The First-Tagger Advantage: Will You Be Sorry?
By Mark Chussil
Retailers such as Walmart put “smart” radio-frequency ID (RFID) tags in some clothing so they can keep shelves and inventory properly stocked. There are efficiencies to gain, costs to drain, prices to chill, and customers to thrill.
According to The Wall Street Journal, 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 stores don’t score those sales because customers prefer clothes with RFID tags. Tagged clothes can be tracked as people walk around wearing them, and who wants their new gloves to finger them?
I like privacy as much as you do. (Wonder how I know that? Just kidding.) Retailers would let our clothes remain anonymous if there were no revenue boosts or cost savings from RFID. So let’s focus on the 14.3%.
We presume that American Apparel’s sales grew because customers found the sizes they wanted. That’s because RFID-enabled systems goose sales clerks to replenish sizes as they’re sold.
An advantage worth having
Who gets to enjoy the 14.3% increase in sales, and for how long? Is there a first-tagger advantage? Is it worth having?
Customers aren’t going to buy more clothes because they find their size in the store. They may buy more from that store, 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 a first-tagger advantage, you may reap that 14.3% increase.
It doesn’t take radio-frequency science to see why you don’t get to keep that 14.3% for long. As your clothing sales rise, your competitors’ clothing sales fall. They don’t like that, so they adopt RFID tags too. Their sales recover, your sales fall. You’re both back where you began, more or less.
Now the important part happens: You decide what your sales decline means, and you interpret whether you’d made a good move.
What your sales decline means
You could conclude that:
- The first-tagger advantage doesn’t last or was oversold.
- Something else has gone wrong in your stores.
- Your competitors have spotted hot new fashions that you missed.
- Your competitors have begun using RFID tags and are catching up to you.
The last would be reasonable and would prevent knee-jerk overreactions. However, quarterly reports don’t track “effects of competitors catching up to us;” they just scream “sales are down!” You’re going to feel pressure and heat.
Ironically, the company-centric numbers we use to gauge our performance can make RFID tags look better for the later adopters. The first-tagger appears to get only a temporary boost while 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.
Whether you’d made a good move
Sooner or later there is a new floor, a new baseline, a level playing field, in which everyone who could adopt the tags has adopted them. They blend into the background as have bar codes, credit cards, and electronic cash registers. Note that the Journal’s article about the Avery study reported an increase in sales in one year. It said nothing about profit or subsequent years.
There are exactly three profit possibilities: the tags are profitable, unprofitable, or neutral.
- The tags cut costs through via fewer stock-outs, less over-ordering, and less theft. Perhaps you get to keep some of those savings.
- The tags add costs, such as equipment and systems to track the tagged items, labor to restock shelves frequently, and higher costs from suppliers. Perhaps you don’t recoup those costs.
- Perhaps the tags make no difference in profits as prices and costs rebalance. No difference, that is, for anyone other than the tag makers. For them there’s a nice lasting effect because you and your competitors are now addicted to RFID tags. Anyone who drops them will suffer.
What if you could strike an exclusive deal with RFID suppliers? You’d get benefits and your competitors wouldn’t. Not likely, though. There are at least 20 suppliers of RFID tags out there. Even if you could get an exclusive, imagine how your competitors could retaliate. “Do you know where your pants have been? BigBadClothier does.”
Is everybody happy?
I’m not arguing for or against any operational improvement, including RFID tags in clothing. My job here is merely to stimulate strategic thinking.
It’s reasonably clear that we must follow or adjust if our competitors make a move that puts us at a competitive disadvantage. The question is whether we should make the first move.
We make an error in strategic thinking when we compare a scenario where we don’t move (e.g., we don’t start RFID tagging) to a scenario where we alone move. That’s the 14.3% sales boost. To avoid the error, we need to look also at the scenario where we and our competitors make equivalent moves.
When you’re preparing to pounce on an opportunity, ask yourself this question: if your competitors follow you, will you still be glad you pounced?
“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.”
This essay was re-edited on June 30, 2019.