The Law Of Supply And Demand Falls Silent For RFID Pricing

Written by Evan Schuman
August 23rd, 2006

There is a comforting premise taught in all business schools that market forces will force all identical products to be priced in the same range. The typical marketing way to address this is by branding them differently, so a high-end branded watch or car can get far more than it’s almost-identical lower-cost cousin.

But in RFID these days, evidence is mounting that such consistency has yet to happen. No greater case for buyer beware?and buyer negotiate–might today exist.

In a report released Wednesday, European RFID analyst firm IDTechEx concluded that pricing logic has failed to visit many RFID facilities.

“Lately, some RFID tags have been sold at high profit and others literally given away. Yet more have been sold at a considerable loss by operations of doubtful viability and all this conspires to make it seem that there is no obvious price-volume sensitivity curve for RFID tags,” the report said. One “reason for a spread of price-volume curves lies in the fact that legislation, mandates and pressure from organizations such as the Food and Drug Administration (FDA) encourages adoption before the tipping point of price in certain applicational sectors. Excessive competition in certain sectors also distorts the situation.”

IDTechEx Chairman Peter Harrop argues that pricing is so flexible because many companies desperately?and profitably?need RFID on a large scale, while others are merely using RFID to comply with a partner’s mandate. He cites Marks & Spencer’s item-level apparel-tagging efforts in the U.K.?where “all apparel is tagged in 52 stores, way ahead of anything in America”?Holland’s largest bookstore chain (Selexyz) and various chains through Japan. “This has caused prices to come tumbling down and it’s not particularly because of the Wal-Marts of the world.”

In the U.S., Harrop cites Lockheed Martin as an example of a company that is doing its own thing with RFID. Because of military contracts?which tend to be much less price-sensitive than Wal-Mart deals?it decided to simply buy out its RFID provider, Savi Technology.

“RFID is no different than any other industry today,” Harrod said. “There’s just a lot of funny trading at the moment and you need to ignore that.”

The report also cited differences by product segment. “Mainstream postal items and low-priced consumer goods have the lowest price trajectories. By contrast, there may be around three billion drug packages shipped in 2011 with RFID labels at around seven cents,” the report said. “Given the compelling paybacks already demonstrated by the British and Japanese, there may be as many as ten billion high-priced retail goods, such as apparel, tagged in 2011 but only if work in China and elsewhere gets the label price down to around 3.4 cents. However, the uncertainties are such that many of these numbers could be halved but the price doubled.”


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