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Commentary: An RFID code of conduct

The technology is attracting attention over privacy concerns. To win broader acceptance for it, retailers need to set standards for its use--and communicate that to consumers.

Commentary: An RFID code of conduct
By Forrester Research
Special to CNET
April 16, 2004, 11:00AM PDT

By Christine Spivey Overby, Senior Analyst

RFID use is raising privacy concerns among retailers, consumer privacy groups and, most recently, state legislators in California and Utah.

So what do consumers think about the use of radio frequency identification technology in stores? Twenty-one percent of U.S. consumers who are aware of RFID tags fear the prospect of companies tracking their purchases. But 81 percent of these consumers are accepting the idea of retailers disabling the tag once the item leaves the store. The bottom line: To win broader acceptance for the technology, which has rapidly progressed from buzzword to a serious business issue, retailers need to adopt an RFID code of conduct--and communicate it to consumers.

Related story:

Finding a company willing to admit
where it stands with RFID is often
an exercise in listening to dead air.

The RFID privacy issue continues to make headlines: In March, Metro Group responded to protests from privacy advocates by announcing that it will stop using RFID chips in its "Future Store" loyalty cards. To find out what consumers think about the use of RFID in stores, Forrester surveyed U.S. consumers in late 2003. Nearly 23 percent of respondents said they have heard of retailers using RFID tags in their stores.

These consumers have some conceptions about the technology:

•  They Believe that RFID will benefit retailers. Sixty-eight percent of these consumers believe RFID will reduce theft at stores, and 37 percent think that it will help retailers keep the shelves stocked with goods.

Forrester's take: Theft reduction and improved stocking are enormous business benefits to retailers, but without a clear context, they don't mean much to consumers. Retailers such as Tesco, CVS and Metro clearly link the business and consumer benefit of RFID in the store.

Retailers need to adopt an RFID code of conduct--and communicate it to consumers.
This means that they communicate how a reduction in theft leads to lower prices, how increased stocks means there's a better chance that a popular product will be on the shelf, and how an RFID tag can act as a seal of authenticity on products like prescription drugs.

• Consumers think that retailers already use RFID tags in the store. Thirty-six percent of consumers who are aware of the technology think that retailers have used it for years.

Forrester's take: Retailers can't assume that consumers will distinguish between RFID tags and other existing tags like those for electronic article surveillance. Retailers need to make sure that consumers know that RFID tags can't be read beyond the range of the store. Without clarification from retailers about how RFID works, consumers will base their opinion on "Big Brother" stories making the headlines.

• Consumers have privacy concerns. A subset of consumers have fears regarding RFID tag usage: 21 percent are worried that companies will use the technology to track purchases, while 18 percent say they are concerned that companies will track an item after they leave the store.

Retailers need to make sure that consumers know that RFID tags can't be read beyond the range of the store.
Forrester's take: The privacy concerns of some consumers will catch the attention of more lawmakers and civil liberties groups. Forrester expects that Utah's RFID Right To Know bill is only the first example of RFID legislation. Retailers and packaged-goods manufacturers need to involve the appropriate government agencies in their RFID plans. Follow TiVo's example for a good start: Faced with privacy concerns in 2001, TiVo submitted a white paper to the Federal Trade Commission detailing exactly how it uses any collected consumer data.

• Welcome the use of RFID under certain conditions. When asked what retailer actions they'd find acceptable, 81 percent said disabling tags when the item leaves the store. Furthermore, 58 percent of consumers would be accepting of a retailer agreeing not to use RFID tags to collect data about themselves or their shopping habits. Fifty-two percent also said they'd accept a retailer asking permission to track purchases, but just 30 percent of consumers said promotions would persuade them to allow purchase tracking.

Forrester's take: An RFID code of conduct will help retailers align their plans with consumers' sentiment. As promotions only entice a minority of shoppers, retailers must provide clear communication on RFID use to convince consumers to opt in to purchase tracking. In light of consumer interest in retailers disabling tags, Wal-Mart Stores must rethink its stand to not "kill" RFID tags once they leave the store.

© 2004, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.