RFID Ramp-Up
What’s the purpose of a shopper marketing promotion if the merchandise is sitting in the store’s back room rather than out on display where it belongs?
Radio frequency identification promises to reduce, if not eliminate, the chance for such miscommunication at retail, as RFID tags are increasingly being placed on P-O-P displays.
But adoption is slow going besides pioneers such as Wal-Mart (see sidebar) and Best Buy. Some retailers are still reluctant to front the costs.
“This is kind of a chicken and egg problem,” says Paul Cataldo, vice president of marketing for OatSystems, an RFID vendor. “Without infrastructure, there’s no incentive to tag.”
Tag prices have dropped to 10 cents to 15 cents apiece, but are still too high for some retailers, experts say.
“Some companies kind of call this the ‘test and learn environment,’” says Steve David, senior advisor to Boston Consulting and Procter & Gamble’s former chief information officer. “The cost of the RFID chip hasn’t fallen far enough for it to be ubiquitous.”
The testing continues. Some firms like P&G are diving in. The company has been running pilots with retailers since 2003 to test the technology on displays.
“We knew there were clearly opportunities to improve display compliance,” says Paul Fox, P&G’s director of global operations, external relations and corporate media relationships. “What we didn’t know was just how big the opportunity was.”
RFID allow manufacturers to “see inside the supply chain,” track a display’s exact location, the time the unit is erected and when it’s taken down.
In a 2006 pilot, P&G tagged 19 displays for Braun’s Cruzer electric razors. During the three-week period, the company found that one-third of displays were executed properly, another third were erected at some point during the promotional period and one-third of stores didn’t comply. The result: Displays set up on time and in the right location had 61% greater sales, Fox says.
On average, P&G found that retailers erect P-O-P displays correctly about 45% of the time. In a pilot, compliance for the Gillette Fusion razor launch jumped from 70% to 92% when the displays were equipped with RFID tags.
P&G says it has already recouped its multimillion investment in RFID technology. The company is now ramping up, applying tags to 40,000 displays every month for five retailers in North America and Europe, Fox says. That’s a 100% year-over-year increase from 2007. “What we are seeing today is a payout ratio of at least 5-to-1 in terms of increased sales,” Fox says.
Sales rose as much as 24% with RFID-enabled promotional displays, according to research conducted last year by OatSystems for a major drug store chain and CPG companies.
Some retailers are keeping quiet about their RFID experience. CVS/Pharmacy ran a pilot last year in the East. The company says it has no current plans for additional testing or a larger rollout.
Despite a slower than expected adoption, experts see a brighter future.
“If you do anything new it takes a while for it to catch on,” says Bob Michelson, CEO of Solutions, a retail technology firm, which manages an RFID tracking system for Walgreen’s. “It is now catching on.”
