The magic 5 cents per tag

For a long time, the barrier for item-level RFID has been the tag cost. Since 2001 or so, the industry has discussed, waited, wanted, hoped and believed that the changing point is when the cost hits $0,05.

Interestingly, now that we have practically come close to that mark, the discussion has shifted towards "the tag should cost $0,01 instead". A demand well understood, yet I feel I must challenge this discussion.

Would you compare the cost of a barcode with the cost of silk paper wrapping or Swing tickets?

Not everyone uses an expensive swing ticket finished with golden trims, but many do. I never hear anyone question the price of a nice swing ticket or hang tag that is made to support the brand. Yet such tags may often have triple-the cost of the magic 5-cent RFID tag. And even very price sensitive brands and labels do carry such beautiful tags.

Some retailers have a fantastic service of wrapping my new clothes or accessory in beautiful pink, red and white silk papers once I've bought the items. A lovely gesture, but honestly - not the reason I go to the store. In the end, most people do not buy items from a particular store due to the beautiful wrapping. The silk paper is appreciated, yet it has little value to the consumer and the actual wrapping of the items is time consuming for the store staff. I'm not saying that silk papers should not be used - quite the contrary. All I'm saying is that such service offers little extra to the retailer.

The above examples support the brand image and create a feeling of luxury. Yet from the Return-on-Investment point of view they may bring little.

Fixing O-O-S offers lucrative ROI, yet everyone discusses the TAG price

But what really matters to consumers the most? A widely researched topic in the academic world is retail out-of-stock situations and their impact to consumer behaviour. Gruen, Corsten and Bhadradwaj (2002, Retail out of Stocks) suggest that retailers lose almost one-half of the intended purchases when consumers face out-of-stock situations.

RFID_benefits _Apparel

For many RFID still means a barcode, just with a different technology behind. But barcode technology alone cannot help fix O-O-S situations. The only technology that offers a cost efficient way to significantly reduce out-of-stocks, reduce inventory carrying costs and achieve 99% inventory accuracy is RFID. More researched benefits of RFID are found on the table below (Published in Retail Info System News, page 3, original source ABI Research)

By the way, a tag can be bought at $0,05 even today. At least if you believe Kevin Ashton, the cofounder and executive director of the Auto-ID Center and this article by him in RFID Journal.

But, no matter the cost of $0,05 or $0,07 per tag, the early adopters of item-level RFID constantly show better inventory levels and sales growth in comparison to their peers. And as for all of the industry, everyone believes that the more retailers decide to go RFID, the more the tag price will drop.

Amazingly fast ROI; 6 months / store: Read more from an interview of American Apparel's VP of Technology, Stacey Schulman in RFID Journal.

Download Gruen, Corsten and Bhadradwaj 2002, Retail out of Stocks: A worldwide Examination of Extent, Causes and Consumer Responses

This entry was written by Jessica Säilä, posted on 05 April 2012 Bookmark the permalink. You can post a comment.

8 comments on “The magic 5 cents per tag”

John Johnson

Posted 06 April 2012 at 15:27:29

Great post. As an industry exec recently told me, "the most expensive tag is the one you don't use." Check out my post on Clark's shoes to see why! http://www.rfid24-7.com/2012/03/20/can-you-afford-to-lose-15m-in-sales/
Jessica Säilä

Posted 06 April 2012 at 22:56:18

Thanks John! Absolutely agreed: if you do not use a tag (or other technology for that matter) no matter the potential - it gets expensive. Good one on Clarks shoes.
Mel

Posted 07 April 2012 at 03:00:32

I honestly hope the average cost never drops below 5 cents (U.S.).

One of the reasons QR/2D barcodes have failed is that they are free, or near free, resulting in casual use...poor or no thought behind their application...and terrible end user experiences.

If someone has to pay 5 cents per, then they will give the entire User engagement more thought and consideration...and, the amateur users (most often from the print industry) will be discouraged from playing around in this space.
Sanjay

Posted 07 April 2012 at 04:50:41

I do not agree with Mel that only higher cost brings more accountability towards the usage of applications. The businessman knows how to bring out value from even 0.01 cents investments. More over when we talk about 1 cents tag, we should not forgot the qty we are talking about. It can be millions in some cases. Currently I am working on a similar project and I did find out due to my ROI calculations that there is a significant savings.
Only threat I see is from tag vendors, they may not be interested......

BTW Thanks Jessica for for the post.
Rajat Ratra

Posted 07 April 2012 at 07:38:51

First of all thanks for the post.

Sometimes it feels like a chicken and egg story, customer view point is, if tag price is down, we may have more deployments and more volume consumption would fall inline. And tag vendors say if volume is there prices can be really aggressive.
I don't think it is merely a 5 cent or a 1 cent game. This is one of the deciding factor, but yet deployments with 12 cent tags are also showing ROI like in hi-fashion apparel industry. Since last 6 years I am waiting to see a commercially viable 5 cent tag. I think it is just passing the buck. I have worked in almost all major industry verticals here in India and see this challenge of tag price for re-usable or one time used smart labels or simple inlays.
In my opinion, tag price is critical, but unless project is scope and designed in such a way that it impacts the business case, it has an ROI. A lot of times, we (as in customer or SI) don't factor in the soft or indirect benefits which technology adoption brings in and not able to visualize the right ROI model.
Anyways, I think it is bound to be this way atleast in this part of the world which is very price sensitive.
Patrick SURE

Posted 10 April 2012 at 10:58:06

Hi everyone,
We have seen exactly the same situation in the transit industry with the contactless paper tickets (item equivalent to RFID tags in HF). When we were at 20 cents most of the transit operators were waiting for 15 cents contactless tickets, when we reached this level the same customers were require 11 cents now that we meet this point they still don't know how to handle it. Meanwhile, the one that made the decision some 10 years again to re-design their system to benefit from the contactless technology are improving year after year their efficiency. Thinking out of the box and not trying to make the same application as with magstripe tickets was their choice in order to offer a better service to their patrons.
As a conclusion I would say that the business model customer are willing to implement should be the key issue to adopt or reject RFID Tag technology.
Maarten Botterman

Posted 10 April 2012 at 23:14:02

So much agree that the focus shouldnt be on "costs" only. And to the list of benefits I have one to add: enabling better recycling of materials and/or goods by use of RFID. See for a full report the attached link.
Jimmy Shepherd

Posted 18 September 2012 at 20:09:27

If it was 1 cent then you would see 50X growth in this arena I believe. Scenario Grocery Store. When items come in a quick scan of the stack of boxes can yeild a complete inventory of what is being delivered and its remaining shelf life. As a supplier, I can manage my inventory better to insure that the stocker gets fresh product.
Hey if its not on the shelf, it aint gonna sell right. A quick walk down the isle via a person or even a robotic arm quickly lets you know OOS, expired product and quickly tabulate exactly what is needed to be stocked on the shelf. Until the cost drops, below 1 cent is is not cost effective to add RFID to these items. So If making more makes it cheaper, then there would be no excuse for not trying to drive to that end state.