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How RFID can enable dynamic pricing for brick and mortar retailers

RFID technology continues to redefine retailing. As online vendors like Amazon aggressively invest in dedicated supply chain infrastructure, brick and mortar retailers seek to compete with high levels of inventory accuracy that allow for omnichannel and dynamic pricing business models.

In an omnichannel environment, consumers can order items online or from a mobile device and opt to pick them up at a nearby store or have them delivered, sometimes arriving on the same day. This is possible because the inventory accuracy provided by RFID gives retailers nearly exact inventory counts at the store level.

The next step for retailers seeking to compete with their online cousins is to adopt dynamic pricing strategies that will let retailers like Macy’s and Kohl’s better compete with Amazon’s strategy of changing pricing on items several times a day.

Retailers may soon be able to link pricing information on RFID tags to ESL's like these produced by E-Ink.

“If a retailer hasn’t already invested in digital signage then this concept isn’t high on their radar,” says JP Kamel, a principal with retail RFID consultancy RFID Sherpas, which helps major retailers like Kohl’s to deploy RFID.

“They are more concerned with how they are going to drive value from front to back replenishment, omnichannel, and overall inventory visibility and accuracy. But for retail brands that have already made significant investments in digital pricing, you start to see this become much more interesting.”

One key to enabling dynamic pricing is to find a way for the reader protocol that talks to RFID tags on individual items to also communicate with the electronic shelf labels (ESL) that retailers are deploying as an alternative to price stickers on individual items.

“Every now and then I get a call from a retailer asking about this,” says Bill Hardgrave, Dean of the College of Business at Auburn University. “This whole idea of dynamic pricing is coming into greater focus because of omnichannel and the need to compete with Amazon. I think we’ll see this rise up to more prominence over the next 12 months.”

Dynamic pricing would allow retailers to change pricing on items instantaneously, based in inventory levels and the pricing of competitors. Eventually, dynamic pricing can be tied into fitting room technologies, where a consumer can be offered a discount if it appears they are about to leave a store without making a purchase.

Kamel points out replenishment advantages as well. For example, a digital pricing sign can actually flash or change colors following a cycle count for a particular location to indicate how many items on that fixture need to be replenished.

Retailers could also use RFID and dynamic pricing to improve tried-buy ratios by dynamically adjusting prices for apparel items that are not moving into fitting rooms, or are being tried on repeatedly but not purchased. Smart shelving solutions enable retailers to tell how often an item is picked up and returned.

There are challenges to address before dynamic pricing can be embraced. First, ESL options must continue to become more competitive price-wise. Just as RFID was challenged to compete with inexpensive barcodes, e-ticketing faces a similar challenge in cheap paper price tags.

However, ESL options can offer a healthy payback, not only in the potential for increased revenues from dynamic pricing, but a swift and profitable payback resulting from dramatically lower labor costs.

“I remember a conversation I had with (retired) Dillard’s CIO Bill Holder several years ago, and he talked about the huge amounts of money they spend on labor just to mark items down,” says Hardgrave. “This represents a total labor savings opportunity if you can do that dynamically with e-price tickets.”

Another challenge is actually updating the ESL pricing in conjunction with item-level RFID tags in an affordable way.

“You can’t make each one of those ESL tags a wifi or BLE low power Bluetooth device; that’s too expensive,” says Steve Miles, a research affiliate at the Auto-ID Labs and the Center for Biomedical Innovation at MIT. “One proposal is to use the same low power EPC Gen 2 UHF RFID protocol that we currently use to collect accurate data about inventories to program the ESL’s.

“In this scenario the same protocol could be extended so that an associate going down the store aisle with a hand held reader scanning each shelf not only takes inventory but can also send a signal to the electronic shelf label to update the price of a displayed item based on inventory levels.”

Melanie Nuce, vice president of apparel and general merchandise at GS1 US.

Melanie Nuce, vice president of apparel and general merchandise at GS1 US, says that although dynamic pricing hasn’t been the specific focus of any GS1 work group meetings, recently released Gen 2 V2 standards for UHF do allow for somewhat more complex use cases.

“Pricing was not a specific request of the community, but there was a request within V2 to support file management,” says Nuce. “So with more memory available in the tag, you could partition into files and you could carry pricing in a file on the tag.”

Nuce says that enabling tags to communicate with ESL’s would require software support and potentially new industry guidance, because nothing specific regarding managing pricing was addressed in the most recent release of the tag standard.

“We have a community still largely focused on inventory accuracy use cases,” says Nuce. “But I definitely think the possibility is there from a technology standpoint because EPCIS isn’t required at all to manage dynamic pricing on the tag.”

With robust file-based support, which was added in the Gen2v2 standard, pricing can be managed on the tag without the support of EPCIS and no standards enhancements would be required.

Hardgrave, who founded the RFID Research Center at the University of Arkansas, says that the facility was conducting research with early e-ticketing technology as many as seven or eight years ago.

“We looked at some solutions in our lab that demonstrated some of the electronic price tickets where you can change the price remotely, “he says. “We had a demo in the fitting room that not only showed inventory information, but also could dynamically take 10 percent off the price to entice buyers.

“That seemed to resonate well with retailers. They liked it, but it just wasn’t one of those main use cases.”

That’s changing quickly. Amazon is building strategically placed distribution centers to deliver products as fast as possible to consumers. The online giant is even exploring delivery drones. In addition, Amazon employs advanced software to monitor competitor prices and change prices on its offerings often as often as every hour.

“Amazon has software that looks at prices all over the web, and bricks and mortar stores need to do the same thing,” says Hardgrave. “Otherwise you’ll end up with somebody in the store show-rooming, and when they discover a sweater $10 cheaper online they’ll just order it there instead. Bricks and mortar retailers need to respond to that.”

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