Lower Prices, Higher Expectations

By Mark Roberti

Vendors announcing lower prices for EPC UHF RFID tags have created plenty of buzz, but they are unlikely to accelerate adoption dramatically in the near term.

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In the past two weeks, vendors have been competing to reduce prices on UHF radio frequency identification tags based on Electronic Product Code protocols. This has created some excitement in the market and raised expectations that adoption will now accelerate quickly, but it won’t happen in the short term.

The announcements, to be sure, are good news for manufacturers faced with tagging mandates. First, Alien Technology announced it was dropping the price of its popular Squiggle tag to 12.9 cents for orders of 1 million or more (see Alien Drops Tag Price to 12.9 Cents). Then, Avery Dennison and RSI ID Technologies announced they were lowering prices for inlays and labels based on the second-generation EPC standard (see Avery Dennison, RSI ID Lower Price Bar). And late last week, UPM Rafsec said it was lowering the price of Gen 2 tags to less than 10 cents for orders as small as 50,000 units (see Rafsec Announces Gen 2 Pricing).

These announcements mean that manufacturers (mainly in the United States) that have budgeted a certain amount to meet RFID tagging mandates will save 40 percent or more on the cost of tags for cases and pallets shipped to suppliers. That’s welcome news, given that these mandates represent additional costs. The announcements also send an important signal to the market that tag costs are coming down and won’t be an obstacle to widespread adoption.

But lower tag prices are not going to have a major impact on RFID adoption in the short term. As much as people focus on the high cost of tags and how there is little or no return on that investment, tag prices are not a major inhibitor to adoption at this stage. I realize that’s probably at odds with what you might be reading in other publications, so let me explain.

Most manufacturers are still taking a slap-and-ship approach to meeting RFID tagging mandates. Even if tag prices dropped to a penny, RFID would still represent a cost as opposed to a benefit for these companies. Until these companies figure out that they can tag goods at the point of manufacturing and use RFID to change their business practices and save money, adoption won’t take off.

The real obstacles to adoption are the infrastructure and applications that will deliver a return on investment. The simple fact is most manufacturers meeting mandates don’t have interrogators installed at many facilities, which means they can’t dramatically increase the number of stock keeping units they are tagging. And they don’t have the software applications that can process RFID data and turn it into actionable information, which means even if they could buy tags more cheaply, they wouldn’t get a return on that investment.

The number of software applications that take advantage of RFID data is extremely limited today. That’s not surprising, given that this market is so new. But things are starting to change. OAT Systems has developed a proof-of-delivery application that will enable manufacturers to use RFID to reduce chargebacks and start the billing process more quickly. At RFID Journal LIVE! Europe later this month, IBM and TrueDemand will demonstrate an application that tracks promotions using RFID. This will enable manufacturers to make sure they have product available for promotions, and that the goods are actually on display, which will generate more sales. Other vendors are working with customers to develop additional applications.

During the coming years, early adopters will build out their network of interrogators, link them to some of these early applications and start to change their business processes. It won’t happen over night, which is why lower price tags won’t have a dramatic impact on the volume of goods tagged in the next six months or more. Toward the end of the year, some early adopters will have the infrastructure, software and business processes in place to start placing large orders for tags. That will be the tipping point.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below.