RFID Price Tags Stay High, Holding Back Adoption

By Mel Duvall Print this article Print

RFID tags and readers have become less expensive, but the magic 5 cent per tag level has been elusive.

It's a classic Catch 22 situation. In order for prices on radio frequency identification (RFID) tags to fall to what has been described as the "magic 5-cent" mark, manufacturers need to see more wide-spread adoption of the technology.

But with the price of tags remaining stubbornly high—in the 15 to 20-cent range—many retailers and suppliers have been unable to cost-justify expanding deployments beyond the pilot stage. That, in turn, has prevented RFID tag and reader manufacturers from achieving the kind of volume efficiencies needed to drive further price decreases.

This supply and demand problem has been troubling for the industry, but in time it will be overcome, say those in the field. In the meantime, the pricing hurdle is causing areas once thought not to be the primary target for the technology—such as apparel and promotions tracking—to experience faster than expected adoption because the costs can be justified.

Bill Colleran, chief executive of Impinj, a Seattle-based manufacturer of RFID chips and readers, acknowledges that prices for tags and readers have been a stumbling block. However, he says expectations created back in 2003 and 2004 of producing RFID tags for pennies-a-piece within a two- to three-year time frame were unrealistic. Aside from the supply and demand scenario, Colleran notes that it wasn't until December of 2004 that an agreement was reached on a protocol for what are now known as Gen 2 RFID tags.

That means the current generation of tags didn't really go into production until January of 2005. Since that starting point, the price of Gen 2 tags has steadily fallen from about 30 cents into the sub 15-cent range, when purchased in volume. Similarly, RFID readers sold by Impinj that were priced at about $2,500 in 2005, are now sold for just under $1,000.

"We're not at a 5-cent tag yet, but we're not that far off," says Colleran. "And I would predict that within a year or two from now we might get there."

The pricing on readers and tags isn't the only area where things haven't unfolded as expected in RFID.

Back in 2003 when Wal-Mart announced its widespread RFID deployment, it was thought the technology would revolutionize supply chains. But after the initial hype, suppliers and retailers began to realize that gains from placing RFID tags on pallets and cases weren't as great as initially thought. As one large Wal-Mart supplier noted, the supply chain was pretty efficient in the first place and it turns out there weren't a lot of cases sitting around in Wal-Mart distribution centers waiting to be discovered (see Wal-Mart's Faltering RFID Initiative).

Colleran expects supply chain initiatives will expand as costs come down, but for now sales of chips and readers used in that arena are experiencing only modest growth.

However, Impinj is seeing much stronger growth in such sectors as pharmaceuticals, where they provide great benefits in terms of being able to track and trace shipments to meet new government regulations. He says several large North American drug manufacturers are involved in large pilots and he expects those pilots will move into broad deployments within the next 12 to 18 months.

In Europe, a number of retailers are also moving ahead with RFID deployments in the area of apparel. In September, German retailer Galeria Kaufhof implemented an RFID deployment in its Essen store where RFID tags have been placed on individual pieces of clothing. Those tags are being combined with several other RFID technologies including "smart shelves" which can detect items being removed, and "smart mirrors" which can show buyers potential accessories to their purchases. (See "German Retailer Uses RFID to Dress Up the Sartorially Challenged Sex").

In both the pharmaceutical and apparel cases, RFID technology offers companies benefits that go far beyond supply chain efficiencies.

"It's not that there aren't cost savings to be had in the supply chain," Colleran says. "But when you can combine it with other benefits, that's when it becomes a slam dunk."

Write to reporter Mel Duvall

Related story: Wal-Mart's Faltering RFID Initiative

This article was originally published on 2007-10-04
Contributing Editor
Mel Duvall is a veteran business and technology journalist, having written for a variety of daily newspapers and magazines for 17 years. Most recently he was the Business Commerce Editor for Interactive Week, and previously served as a senior business writer for The Financial Post.

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