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Industrial Transformation and IT: RFID in the Retail Industry Brad Herman Vincent Mercadier Madeleine Moss Harsha Tummala March 19, 2007. Technology Overview. RFID System Components Primary Advantages over Existing Technology Identify Products on an Item-by-Item Basis
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Industrial Transformation and IT: RFID in the Retail Industry Brad Herman Vincent Mercadier Madeleine Moss Harsha Tummala March 19, 2007
Technology Overview • RFID System Components • Primary Advantages over Existing Technology • Identify Products on an Item-by-Item Basis • Dynamically Update Information on Tag
Barriers to Adoption • Cost Considerations • “I need the cost to really drop because we're a fairly low-margin business. Just do the math: 20 cents times hundreds of millions of units.” -- Gary Cooper, CTO of Tyson Foods, Inc. • “This is the ultimate chicken-and-egg scenario. More people won't do RFID until the tag costs come down, but the tag costs won't come down until more people do it.” -- Dennis Gaughan, Analyst at AMR Research Inc. • Possible Solutions • Standardization • Consideration of consumer-facing applications
Barriers to Adoption • Table 1: Comparing RFID and barcodes on dimensions of cost, reliability, public concerns, and standards.
RFID in Retail • In the Supply Chain • WalMart. • Department of Defense. • Consumer-facing • Walgreens – tracking effectiveness of in-store displays. • Japan’s Ginza district – help shoppers navigate the shopping area. • Mitsukoshi (retailer in Japan) – improve staff efficiency and customer service. • Targeted advertising. • In the future: • Payments. • Surveillance tags. • Perishable inventory. • Catalyst for differential pricing. • Complementary technologies
Strategic Considerations • Pricing • Smart Shelves and Demand-based Pricing • Improved Customer Loyalty Programs • Supply-chain benefits, labor and waste savings • Perishables, Increased price competition
Strategic Considerations • Network Effects • Significant in supply chain applications • Automated inventory management, perishables • The value of RFID to each retailer or supplier increases as more suppliers or retailers adopt. • Still an immature market • Who will adopt first?
Strategic Considerations • Lock-in • Large players can use proprietary interfaces to hold up partners, gain negotiating power • Retailers to suppliers; Vendors to retailers • Standards • If open and supported, can lower switching costs, fear of lock-in, and lower barriers to entry • Requires industry cooperation • Worked for barcodes
Retail RFID Value Net • Suppliers • Large (P&G) • Small (Mom & pop) • Network effects • Lock-in • Complementers • Supply chain partners • Equipment vendors • Software vendors • Marketing partners • Network Effects • Standards • Competitors • Online retailers • Intra-industry • Bar Codes • Customers • Individuals, institutions • Better information • More choice • Pricing
Looking Forward • Conclusions: • Major challenges to avoid hold-up, incentivize suppliers to adopt. • Industry needs to address switching costs • Can parallel to other industries who subsidize to get lock-in (video games, digital cinema) • Consumer-facing applications can boost adoption • If these challenges can be overcome, RFID has many opportunities.
Thank you. Questions? Images by Flickr users: Gwire, mayhem, thefangmonster, and stan