1. 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 March 19, 2007

2. Brad Herman, Vincent Mercadier, Madeleine Moss, Harsha TummalaUC Berkeley, 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. Brad Herman, Vincent Mercadier, Madeleine Moss, Harsha TummalaUC Berkeley, March 19, 2007 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. Brad Herman, Vincent Mercadier, Madeleine Moss, Harsha TummalaUC Berkeley, March 19, 2007 4 Barriers to Adoption ● Reliability  Manufacturing Failure Rates  Interference Issues ● Security/Privacy Concerns  Ability to read information without consent  Authenticity of data  Technological solutions being researched ● ‘Kill’ commands ● Encryption algorithms

5. Brad Herman, Vincent Mercadier, Madeleine Moss, Harsha TummalaUC Berkeley, March 19, 2007 Barriers to Adoption CostLevel of ReliabilityPublic ConcernStandards RFID (passive)$0.15-$2Manufacturing failure rates can be high, interference issues Privacy, Authenticity EPC, ISO are emerging standards RFID (active)$10-$50HighSecurityEPC, ISO are emerging standards BarcodesNegligible, printed on packaging design HighNoneMature technology with almost universally accepted standards Table 1: Comparing RFID and barcodes on dimensions of cost, reliability, public concerns, and standards.

6. Brad Herman, Vincent Mercadier, Madeleine Moss, Harsha TummalaUC Berkeley, March 19, 2007 6 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

7. Brad Herman, Vincent Mercadier, Madeleine Moss, Harsha TummalaUC Berkeley, March 19, 2007 7 Strategic Considerations ● Pricing  Smart Shelves and Demand-based Pricing  Improved Customer Loyalty Programs ● Supply-chain benefits, labor and waste savings ● Perishables, Increased price competition

8. Brad Herman, Vincent Mercadier, Madeleine Moss, Harsha TummalaUC Berkeley, March 19, 2007 8 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?

9. Brad Herman, Vincent Mercadier, Madeleine Moss, Harsha TummalaUC Berkeley, March 19, 2007 9 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

10. Brad Herman, Vincent Mercadier, Madeleine Moss, Harsha TummalaUC Berkeley, March 19, 2007 10 Retail RFID Value Net Suppliers ● 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

11. Brad Herman, Vincent Mercadier, Madeleine Moss, Harsha TummalaUC Berkeley, March 19, 2007 11 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.

12. Brad Herman, Vincent Mercadier, Madeleine Moss, Harsha TummalaUC Berkeley, March 19, 2007 12 Thank you. Questions? Images by Flickr users: Gwire, mayhem, thefangmonster, and stan