Medical Device Link.

Pharmaceutical and Medical Packaging News Magazine
PMPN Article Index

Originally Published February 2000

PHARMACEUTICAL

Source Tagging Increases Sales

by Annie Lubinsky, Managing Editor

Packaging engineers have a great deal to think about when designing an over-the-counter (OTC) pharmaceutical package. Not only do they need to take shelf presence into consideration, they also need to think about protecting the product from such dangers as light, moisture, and tampering. Recently, engineers have had to consider the needs of retail stores along with everything else. A number of these stores--including large chains--are asking for manufacturers of OTC pharmaceuticals to include specialized tags within their packaging to protect products from another danger, theft. This process, called source tagging, ensures that OTC drugs are protected from shoplifting immediately upon entering the store.

"Source tagging is emerging rapidly just as the bar code did 10 years ago," said Paula Hutchings, manager of operations control at Wal-Mart. "And just as the bar code became the industry standard, source tagging will become the industry standard as well."

Sensormatic's small EAS tags are often hidden inside OTC product packages. Photo courtesy of sensormatic.

Not all drug manufacturers currently employ source tagging, but the trend is growing rapidly. Pharmaceutical manufacturers that don't source tag may hinder their sales unintentionally. For example, retail employees may place tags on the outside of the package and in doing so may cover valuable information. Or worse, the retail store may refuse to carry items altogether if the packages are not equipped with a tag that will help the store carry out antitheft procedures.

THIEVES TARGET DRUGSTORES

Retail drugstores surveyed show above-average inventory shrinkage due to shoplifting. The 1998 National Retail Security Survey developed by the University of Florida (Gainesville, FL) showed that the average inventory shrinkage rate of participating stores was 1.72% of total retail sales in 1997. However, drugstores showed an above-average shrinkage rate of 2.54%. In drugstores and in supermarkets, OTC remedies were among the items most frequently shoplifted. Therefore, it is extremely important for those who make and sell OTC pharmaceuticals to protect their products from theft.

To do so, there are several methods. One way is for drugstores to limit the amount of a particular drug that is placed on the shelf. Another way is for high-priced, high-value items such as glucose test strips to be placed in a locked cabinet. These methods are effective for preventing shoplifting, but sometimes they also decrease sales. One way to openly display products while protecting them from theft is to use electronic article surveillance (EAS) tags.

EAS tags, which can be hidden inside cartons or under labels, increase customer access and decrease shoplifting. There are three types of EAS tags: acoustic-magnetic, radio frequency, and electromagnetic (which is not widely used in the United States and will not be covered in this article).

Sensormatic (Boca Raton, FL) makes acoustic-magnetic (AM) tags. "The tag consists of two pieces of metal in a plastic cavity that are excited by a low-frequency radio signal generated by a transceiver at the store's entrance," says Barbara Motooka, marketing manager of global source tagging at Sensormatic. "The transceiver pedestal looks for a singular frequency to set off the alarm. These tags are deactivated at the point of purchase. The deactivation process shifts the frequency of the tag so it doesn't set off the alarm. The tag can be turned off and on multiple times." AM tags are wafer-thin and are often hidden within the package, where a potential shoplifter can't find them.

Radio frequency (RF) tags use a particular radio frequency to activate an alarm system. The frequency is adjusted to a different wavelength at deactivation so that the tag will not ring the alarm. "The RF tags are paper-thin," says Dave Shoemaker, group vice president of strategic marketing at Checkpoint Systems Inc. (Thorofare, NJ), a manufacturer of RF security systems. "They look like a paper label and can be printed, so they can be incorporated into the normal label process."

Both AM and RF systems can accommodate a wide variety of products in a range of environments. In many cases, the retail store chooses which system it will use, and the drug manufacturers incorporate that type of tag (and sometimes both) within their packaging. Regardless of the system used, one industry expert feels that EAS is the best mechanism for inventory control.

EAS ALLOWS OPEN ACCESS

"The use of source tags is growing quickly, predominantly in the prescription-to-OTC products," says Motooka. "These drugs, such as Rogaine, Tagamet, and Pepcid AC, carry a high price point. With EAS tags, they can be kept on the shelves instead of locked in a cabinet. When the customer can touch the product, they're more likely to buy it."

Shoemaker agrees. "Source tagging has exploded in family planning products," he says. "Before source tagging, retail stores would not carry certain items because they were considered too high risk. EAS allows higher-end products, including pharmaceuticals, to be displayed out in the open."

EAS tags not deactivated at checkout are sensed by the towers at the store's exit, sounding the alarm.

When retail stores first began using EAS systems, their employees placed the tags by hand on the outside of each package. Or, alternatively, the tags were added at the store's distribution center, says Vincent F. Kover, vice president of sales at Innovative Folding Carton Co. (South Plainfield, NJ). "Not only was this labor intensive, but a shoplifter could see the tag and would be able to take the product out of the carton or pull the tag off," he explains. "It's more efficient for the carton manufacturer to apply the tag, because the machine is faster and the tag is hidden, which stores prefer. A hidden tag keeps the graphics clear and also allows for the full benefits of source tagging to be realized."

Source tagging is also better for the manufacturer. Products without tags may have to sit in storage at the store waiting for the tags to be applied. While they're sitting, they're not selling. In addition, Motooka points out, "with source tagging, manufacturers control the placement of the tag."

CERTIFYING PACKAGES

Once the decision is made to begin source tagging, the drug manufacturer works with its suppliers to carry out the task. The process of implementing an EAS system begins with product certification, says Tim Freeze, manager of product services and solutions at Mebane Packaging Group of Westvaco (Mebane, NC). "We want to make sure the tags are functional when applied to the product, that they'll set off the alarm when activated, and that they can be deactivated. Once the product is certified, we know where to place the tags."

"To certify the package, we need the package with the product inside it," says Janet Steiner, president of Thoro Packaging (Corona, CA). "The tag needs to be close to the UPC symbol so that it can be deactivated when the product is scanned. We send the package to Sensormatic or Checkpoint, who makes recommendations about where to place the tag on an existing package design or how to design a new package for the best success."

Following certification, Mebane and Thoro each manufacture their customers' cartons and place the tags on the cartons. Each tag adheres to the inside of the carton in a manner similar to that of a pressure-sensitive label. "When installed, the tag is completely hidden to the customer," says Freeze.

Manufacturers can handle source tags fairly easily. "It's a straightforward application," says Kover. "However, applying source tags in-line means that you can't run gluing machines to the utmost capacity because the process is slower." Manufacturers have purchased new equipment and made modifications to old equipment to accommodate EAS tags.

Pressure-sensitive labelers are used by packagers, says Motooka. "They can use what they have, although many need to add or modify machines. Usually, source tagging calls for dedicated runs, so most manufacturers have chosen to use designated applicators to run the products. They modify the machinery as they would for any pressure-sensitive label."

RF tags blend into the labeling process, according to Shoemaker. "One of the beauties of the technology is that it is often compatible with existing equipment. The investment is small in terms of capital equipment," he says.

COST

Cost, of course, is an issue. Some pharmaceutical and medical companies resist adding EAS tags for as long as they can because of the cost, despite the benefits created by using the tags. "Within any company, the packaging division is a profit center," says Bill Bender, director of the Source Tagging Institute (Alexandria, VA). "Marketing may want to use source tags to market the product, but the expense is borne by the packaging division."

The two technologies that exist for EAS can create expenses for the drug manufacturer. "It's very expensive to do both types of tags, plus there is a problem allocating inventory by which product had which tag," says Kover. "Usually, manufacturers require that the source tag be applied, while at the same time they are extremely cost-sensitive to both the price of the tag and the application, respectively."

To avoid inventory nightmares, some manufacturers may place both types of tags on each package. This may create a problem called "tag pollution": a false alarm that occurs when a customer takes a product purchased at a store with one system into a store with the other system.

Shoemaker says, "Manufacturers are always concerned with additional cost; however, in the grand scheme, source tagging is a more efficient way to apply tags than allowing the retailer to do it. The tag is hidden, it isn't covering any information, and the labor costs less if the tag is applied during manufacturing than if applied manually."

Some manufacturers source tag a new product without waiting for prompting from a retail store. "Typically products with a high price point are tagged from the beginning," says Motooka.

While the initial cost of instituting an EAS system may be significant, the return on investment does arrive in the form of decreased loss and increased sales. One large pharmaceutical manufacturer said that the benefits of source tagging outweighed its overall costs. Distribution of the company's products was increased, more shelf space was allotted to these products, and larger sizes were included in more stores.

FRACTIONAL TAGGING

One way to cut costs while still enjoying the benefits of EAS tags is to use fractional tagging. "About half of our customers require fractional tagging," says Steiner. With fractional tagging, only part of the inventory contains the source tag. This is less expensive, but still effective, because a potential thief can't tell the difference between a tagged and an untagged product. Fractional tagging may also change from season to season. For example, cold tablet packages may be tagged at 33% during the summer months, then at 100% during the winter cold and flu season, which coincides with the busy Christmas shopping season--also the season for shoplifters.

"Manufacturers can learn and meet retailers' needs," says Shoemaker, "and the products protected can be alternated so the shoplifter can't keep them straight."

STANDARDIZATION

The two EAS systems used in the United States have caused industry experts to think more about standardization. Currently, there are two distinct technologies--one system's tags won't work with the other's equipment. Manufacturers would prefer to use one standard system in the industry to reduce the expense and trouble of tagging separate inventories.

Bender deals with this and other issues at the Source Tagging Institute. "Recently, manufacturers put together a coalition to study standardization and make recommendations," he says. "In August 1999, they issued a press release recommending a tower-centric approach. In other words, build a sensor that can pick out all tags. Make the tower do all the work. Then the drug manufacturer can choose the tag it wants for all of its products. Some sensor experts believe that a cost-effective tower-centric system could be developed."

Bender points out that many retail stores do not currently use EAS systems because they're waiting for one standard system to be put in place before spending the money.

"It's difficult to come up with a standard because there are three different technologies globally," says Motooka.

"Manufacturers want a common technology, but retailers select one of two technologies used in the United States," says Shoemaker. "In the past, they selected a particular technology to address a particular concern, such as choosing a system that works with wide aisle widths. However, technology has improved so that this and other concerns are no longer an issue. Still, there is an impetus for industry to standardize and simplify." He feels that "gravity will drive the industry toward a single tag."

SOURCE TAGGING HELPS SALES

The benefits of source tagging are many. Products can be openly merchandised without danger of theft. Out-of-stock situations arising from shoplifting are eliminated. Subtle changes can be made to the marketing of products; for example, they could be brought to eye level, a better selling position. Shoemaker has heard of sales of products increasing 30% after source tagging.

Industry organizations are encouraging packaging professionals and manufacturers of EAS systems to develop one standard that will work for all products sold in retail stores. While that may not be a possibility for some time, packaging engineers who educate themselves about the benefits and drawbacks of EAS systems can be ready for whatever comes.