RFID as a Revenue Enhancement Tool

More CEOs should be aware that RFID can help drive incremental revenue in a wide number of industries. Today, most executives likely consider RFID to be an operational efficiency tool. Nonetheless, we now see examples where RFID enables revenue enhancement by improving customer facing tasks, offering a differentiated service, providing business intelligence or through offering better billing practices.

Customer Facing Tasks
We see several examples of retailers and suppliers improving revenue through leveraging RFID to improve customer facing tasks. The most high-profile use of RFID here has been to reduce out-of-stocks. Examples include American Apparel and Charles Vogele. Less discussed is that store sales associates have more time to spend with customers, which generally leads to increased revenue.

Improved receipt, faster cycle counts and greater inventory visibility have freed up over 175 labor hours per month at each of the 10 RFID-enabled American Apparel stores. The analysis suggests that American Apparel could save $27,000 annually per store through reduced labor. However, we expect at least a portion of labor savings can, and should, be redeployed to help drive revenue through increased customer interaction. Let’s assume that 25% of this labor savings was reoriented to spend with customers (525 hours per year), which generated 1% additional revenue. That would mean giving up $6,750 of savings in favor of $12,000 incremental gross margin dollars generated from $18,200 in additional revenue for the average store.

Further, we see apparel providers being able to generate additional revenue as we recently highlighted with European Jeans manufacturer Rica Lewis. Historically, Rica Lewis’ 40 sales representatives spend significant amounts of time at each of their retail customers scanning inventory, which is adding no sales value. With RFID, the scanning process time is reduced by 80%, and frees up about 10-15 hours per week per sales rep. As a result, more time can be devoted to merchandising decisions, in-store layout and advertising, and managing store personnel relationships. Also, Rica Lewis also plans to increase the number of stores each sales rep covers, thus increasing the amount of retail coverage with the same team of 40 sales reps. This system began to ramp in November 2009 and will be fully operational by the end of 2010.

We also see examples in healthcare using real-time locating systems (RTLS). The San Joaquin Community Hospital, which has 285 beds, provided data illustrating the hospital conducted over 5,400 searches for various types of equipment (patient beds, wheelchairs, IV Pumps, etc) between August and September 2009. Historically, the hospital indicated the average search time took about 23 minutes, which was driven down to about 5 minutes using RTLS. The resulting savings was just over 1,660 staff hours during this two month period, which was redeployed to spend with patients. While there is no data to show increased nurse time leads directly to greater revenue, consider the following:

• First, hospitals are ranked on the basis of quality patient care, and more nurse time clearly elevates the perceived quality. Higher rankings help to drive higher revenue.
• Second, the hospital can now use this as a recruiting tool as the hospital can show how nurses at San Joaquin spend more time with patients. Better recruiting suggests a higher quality of nurses and likely equates to better care.

Offer a Differentiated Service
We see the entertainment and hospitality industry as providing great examples of offering a differentiated service. We have regularly written about using NFC-based payment options as a source of revenue drivers at amusement or water parks, or at resorts. It is well documented that the convenient payment options drive incremental revenue at food and beverage venues. We further believe such an offering provides strong differentiation that drives more traffic. Sea Villas Resorts, Qwest Field (Seahawks), and Grand Millennium Sukhumvit are all examples that are providing a differentiated offering.

Ski resorts are another example. Today Vail is using RFID for annual passes to provide convenience for regular customers and to reduce fraud. Having this infrastructure in place could provide incremental sales opportunities. Employees carrying around handheld devices enable quick access to guest profiles, providing the chance for perhaps extra-special treatment in the lift line, “Good Morning Mr. Smith, looks like good powder on the Upper Ramshorn.” Since each lift is also enabled with a reader, it would be possible for the resort to provide skiers with a daily or weekly report on their activities, perhaps number of runs or a summary of vertical distance traveled. These are differentiated offerings that cement relationships.

Providing Business Intelligence
Consider our Vail example above with respect to creating specific guest experiences or marketing programs. Skier activity is recorded as each lift is equipped with RFID readers, and if this is combined with business intelligence software, the resort could create targeted campaigns, “We noticed you spend a lot of time on ‘Swingsville,’ please come and enjoy 15% off at ‘Henry’s Hut’ on your next visit at the top of the ‘Swingsville’ run.” Or, “We noticed you especially enjoyed ‘Swingsville’ on your last visit, other guests who liked that venue have also enjoyed ‘The Skipper’ and ‘Tourist Trap.’”

Another type of example is Coke’s new Freestyle machine, which offers one of the more powerful methods of leveraging RFID to provide granular-level marketing data previously unseen. Freestyle is the next generation of soda fountain product that allows up to 122 different drink types to be dispensed in a restaurant. The machine uses cartridges of highly concentrated formula instead of large five-gallon bags of syrup, which are used by most fountain dispensers today. An RFID tag is affixed to each of the 24 cartridges in the machine, which provides the ability for the machine to track usage.

As product is dispensed, the RFID reader within the unit rewrites to each tag the respective consumption levels. At set intervals, the data is read by the Freestyle machine and wirelessly sent to Coca-Cola’s SAP system to update used quantities. Given Coke understands item-level shipping to each location, the specific cartridges inserted into each machine and consumption of those cartridges, it is developing significant business intelligence on customer order patterns. This would include better understanding consumption variations during key product times, and the ability to test new drink concepts real-time. This varies by geography. Importantly, Coke can not only use this data for restaurant promotions, but also leverage the information to adjust its merchandising mix at convenience stores and gas stations that may be in close proximity to the restaurant.

Note the RFID system is also being used to help with shipment verification, refilling and safety. Please see the July 2009 edition of RFID Monthly to learn more.

Better Billing Practices
One strong example of improved billing from RFID is from the cath lab at Tennessee Memorial Hospital. The cath lab has over 5,000 different items in seven different locations to serve over 13,000 procedures annually. Some items have very high value, such as pacemakers which cost over $35,000 each; the total inventory value is about $2.2M.

Given this lab serves cardiac patients, much of the activity is frantic and is difficult to schedule. As a result, it is often challenging to track the path of inventory. The year-end physical count prior to implementing RFID showed that actual inventory $500,000 below what was on the books. The following year, with the RFID system in place that offered increased visibility, the discrepancy decreased to $12,000. Our view is that a meaningful portion of the $500,000 discrepancy was simply lost revenue since it was not assigned and, therefore unbilled.

With numbers like this, CEOs and CFOs will likely begin to ask how quickly such solutions can be installed in other departments.

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