National brands at A&P had to fend for themselves against in-house brands. Although Cream of Wheat once refused to sell to the Tea Company because of the chain’s cost-cutting practices, A&P retained the upper hand in the distribution tussles into the 1930s. In the post-WWII years, however, the retailer discovered that branded, packaged products enhanced its credibility with consumers.

Unlike Universal Product Code (UPC), data that depend on the retailer for dissemination through the supply chain network, manufacturers will have the option of obtaining RFID data directly from consumers. And because the technology stands to enhance the interaction of manufacturers with their customers, it could free up marketing resources for more effective product advertising.

Says Peter Sealey, adjunct professor of marketing at the University of California at Berkeley, “I believe RFID will, unlike the UPC code, shift power back to the manufacturer in some meaningful manner. The way we will know if this is happening will be the mix between advertising, consumer promotion and trade incentives (now 25 percent, 25 percent and 50 percent respectively). Twenty years ago, the mix was 50 percent, 25 percent and 25 percent. I believe the share of advertising will increase in the next five years, and if this happens, power will have shifted to manufacturers.”

If manufacturers do get a better handle on how customers are using their products, Sethurman concedes they could realize major benefits. “That eventually could be wonderful for the manufacturer,” he says. “The reasons manufacturers don’t have power is because they are unable to have a direct conduit with the consumer when it comes to the physical movement of goods.”

Although Sethurman believes manufacturers have traditionally had this power, he says they do not have it now because today’s supply chains favor the mass retailers. “But if RFID could actually trigger a mechanism by which the manufacturers directly know when these people are out of stock, maybe there would be some way to respond to that quicker.” He also sees the possibility that RFID could encourage greater product innovation. “Definitely, the potential is there. It will be interesting to see.”

Even if consumers stop short of inviting RFID technology into their homes—and that remains a strong possibility given concerns about personal privacy, manufacturers may still have other options for mining RFID data.

Earl Cox, president of Scianta Intelligence, envisions manufacturers performing statistical anomaly analyses of the RFID tags in consumer neighborhoods (trash bins are not considered private property) or during transport around shopping areas, referencing to what’s going into stores. “If you’re shipping a whole bunch of stuff into a Wal-Mart in a suburb of Cincinnati and you’re not finding—from a statistical sampling, a corresponding population of buyers—then there’s something wrong there,” he says. Cox believes the stores could end up losing influence if manufacturers gain access to this data. “Right now a manufacturer has no way of knowing what the throughput is for any individual stores, because individual stores now act as distribution centers for the companies themselves.”

If RFID does allow manufacturers to interact more directly with consumers, manufacturers will still need access to retail shelf space to market their products. Notes professor Michael Levy of Babson College in Massachusetts, “The manufacturer’s job is to try to figure out what people want. So they’re always going to be coming out with new products. I don’t think that’s really changed. If they’ve gotten more sophisticated trying to figure it out—what people want before they make it, it’s still going to be their job to keep coming out with new this or new that.... That’s the whole game. Coming out with new products and getting shelf space in the store.”

But professor Stephen J. Hoch of the University of Pennsylvania’s Wharton School told us he doubts that RFID in itself will make it easier for manufacturers to get that shelf space. On the other hand, Hoch has also argued that stores like Wal-Mart may be vulnerable to, among other threats, the emergence of new competitors and changes in consumer buying tastes.

So could manufacturers—armed with increasingly sophisticated information about consumer preferences, make end runs around the big box stores? Certainly, the knowledge of how, and how often, consumers use their products could go a long way in helping them identify the most appropriate distribution channels.

Even the once mighty A&P eventually floundered on not too distant shoals. Following a long history of growth, the Tea Company entered a period of decline in the 1960s as it lost market share to more aggressive competitors. By the early 1970s, the company was clearly in trouble. Finding itself unable to keep up with competition, A&P opted to convert its retail operation to a mass marketing format. High margin, slow-moving products were discontinued as the chain began concentrating on low margin, fast moving goods.

But even in its new incarnation, A&P found it still could not compete with stores that offered broader product selections and better service. Consumers preferred an optimal combination of convenience, quality, service and price to the ability to save a few pennies. Meanwhile, A&P’s competitors ate the Tea Company’s lunch. Given the enormous potential of RFID to track these kinds of consumer preferences, might there eventually be some big box lunches up for grabs?     

[3-Jul-2006]