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Reduced RFID Prices Stimulating Demand

Just because prices have come down does not mean that the floodgates of adoption will open. Or does it? RFID Update spoke with a number vendors to try and determine the price elasticity for RFID. That is, how closely tied to pricing is demand for the technology from end-users?
Oct 04, 2005This article was originally published by RFID Update.

October 4, 2005—The pricing announcements of the past couple weeks have been roundly received by the industry with enthusiasm and excitement. Cost has been one of the leading impediments to wider RFID technology adoption, so with the introduction of significantly lower prices on inlays, tags, and readers, the hope and expectation is that the industry will see a meaningful uptick in purchases. However, the significant progress that these new prices represent notwithstanding, the same nagging characteristic about RFID adoption persists: "when, not if." Just because prices have come down does not mean that the floodgates of adoption will open. Or does it? RFID Update spoke with a number of vendors to try and ascertain the price elasticity for RFID. That is, how closely tied to pricing is end-user demand for the technology?

The experience of Jeff Jacobsen, President of RFID reader manufacturer AWID who last week announced a $1,000 Gen2 reader, suggests that pricing and demand are strongly correlated. He reported that during the Frontline Solutions conference last week in Chicago, "AWID received three orders for 200 or more $1,000 MPR-3014 readers, one order for 800 EPC Gen2 modules for delivery October through December...and several 100+ orders for EPC Gen2 RFID modules." He continued, "I was told today by a CEO of a large company with no-uncertain-terms, 'There is a huge ROI difference between buying good solid RFID readers at $1,000 or at $2,000 to $4,000 each. I can achieve an excellent ROI in under 24 months with a $1,000 reader and 12 to 14 cent Gen2 labels from Avery Dennison. With a $2,000 to $4,000 reader solution my ROI will take 48 to 60 months best case. I can buy AWID readers for $1,000, use the readers for 18 months to 24 months, rip them out and replace them with possibly even better, lower cost readers, while my competitors will be stuck for an additional 2-3 years trying to find their ROI." (Aside: It must be noted that there has not yet been an announcement of finished Gen2 labels in the 12-14 cent range. The lowest price thus far announced for fully converted, ready-to-go Gen2 labels is 14.9 cents from RSI ID Technologies.)

Avery Dennison, who two weeks ago announced the availability of 7.9-cent Gen2 inlays, is also apparently seeing a responsive market. The company queried its sales force and reported to RFID Update on what is going on in the field. Vice President of RFID and Specialty Converting Matthew Mellis said that the buzz created by the new pricing is "quickly translating into movement in the market." He continued, "Most of the people that we are hearing from are telling us that they plan to move to Gen2 in Q1, 2006. They are expecting some retailers may be ready to accept Gen2 tags as early as in January. Many of the customers are conservatively buying only a 1-2 month supply of tags now since they expect to change soon after end-users and the reader/hardware people are ready. With the latest pricing announcements, people see no reason NOT to switch to Gen2."

Some that RFID Update spoke with were more measured in their reaction. While acknowledging that the price reductions are of course a positive development, they were wary of overestimating the near-term impact. Pricing is just one of many components of RFID adoption, they say, and an oft-overemphasized one at that. The president of a well-known RFID reader manufacturer asserted that adoption must be understood "holistically." Business process reengineering is just as important, if not more so, than hardware prices, he said.

ABI Research's Director of RFID and Ubiquitous Networks Erik Michielsen sees the price movement as one of three complementary trends, with the other two being Gen2 announcements and increasing activity in the application space to allow end-users to derive value from the new RFID data. "What we are starting to see is lower cost hardware, tested and proven performance requirements around [the Gen2 standard], and software that enables non-technology focused end-users to make better decisions and find ways to drive revenue growth and cost refinement. All together, these factors support widespread RFID deployments across a wide range of vertical markets, to a degree we have not seen before."
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