sales, and for how long? Is there a first-tagger advantage, and is it worth having? Let’s think it through.
Customers aren’t going to buy more clothes because they find their size in the store. They may buy more from you, but not more overall(s). If they find their size in your store, they don’t have to look in someone else’s store. So if you get the first-tagger advantage, you may score that 14.3% increase.
As your sales rise your competitors’ sales fall. They don’t like that so they take action, possibly also adopting the RFID tagging system. Their sales recover. And your sales fall. Now the important part happens: you decide what your sales decline means.
You could conclude the first-tagger advantage is ephemeral or was oversold. You could conclude that something else has gone wrong in your stores to cause your sales to fall. You could conclude your competitors have spotted hot new trends. You could conclude that they’re simply catching up to you. The last would be reasonable and would prevent knee-jerk overreactions, and I’ve seen my clients do it by using strategy simulations to set performance expectations. But companies generally insist that results should get better, better, better, and a sales decline happens at your peril, and the short-attention-span performance reports companies use neither remember nor remark on “effects of competitors simply catching up.” So you’re going to feel some pressure and heat. (See also Do Not Overtighten and Do Something.)
Time passes. Sooner or later there is a new floor, a new baseline, a level playing field, in which pretty much everyone who could adopt the tags has adopted them. They become a part of the background in the same way that bar codes, credit cards, and electronic cash registers have. Are they worthwhile only during the time you’re the only one with the technology — the first-tagger advantage — or are they beneficial also when everyone uses them? Do they hurt when everyone has adopted them? (See also Putting the Lesson Before the Test.) That question is answerable, although we won’t answer it here. Note that the Avery study reported an increase in sales in one year; it said nothing about profit or subsequent years. (That may be due to the Journal’s reporting, not to the study itself.) The tags may be profitable if they cut costs by via fewer stock-outs, less over-ordering, and less theft. They may be unprofitable if they mostly add costs, such as equipment and systems to track the tagged items, labor to restock shelves, and higher costs from suppliers. Or they may be neutral, as prices and costs rebalance.
Ironically, the company-centric numbers we use to gauge our performance can make it appear that the benefits are better for the later adopters. The first-tagger appears to get a temporary boost; the later-taggers appear to get a lasting improvement. Translate that into performance reviews: the first-tagger decision-makers seem to have over-promised, the later-tagger decision-makers look like turn-around heroes.
So, there are two dangers in being the first one.
- You may attract competition and thereby change the path to profits you expected to walk. A risk factor for such disappointment is whether your decision-making is done with company-centric, accounting-based spreadsheets. Recommendation: Consider how your world will look if everyone else follows you. Would you still be glad you made the move?
- It’s easy to misinterpret the change in your results when your competitors catch up. A risk factor for such misinterpretation is whether your performance assessment looks more at effects than at causes. Recommendation: Consider what external events would have a causal impact on your results. Track those events as well as your numbers.
The best way to avoid those dangers is to think it through before you make your move. The point is not to be first, second, twelfth, or last. The point is to make good decisions.
“It’s an enviable position when you’re the only one.” — Lord Tolloller to Lord Mountararat, lamenting that he’s not the only one in love with the heroine, in Gilbert & Sullivan’s Iolanthe.
Postscript. Hmmm. 14.3% exactly equals 1/7. Could that precise percentage have come from rough estimates? I read in a terrific book, probably one of John Allen Paulos’ Innumeracy series, about the average weight of a species of hummingbird. (I’ve got the story right but perhaps not the specific numbers, so don’t quote me.) The bird’s weight was reported as 113.5 grams, which seemed awfully precise. Except that 113.5 grams exactly equals 4 ounces, and we can easily imagine someone saying “this bird weighs about ¼ pound.”