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New Pricing Models for RFID

Solutions providers could shrink the chasm between early adopters and the early majority, by reducing the risk involved in deploying RFID systems.
By Mark Roberti
Apr 30, 2012Lately, I've been thinking a lot about the chasm between "early adopters" and the "early majority." For those who have not read Crossing the Chasm, Geoffrey Moore's seminal work about the technology-adoption lifecycle, the author explains that there is a wide gap between those willing to adopt a new technology and those who wait until that technology has essentially gone mainstream.

One major reason that such a chasm exists is the risk involved. It is risky for a company to adopt a new technology, since it might not work as advertised. And even if that technology did work as advertised, uncertainty would still remain regarding whether it would deliver the promised benefits.

There is also personal risk involved. If a warehouse manager or an operations manager were to push for an RFID system and it failed, that individual could end up out of a job (even a CEO could be ousted for supporting a project that went badly, if it disrupted a firm's operations and adversely affected sales). If he or she waited until everyone else was using RFID, there would be less risk, as the uncertainty around the system's usefulness would thus be reduced. The solution would be proven—and if it failed, no individual would be held responsible, because the company would have had to do what all of its competitors were doing. At that point, the risk of falling behind would be greater than that of the project failing.

So to shrink the chasm, RFID solutions providers must reduce risk. They have been working hard to minimize technical risk, but the same cannot be said about minimizing risk caused by uncertainty regarding a solution's expected value. One way to address this uncertainty would be through the use of alternative pricing models, which could decrease business risks and create an incentive for more organizations to become early adopters of RFID solutions.

Pankaj Sood, a researcher at the University of Cambridge and an advisor to McMaster University's RFID Applications Lab, has been studying value and pricing. He and I discussed alternative pricing at IEEE RFID 2012, held last month in conjunction with RFID Journal LIVE! 2012. Pricing could be based on value—both certain and uncertain value. Traditional return-on-investment (ROI) models and business cases rely on quantifying value, by forecasting value achieved through various business outcomes. However, the confidence in some outcomes might be higher than in others.

A senior executive, for example, might be very confident that an RFID solution would deliver $500,000 in asset-management benefits, but less confident that the reduced time spent searching for assets would result in the hard savings of $1 million promised by the solutions provider. So the certain value would be $500,000, and the uncertain value would be $1 million.

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