Industrial Transformation and IT: RFID in the Retail Industry Brad Herman Vincent Mercadier Madeleine Moss Harsha Tummal

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

2. Technology Overview • RFID System Components • Primary Advantages over Existing Technology • Identify Products on an Item-by-Item Basis • Dynamically Update Information on Tag

3. 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

4. Barriers to Adoption • Table 1: Comparing RFID and barcodes on dimensions of cost, reliability, public concerns, and standards.

5. 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

6. Strategic Considerations • Pricing • Smart Shelves and Demand-based Pricing • Improved Customer Loyalty Programs • Supply-chain benefits, labor and waste savings • Perishables, Increased price competition

7. 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?

8. 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

9. 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

10. 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.

11. Thank you. Questions? Images by Flickr users: Gwire, mayhem, thefangmonster, and stan