Brad Herman, Vincent Mercadier, Madeleine Moss, Harsha TummalaUC Berkeley, March 19, 2007 Industrial Transformation and IT: RFID in the Retail Industry

Brad Herman, Vincent Mercadier, Madeleine Moss, Harsha Tummala

UC Berkeley, March 19, 2007

Industrial Transformation and IT:RFID in the Retail Industry

Brad HermanVincent MercadierMadeleine MossHarsha Tummala

March 19, 2007



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Technology Overview● RFID System Components

● Primary Advantages over Existing Technology Identify Products on an Item-by-Item Basis Dynamically Update Information on Tag



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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

Cost Level of Reliability Public Concern Standards

RFID (passive) $0.15-$2 Manufacturing failure rates can be high, interference issues

Privacy, Authenticity

EPC, ISO are emerging standards

RFID (active) $10-$50 High Security EPC, ISO are emerging standards

Barcodes Negligible, printed on packaging design

High None Mature technology with almost universally accepted standards

Table 1: Comparing RFID and barcodes on dimensions of cost, reliability, public concerns, and standards.



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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



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Strategic Considerations

● Pricing Smart Shelves and

Demand-based Pricing

Improved Customer Loyalty Programs

● Supply-chain benefits, labor and waste savings

● Perishables, Increased price competition



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● 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?



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● 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



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Retail RFID Value NetSuppliers

●Large (P&G)●Small (Mom & pop)●Network effects●Lock-in

Competitors

●Online retailers●Intra-industry●Bar Codes

Customers

●Individuals, institutions●Better information●More choice●Pricing

Complementers

●Supply chain partners●Equipment vendors●Software vendors●Marketing partners●Network Effects●Standards



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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.



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Thank you.

Questions?

Images by Flickr users: Gwire, mayhem, thefangmonster, and stan

Documents

Brad Herman, Vincent Mercadier, Madeleine Moss, Harsha TummalaUC Berkeley, March 19, 2007 Industrial Transformation and IT: RFID in the Retail Industry