A New EntrantsMarket Entry Strategy.Many companies are considering RFID product lines Submitted by:- Adil Musain(11067) Anirban Mazumdar(11074) Ankit Chouksey(11075) Ankit Dubey(11076) Ganesh Parvekar(11088) Manish Prasad(11096) Sachin Saurabh(11112)
Marketing StrategyThe marketing concept of building an organization around the profitablesatisfaction of customer needs has helped firms to achieve success in high-growth, moderately competitive markets. However, to be successful in markets inwhich economic growth has leveled and in which there exist many competitorswho follow the marketing concept, a well-developed marketing strategy isrequired. Such a strategy considers a portfolio of products and takes into accountthe anticipated moves of competitors in the market.Marketing Research for Strategic Decision MakingThe two most common uses of marketing research are for diagnostic analysis tounderstand the market and the firms current performance, and opportunityanalysis to define any unexploited opportunities for growth. Marketing researchstudies include consumer studies, distribution studies, semantic scaling,multidimensional scaling, intelligence studies, projections, and conjoint analysis. Afew of these are outlined below. Semantic scaling: a very simple rating of how consumers perceive the physical attributes of a product, and what the ideal values of those attributes would be. Semantic scaling is not very accurate since the consumers are polled according to an ordinal ranking so mathematical averaging is not possible. For example, 8 is not necessarily twice as much as 4 in an ordinal ranking system. Furthermore, each person uses the scale differently. Multidimensional scaling (MDS) addresses the problems associated with semantic scaling by polling the consumer for pair-wise comparisons between products or between one product and the ideal. The assumption is that while people cannot report reliably which attributes drive their choices, they can report perceptions of similarities between brands. However, MDS analyses do not indicate the relative importance between attributes.
Conjoint analysis infers the relative importance of attributes by presenting consumers with a set of features of two hypothetical products and asking them which product they prefer. This question is repeated over several sets of attribute values. The results allow one to predict which attributes are the more important, the combination of attribute values that is the most preferred. From this information, the expected market share of a given design can be estimated.Multi-Product Resource AllocationThe most common resource allocation methods are: Percentage of sales Executive judgment All-you-can-afford Match competitors Last year basedAnother method is called decision calculus. Managers are asked four questions:What would sales be with: 1. no sales force 2. half the current effort 3. 50% greater effort 4. a saturation level of effort.From these answers, one can determine the parameters of the S-curve responsefunction and use linear programming techniques to determine resourceallocations.Decision algorithms that result in extreme solutions, such as allocating most ofthe sales force to one product while neglecting another product often do not yieldpractical solutions.For mature products, sales increase very little as a function of advertisingexpenditures. For newer products however, there is a very positive correlation.
Portfolio models may be used to allocate resources among major product lines orbusiness units. The BCG growth-share matrix is one such model.New Product Diffusion CurveAs a new product diffuses into the market, some types of consumers such asinnovators and early adopters buy the product before other consumers. Theproduct adoption follows a trajectory that is shaped like a bell curve and is knownas the product diffusion curve. The marketing strategy should take this adoptioncurve into account and address factors that influence the rate of adoption by thedifferent types of consumers.Dynamic Product Management StrategiesTwo fundamental issues of product management are whether to pioneer orfollow, and how to manage the product over its life cycle.Order of market entry is very important. In fact, the forecasted market sharerelative to the pioneering brand is the pioneering brands share divided by thesquare root of the order of entry. For example, the brand that entered third isforecasted to have 1/√3 times the market share of the first entrant (MarketingScience, Vol. 14, No. 3, Part 2 of 2, 1995.) This rule was determined empirically.The pioneering advantage is obtained from both the supply and demand side.From the supply side, there are raw material advantages, better experienceeffects to provide a cost advantage, and channel preemption. On the demandside, there is the advantage of familiarity, the chance to set a standard, and thechoice of perceptual position. Once a firm gains a pioneering advantage, it canmaintain it by improving the product, creating a standard, advertise that it wasthe first, and introduce a new product in the market that may cannibalize the firstbut deter other firms from entering.There also are disadvantages to being the pioneer. Being first allows a competitorto leapfrog the early technology. The incumbent develops inertia in its R&D andmay not be a flexible as newcomers. Developing an industry has costs that thepioneer must bear alone, and the way the industry develops and its potential sizeare not deterministic.
There are four classic price/selling effort strategies: Price Selling Effort Low High Classic Skim Strategy Low Necessity Goods Vulnerable to new entrants Classic Penetration Strategy Luxury Goods High In general, products are clustered in the low-low or high-high categories. If aproduct is in a mixed category, after introduction it will tend to move to the low-low or high-high one. Increasing the breadth of the product line as severaladvantages. A firm can better serve multiple segments, it can occupy more of thedistributors shelf space, it offers customers a more complete selection, and itpreempts competition. While a wider range of products will cause a firm tocannibalize some of its own sales, it is better to do so oneself rather than let thecompetition do so.The drawbacks of broad product lines are reduced volume for each brand(cannibalization), greater manufacturing complexity, increased inventory, moremanagement resources required, more advertising (or less per brand), clutter andconfusion in advertising for both customers and distributors. To increase profitsfrom existing brands, a firm can improve its production efficiency, increase thedemand through more users, more uses, and more usage. A firm also can defendits existing base through line extensions (expand on a current brand), flankerbrands (new brands in an existing product area), and brand extensions.The history of the global economy is characterized by boom and bust.
Today, business schools are still teaching the same philosophies they taught in the1980s. They include the: Unmatched power of the free market Pre-eminence of the shareholder Inevitable inefficiencies of government interventionThese assumptions, however, are now under growing scrutiny. The free marketdidn’t work, the shareholder is not the only stakeholder, and governmentintervention has been essential in rescuing the private financial services sector.Many believe that the recent financial crisis has raised issues that may require afundamental rethink about how the global economy should operate.Business may never return to "normal"As a follow-up to our investigation into their economic forecast, we askedcompanies when they believed that business would return to "normal". Instead ofgiving us a timeline, 31% responded that they believed business would neverreturn to "normal".The number of business leaders who think that the changes made necessary bythe crisis will be permanent has increased over the last six months. Our May 2010research has discovered that this number has now increased by 25%.Further exploration revealed that our respondents share this sentiment acrosssectors (from 29% in financial services through to 35% in manufacturing), but notacross countries.Pessimists The most pessimistic group of countries included France, the UK, Sweden and the US. These developed economies have undergone significant market change for some time. Almost 50% of these respondents believed that business would not return to normal.The presence of France, the UK and Sweden is not surprising because thesecountries are aware of the ongoing challenge of competing in a global economyfrom a high cost base.
The presence of the US is surprising, given the robustness of the US economy, andthe optimism and cultural confidence the US is associated with. This suggests thatthe impact of the financial crisis, whether real or perceived, has been particularlylarge.Middle of the road The neutral respondents included those from the Netherlands, Germany and Russia, who mirrored the overall results, with around 30% believing that business would not go back to usual. The Netherlands and Germany are both developed trading nations that have seen many recessions before and have historically exported their way to growth. But it is interesting that Russia, one of the leading emerging economies, is in this group.
Optimists The most optimistic group of respondents comprised some of the major emerging economies; China, India, Brazil and the Middle East. Over 80% believed that business would return to normal.Characteristics of the optimistic, emerging economies groupIn exploring this final group, we can make two observations: 1. The financial crisis has had less impact in emerging economies where lending is less widespread, more companies are state-controlled, and GDP has continued to rise over the past two years, e.g., China’s predicted GDP growth for 2010 is 8% and India’s is 6%. 2. The concept of rapid change – perceived as a threat to "business as usual" in many countries — is more ingrained into emerging economies’ perceptions of what "business as usual" means.For example, it is common for companies in China to expand from employing ahandful of people to a workforce of several hundred in just a few years: and inIndia, companies like Tata have acquired many international competitors inrecent years, turning themselves into global corporations.
The future will not resemble the pastWe asked respondents why they thought business would not return to usual. It’spossible to group their responses into five categories: 1. The market has fundamentally changed. This response was driven by observations that customer behavior has altered because of the crisis, with fewer consumers prepared or able to increase their personal debt this will act as a major damper on some business models. Similarly, there is a greater awareness that there has been a shift in economic power toward the new economic giants such as China and India, which have already demonstrated that they have a different perspective on economic management than the West. 2. Businesses will be more cautious. This is because tighter regulations and business failures are expected; therefore risky behavior, such as derivatives investment, is now out of favor. This may only be temporary, but it could refocus business efforts onto innovation in product and process, rather than finance. 3. Businesses need to operate more efficiently There is still a strong emphasis on cost reduction, with much more competition from international rivals; this will raise the threshold for companies as they review their activity portfolio. 4. Businesses need to become more adaptable to market changes. This factor is applicable to all sectors, but particularly real estate and retail, where a reduction in credit availability has caused a dramatic downturn. 5. Lessons have been learned from the crisis. There are significant variations in the lessons that could, or should, be drawn from the downturn. The financial services sector, in particular, has had to learn some tough lessons about responsibility and transparency.For US respondents, the most important issues concerned adaptability and thefact that both the market and consumer behavior had changed. For respondentsin Western Europe, there was less emphasis on changing consumer behavior and
more importance given to businesses becoming more cautious and operatingmore efficiently.Predictably, drivers of change also vary by industry sector. Manufacturers noted fundamental change and a slow rate of recovery Financial services companies stressed the need to learn lessons Consumer product companies know that customer behavior has changed and that they require greater efficiency Real estate, health care, and chemical industry respondents noted the need for cost reduction and efficiency, along with the necessity to become more adaptable to market changesMarket Entry Strategies: Pioneers versus LateArrivalsWhat is the best way to move into a new market? If you do not have a first-inadvantage, attack the one who does.Want to be King of the Mountain in a new marketplace? Here is some advice: befirst or a close second, and do not pause for breath. Others want to be King of theMountain too. Even though you have a huge advantage in being first, you can loseit in the blink of an eye over pricing or service or lagging technology. Aggressivecompetitors have a vast array of weapons to knock you down.
Todays strategic planners, having created as much value as they could by cuttingcosts, are looking now to grow domestic markets, as well as build new marketsand revenues in such countries as Brazil, China, India, Malaysia and Mexico.Before striking out, though, they need the answers to some crucial questions:Does it pay to be first with a product or service? Is being an innovator worth therisk? Is it better to wait and learn from the experiences of the first entrant to themarket? What is the proper balance between the risks and rewards? If you are apioneer, what can you do to prevent share erosion when a new player enters themarket? If you are a late entrant, what strategies should you adopt to make yourentry successful?Studies show that in most cases, being first to the market provides a significantand sustained market-share advantage over later entrants. Still, later entrants cansucceed by adopting distinctive positioning and marketing strategies. Pioneers inmost industries, once they have reached the status of incumbent, are powerful.Sometimes, however, they get complacent or are not in a position to cater to thegrowing or shifting demands of the marketplace. New entrants can takeadvantage of gaps in the offerings of these aging pioneers, or find innovative waysto market their product or service. Pioneers with a distinctive presence in themarketplace need to be in a position to react, or even better, anticipate potentialentrants and increase the barriers to their entry. For example, a pioneer may bein a position to reduce its price and decrease the value of the business for a newentrant, or it can block entrance entirely by controlling key distribution channels.Whether a late entrant or a pioneer seeking to foil newcomers, it helps to have athorough understanding of the entry and defensive strategies available, a goodsense of timing and a game plan for decision-making.BASIC STRATEGIC PLANNINGCompetitive strategies typically depend on the market environment and thepositioning and product portfolio of the existing players. These are the basics: Reduce price to penetrate an existing market. By introducing a product at alower price than the pioneers, a latecomer can attract new customers who wouldnot have otherwise purchased such a product in effect expanding the totalmarket. Reduced price can also induce the pioneers current customers to switch.Still, this strategy is likely to result in reduced margins for the new entrant
compared with other players in the market, unless the new entrants cost ofproduction is relatively cheaper. This can be adopted by both the incumbents andpioneers. Improve a product or service, with focus on a niche market. Companies cancompete by being innovative in the marketplace. The innovation may be radicalor incremental. One example of incremental innovation is an enhanced version ofan existing product. The enhanced product can compete directly with existingproducts, or it can be positioned to attract a smaller segment of the existingmarket. In addition, the improved product or service can sometimes attract newcustomers that are not the current target for the existing product or service. Forexample: potential satellite-based wireless service providers are currently offeringa new feature called global coverage. This service could both complement andreplace options available to current customers but most of the potential playersin the marketplace are targeting either traveling professionals who need to be inconstant touch or the rural market, in which the cost-to-provisiontelecommunications infrastructure is very high and satellite-based options helpgovernments offer ubiquitous telecommunications services. In both cases thetelecommunications market is expanded, generating additional revenue. Target new geographic markets for existing products. As markets mature in thehome base, companies traditionally look outside to more lucrative markets. Mostconsumer goods companies, for instance, are setting their sights on China. Manyheavy equipment manufacturers are targeting newly emerging markets that willneed tractors and cranes for building. Faced with intense competition andmaturation in the local markets in the United States, regional Bell operatingcompanies such as BellSouth are expanding into emerging markets such as Brazil. Develop new channels of distribution to access new markets or betterpenetrate existing ones. Going global is not the only solution. Sometimes the riskand the investment required to penetrate international markets may not beworth the return. Focusing on existing markets, where your company has a goodunderstanding of the environment, can prove less risky and bring quickersuccesses. This can be accomplished by repositioning the product or servicethrough marketing, advertising, packaging and so on. For instance, Dell Computerwent after the mass market by having customers place their orders directly withDell by phone, fax or computer. This direct channel revolutionized the method ofselling computers to the end users, including corporate clients.
In addition to choosing the appropriate marketing strategy, it is crucial todetermine the timing of the introduction of any new product. This is especiallytrue in high-tech industries, in which product life cycles are short and it is difficultfor late entrants to catch up and extract reasonable returns. In most cases, if youare entering second or later in such a market, you should do so immediately afterthe pioneer.PIONEERING ADVANTAGE: FICTION OR REALITY?Put simply, it costs the most to be the first, for two reasons:1) The product innovation requires a higher investment in research anddevelopment than does product imitation, and2) The necessary marketplace education and testing forces the pioneer to spendheavily on advertising and promotion. A second entrant enjoys the fruits of thepioneers labor.Are there higher returns on market share and investments to offset the pioneersincreased costs and relatively higher risks? Companies such as the Hewlett-Packard Company and the 3M Company, which generate growth throughinnovation, garner more than 60 percent of their revenues from products
introduced over the most recent three-year period. Obviously, these companieshave succeeded in pioneering at a very high level.Does this occur in other industries and in countries other than the United States?In fact, numerous studies have found that later entrants in a market achieve alower market share than earlier entrant’s and that this holds true in a variety ofproduct categories and industries, such as consumer packaged goods, industrialgoods and pharmaceuticals. Even when a companys tangible (e.g., financial) andintangible (e.g., brand equity) resources and business skills are considered, earlyentrants continue to hold market-share advantage.What is the magnitude of market-share penalty for later entrants? A 1995 studyby Gurumurthy Kalyanaram and others in Marketing Science suggests that thenew entrants forecasted market share divided by the first entrants market shareequals, very roughly, one divided by the square root of order of entry of the newentrant. (See Exhibit I.) Therefore, if there are two players in the market, the firstentrant will have a market share of 59 percent and the second entrant will have amarket share of 41 percent (which is 70 percent of 59 percent). This is validated inthe cellular industry in several countries in Europe in which the average marketshare of the first entrant in Belgium, France, Germany, Italy, the Netherlands andSpain is 58.5 percent and the second entrant is 41.5 percent. The figures areconsistent with the results in Exhibit I since the second entrant has about 70percent of the pioneers market share. (See Exhibit III.)
Why do early entrants so frequently enjoy a higher market share? First,consumers in general are risk averse. If a product or service provides enoughsatisfaction, consumers do not want to risk switching to a new product. Second,the pioneer becomes the prototype for the product category. Later entrants arecompared to the pioneer, and always somewhat unfavorably. Wheneverconsumers think of photocopying for example, Xerox is the name that jumps tomind. Third, consumers learn best the attributes of early entrants. Moreknowledge translates into more strongly held beliefs and great confidence inchoice. And lastly, early entrants are able to secure the best positioning in themarketplace.Does the pioneering advantage manifest itself in return-on-investment metricsapart from market share? Yes, after substantial research and developmentinvestments, being early in the market is rewarding. Research shows that thepioneers enjoy a higher return on investment in both consumer and industrialgoods. (See Exhibit II.) This research and development investment and continuousnew product launch is also used as an entry barrier by several pioneers.A recent analysis of the evolution of wireless markets in Europe indicates that firstentrants are also market leaders in most countries. (See Exhibit III.) Pioneers incellular service establish a presence in the marketplace, build brand equity and
create an excellent distribution network. Also, a peculiarity of this industry is thatthe quality of service is primarily determined by coverage. Having evolved overtime, the first entrants network usually has much better coverage. The customersbecome used to enhanced coverage over time. So new entrants have to investsignificantly to achieve this same coverage -- an effort that is capital intensive andtime consuming. All new networks have initial bugs that take time to fix.Subscribers are just not willing to go through another learning curve, when thereis already a robust supplier of service. Another frequent constraint is access toproperty to build the towers, since the first entrants have already seized the idealsites for coverage. This, in turn, may require the later entrant to invest largeramounts in network infrastructure to gain similar coverage. Given these hurdles,it can take two to three years before a challenger achieves coverage competitivewith the incumbents.In addition to coverage and related quality of service, another huge barrier toentry for new entrants is the issue of number portability. Customers would haveto get a new cellular number when they switch carriers since they cannot take thesame phone number with them as is done in land line networks. In generalcustomers do not like to change their phone number, especially in Europe, wherecustomers receive calls in their mobile phones. Thus, we see the inherentadvantages to being first in the market in the wireless industry: control of idealsites; freedom to evolve and fine-tune network coverage; building of brandloyalty by offering superior customer service; locking in customers by subsidizingequipment for an extended period under fixed-service contracts, and gainingcontrol of key channels of distribution.AGILITY NEEDED FOR LATE ENTRANTSThe picture, however, is not always so rosy for pioneers and bleak for lateentrants. In some industries and some geographic areas, pioneers have lostmarket-share advantage relatively quickly. This can happen for any of severalreasons:1) An entrenched pioneer may not be offering a superior level of customerservice.2) A new technology may have changed the cost equation, so that a new entrantcan offer similar or better service at a lower cost.
3) The new entrant may have developed a new way to access the market, with aninnovative distribution strategy.4) The latecomer may simply be pricing aggressively, targeting selected segmentsby taking advantage of the incumbents tendency to average pricing across allsegments.In what situations is the pioneering market-share advantage muted? For a start,when consumer learning is limited, the pioneering advantage is likewise bound tobe limited. Consumer learning becomes very difficult if the product becomescomplex and technical. For example, when picture phones were introduced in thelate 1970s, the market did not respond because consumers could not findoccasions to use the product.The pioneering advantage is also limited in a cluttered market: If there are manyavailable brands, consumers react by becoming confused.Moving beyond such issues, what can later entrants do to overcome any inherentmarket-share disadvantage? First, the later entrant should differentiate itselfsubstantially in the minds of the consumers. Such positioning can beaccomplished through substantial changes in either the product or promotionstrategies. For example, the Chrysler Corporation redefined perceptions of itsminivans by introducing Caravan, a two-door van. The Ford CorporationsWindstar, expected to be a marquee van, substantially lost its glamour to theCaravan. When the General Motors Corporation decided to reposition itsOldsmobile, it changed not only its product but also its advertising copy. The newcopy appealed to consumers over 30 years old, projecting the image of a youngerprofessional woman via this voice-over: "This car is not only for your fathersgeneration, but its for you too."A second route for later entrants is to discover creative ways to increase producttrial. At best, one study has found that the market-share advantage for the earlyentrants comes from higher trial penetration. If the later entrant can generategreater trial market share, then its disadvantage can be overcome. Sample-product trial is an appropriate mechanism. For example, in consumer goods,consumers can be supplied with a sample product for trial. In non-consumergoods, other creative mechanisms must be designed. Limited demonstration ofusage or prototypes is possible in software products, and test usage is possible in
automobiles. Also, distributing the product through new channels such as directmarketing (think of the Lands End catalogue or the Mary Kay cosmetics parties)or a home-shopping-network channel would place the product in the hands ofmore consumers.The later entrant can also segment the market, focusing on a particular target. Byproviding appropriate value, the later entrant can extract additional rents. A goodexample of this is the competition among the International Business MachinesCorporation, Compaq Computer and Dell Computer in the personal-computermarket. Finally, later entrants can position themselves as variety enhancers,rather than as replacements or substitutes for the pioneers.An example is Orange, the late-entry cellular service provider in Britain, whichsuccessfully nudged aside the pioneers. Orange entered the market almost 30months after the first entrant, Vodafone, and nine months after One-2-One, andwith technology similar to One-2-Ones. Orange, however, has followed a veryaggressive entry strategy. It has not only invested heavily in the network over thefirst two years of introduction, but also developed aggressive pricing strategies.Orange seized a third of Britains total markets first quarter 1996 growth byoffering about a 30 percent savings to end users, compared with Vodafone andCell net. The pricing strategy was effective enough to compensate for Orangesrelatively poor network coverage. (This rapid increase in penetration of newsubscribers decreased in the second quarter, after Vodafone and Cellnet loweredthe price differentials in key segments.) Thus, aggressive pricing tactics,investment in network infrastructure and innovative marketing tactics such asaggressive advertising and creative service bundling have made Orange a credibleplayer.Different markets require different strategies. What worked for Orange in Britain,for example, will not work for new entrants in Scandinavia. There, theincumbents monopolies are not driven by profits from the wireless industries,and thus they price their wireless services below the average price for the rest ofEurope. This is a significant barrier to entry for new players, especially sinceentering the industry requires a high capital investment. So the key source ofdifferentiation for new entrants in such situations is going to be creativemarketing, innovative advertising, new service packages and superior customerservice. This is especially true since the incumbents offer a relatively poor level ofcustomer service, a concern to end users.
Later entrants can also succeed by attacking high-growth markets particularlywhen there is a significant shift in the industry. Such shifts can be due to changesin regulation, or technological breakthroughs that improve the product, orbreakthroughs that improve the process of manufacturing and delivering theproduct. The classic example is MCIs success in penetrating the long-distancemarket and winning a regulatory battle with the AT&T Corporation.Another strategic option for the later entrant is micro-segmenting the customerbase -- that is, targeting high-value customers who are able and willing to pay ahigher price for the product or service relative to the cost incurred in catering tothat segment. For example, the competitive-access providers (now CompetitiveLocal Exchange Carriers, or CLECS), in order to provide local telecommunicationsservices, basically skimmed the best customers of the regional Bell operatingcompanies by offering a lower price. This was possible because the regionalcompanies had adopted an average price scheme partly dictated by the FederalCommunications Commission.Innovators have also been successful in entering markets with a significantlybetter technology. Usually, however, technological innovation gives a company anedge for only a time, since incumbents catch on fairly quickly. Given that this isthe case, new entrants should support their innovations with effectivepositioning, appropriate pricing and aggressive advertising. For example, I.B.M., alater entrant to the personal computer market, captured the lead in the 1980s bydeveloping the technology and using its powerful marketing engine. Later,Compaq and Dell fundamentally redefined the business. Compaq reduced thecost by changing the manufacturing process and having superior logistics. Dell, inaddition to using an efficient manufacturing process and superb logistics,invented the mail-order or direct channel to access end users, who by now werecomfortable with personal computer technology. I.B.M. was not able to react tothese changes fast enough and lost its lead in the 1990s.DEFENSE STRATEGIESFOR PIONEERSEven as new entrants attempt to redefine the business or formulate nichestrategies to attack profitable industries and market segments, pioneers can fightback to retain their competitive advantage. The major strategies for the pioneers:1) Increase the barriers to entry for later entrants,
2) Innovate faster than the latecomers, and3) Build a market-responsive and flexible organization.In most markets both pioneers and later entrants operate with incompleteinformation. Pioneers can take advantage of this by using effective signalingmechanisms as a deterrent. For example, pioneers can cut price, signaling topotential new entrants that it is a low-cost industry and it will be difficult for themto survive. Pricing below variable cost, however, is illegal in most countries. Onthe other hand, new entrants traditionally focus on a few key segments of themarket typically those that are subsidizing the cost to serve other segments ofthe incumbents. So, it is important for pioneers to understand their end-usersegments and to adopt a differential pricing scheme to extract optimal rent fromeach of the segments.Pioneers can also attempt to lock up the key channels of distribution, making itdifficult for new entrants to get access to the market. In several industries andcountries, however, it is not possible to get exclusive distribution rights. Pioneerscan also offer special types of enhanced customer service packages or rewardprograms to make it harder for key customers to switch.Another route, especially in the high-tech industries, is for a pioneer to remaininnovative and launch the next generation of products or at least announce thenext generation of products, thus deterring the entry of competition. The IntelCorporations strategy in this regard is an example.Finally, a responsive and flexible organization may be the most productive route,especially when the structure of an industry changes drastically or there is aseismic shift in the regulatory environment. In the telecommunications industry,for instance, the 1996 Telecommunications Act has fundamentally changed therules of the game, leaving almost all the markets open for competition. This hasforced both the regional Bell operating companies and the long-distance carrierssuch as AT&T and MCI to revise their strategies. Aging pioneers in other industrieshave also followed the strategy of attack as best defense, targeting potential newentrants home bases -- be it geographic or product markets. As Fuji penetratedthe photographic film market in the United States, for example, the EastmanKodak Companys strategy was to attack Fuji in its home market. This strategy metwith mixed results, due to the tight controls in the Japanese market.
The underlying parameters for all these strategies are that companies should beaware of the market dynamics and have an organization that is flexible with theright culture to adapt, not only reacting to potential competition but alsoproactively developing their strategies. It is easier to lose a market-share pointthan it is to gain one.An example of a good blocking strategy is Vodafones decision to lower its pricesin key market segments to match those of its new competitor, Orange, therebyreducing the price differential between the two companies. While doing this,Vodafone kept its average price in the market constant and extracted more rentfrom customers who were not targeted by the competition.Managers should have a feel for the marketplace, to correctly estimate theswitching barriers for customers and set the price differential accordingly.Another example in the wireless industry is the case of cellular companies in theUnited States. These companies have undertaken a suite of counterattacks,including innovative service packages and special deals on the equipment for one-year contracts, thereby increasing the switching barriers for the customers. Thishas also slowed the penetration of personal -communications-services (P.C.S.)players among the cellular customer base. But as these companies, which offer aservice similar to cellular but based on a different technology, build theirnetworks and offer enhanced services, they will inevitably begin to attract cellularcustomers unless cellular companies can offer similar features in the long run.Meanwhile, both the P.C.S. companies and the cellular companies have launchedaggressive advertising campaigns.KEY SOURCES OF DIFFERENTIATIONIt is important to note that in the case of the telecommunications industry,pioneering advantage can be sustained only through continuous investment inbuilding network infrastructure and the offering of superior customer service thetwo key sources of differentiation. In the wireless industry, customers are repeatpurchasers, since their contract terms typically last for only one year and the costof handsets is dropping rapidly. This situation could enable a late entrant tocompete effectively by developing a good network infrastructure and by gainingaccess to good distribution networks. This is evident from the fact that theincumbents in several countries have not been able to sustain their lead and the
differences between early entrants and second entrants are decreasing rapidly.For example, in Britain, Vodafone had an 18-month advantage over its primecompetitor, Cellnet, with similar technology. Three years after the launch ofCellnet, however, the difference in market share in annual net additions betweenVodafone and Cellnet is only 11 percent. Vodafone has been able to retain its leadin the recent past only by fighting back efficiently on the customer-servicedimension and by developing creative service-bundling strategies.MARKETING-STRATEGY FRAMEWORKHaving thoroughly analyzed the various strategies adopted by successful pioneersand later entrants, we have developed a framework both can employ toformulate strategies for growth, penetration or share retention, as the case maybe. The first component in our framework involves developing an understandingof the dynamics of the market. The critical areas to be analyzed are:1) Those fundamental drivers of technology that may cause a significant shift inthe market;2) Changes in governance, such as any shifts in regulatory policies that might havea marked impact on the industry structure;3) The size and growth of the potential market, and4) The competitive profile.Several qualitative and quantitative tools are available to assist in evaluatingthese critical issues. For instance, the model developed by F.M. Bass, the Bassmodel (1969, 1987), and the Booz-Allen & Hamilton model (1997) are highlyuseful for forecasting market size and growth. Competitive assessment on theother hand, is primarily done by conducting extensive secondary research on thekey players. Our experience indicates that more than 60 percent of relevantinformation can be found in public sources and that the challenge lies in thegathering and synthesis of this information.The second component of the framework involves conducting an internalassessment of your companys capabilities and product offerings. Product orservice development is an iterative process between developers and researchers,one involving marketplace feedback.
Once a product is defined and the positioning determined, it is important tounderstand the economics of manufacturing. In a competitive environment inwhich a technology edge is short-lived, try to think beyond simply making a goodproduct in an economical way. Companies need to evaluate and develop non-product-related sources of differentiation, such as customer service, innovativeways to access end-users, creative marketing partnerships with other servicessuch as frequent flyer programs, and so on.At the completion of external and internal assessment, a company is ready for thefinal component of the framework: the actual development of the productstrategy. Strategic elements here include segmentation, positioning and decisionson marketing instruments.One of the most important strategic elements is the timing of product entry.Should the company be the first to enter the market or a later entrant? Just whatare the risks and rewards? Again, there are some important tools available tofacilitate scenario planning and decision making. These include the formulation
suggested by Dr. Kalyanaram in the journal Marketing Science (1995) and marketshare models by Dr. Kalyanaram and Glen L. Urban (1992) and by Dr. Urban andothers (1986), again in Marketing Science. Other useful approaches for productstrategy are the lead-user technology proposed by Eric Von Hippel, and the"wargaming" simulation analysis methodology developed by Booz-Allen. Thus,based on the market, internal and product strategic assessments, an optimalstrategy can be formulated.Competing for growth: Winning in the neweconomy Customer reachWhen asked, some 60% of respondents believed that it would take over a yearbefore they would break even in a new market.Growth is a reflection of how effectively a company can meet the demands of amarket. The scale of opportunity is therefore determined by the size of themarket that a company can reach. Customer reach is a good starting point for anydiscussion on growth.Maximizing reach — and opportunityGiven the sheer size of some of the emerging markets and their relative economicgrowth, they are often cited as likely sources of growth. But our survey suggeststhis is not always where companies will find competitive success. When asked,some 60% of respondents believed that it would take over a year before theywould break even in a new market — time to break even is only slightly shorterwith high performers than the others.Which factors have driven the increased competitiveness of your marketover the past two years? % of respondents
Focus on segment — who is your buyer?It remains true that the cheapest route to market is through an existingrelationship. High performers have been investing more time and resource inseeking to both secure and strengthen their position with current customers.While 35% of respondents reported having increased their focus on the mostprofitable customer and product segments, a full 45% of high performersreported that this was one of their top priorities.Which of the following tactics have been most effective in driving growth foryour company?Similarly, there is a focus on developing new distribution routes to serve theexisting client base and enhanced marketing activities to maximize the currentopportunity.Broaden product/service offer — what are you selling?Part of the process of maximizing the return from existing customers isintroducing a broader range of products and services to better meet their needs— both across the value and the life cycle. This is the top priority for highperformers.Effective account management is believed by high performers as being thegreatest source of growth for the next two years. High performers are innovatingnew products, increasing marketing, opening new distribution channels andinnovating market-entry approaches to reach those markets more effectively.
While low performers are focused on cost competition, high performers aredriving into new markets and product areas.What action is your company taking to increase sales?Many companies in developed markets have recognized that innovating newservices and products is central to their competitive strategy. Interestingly,leading players are focusing on incremental innovation around distinctbuyer groups.Prioritize market — where are you selling it?By some margin, the focus of all our respondents has been on finding growthfrom existing markets, but leading performers are also ahead of others inidentifying the “thread that connects” groups across national borders and infollowing that thinking to establish new operations and outlets.When respondents were asked where they thought their growth would comefrom in the next two years, 60% cited developed markets as the likely source —down from the 67% who had achieved most growth in these markets in the pasttwo years.They are significantly more optimistic about China, India and other parts of AsiaPacific than other parts of the world. The slight decrease in focus on WesternEurope, and increased focus on Africa and Latin America is shared by lowperformers.
What growth have you experienced over the past two years and what growth do youanticipate over the next two years?In almost all cases, companies are looking to their own region as their first sourceof cross-border opportunity, but subsequent interests vary significantly.Why would they buy from you?Marketing has typically been included as a cost in this and has, consequently,suffered. But as companies turn their attention back to growth, there seems to berecognition — especially among high performers — of marketing as a driver ofgrowth that goes well beyond sales support.Marketing builds awareness to establish products in new markets, and brandingbuilds differentiation and loyalty, mitigating the impact of price reduction. Itremains a truism that companies compete on price only when they have failed toachieve a meaningful differentiation based on performance or perception.Of particular note is the growing importance of branding in emerging markets increating a value segment, often for the first time. Leading performers seem torecognize that branding can play a central role in taking existing products intonew markets and building barriers to new competitors in existing markets.
Market Entry Strategies:What is the best way to move into a new market? If you do not have a first-inadvantage, attack the one who does.Want to be King of the Mountain in a new marketplace? Here is some advice: befirst, or a close second, and do not pause for breath. Others want to be King ofthe Mountain too. Even though you have a huge advantage in being first, you canlose it in the blink of an eye over pricing or service or lagging technology.Aggressive competitors have a vast array of weapons to knock you down.Todays strategic planners, having created as much value as they could by cuttingcosts, are looking now to grow domestic markets, as well as build new marketsand revenues in such countries as Brazil, China, India, Malaysia and Mexico.Before striking out, though, they need the answers to some crucial questions:Does it pay to be first with a product or service? Is being an innovator worth therisk? Is it better to wait and learn from the experiences of the first entrant to themarket? What is the proper balance between the risks and rewards? If you are apioneer, what can you do to prevent share erosion when a new player enters themarket? If you are a late entrant, what strategies should you adopt to make yourentry successful?Studies show that in most cases, being first to the market provides a significantand sustained market-share advantage over later entrants. Still, later entrants cansucceed by adopting distinctive positioning and marketing strategies. Pioneers inmost industries, once they have reached the status of incumbent, are powerful.Sometimes, however, they get complacent or are not in a position to cater to thegrowing or shifting demands of the marketplace. New entrants can takeadvantage of gaps in the offerings of these aging pioneers, or find innovative waysto market their product or service.Pioneers with a distinctive presence in the marketplace need to be in a position toreact, or even better, anticipate potential entrants and increase the barriers to
their entry. For example, a pioneer may be in a position to reduce its price anddecrease the value of the business for a new entrant, or it can block entranceentirely by controlling key distribution channels.Whether a late entrant or a pioneer seeking to foil newcomers, it helps to have athorough understanding of the entry and defensive strategies available, a goodsense of timing and a game plan for decision-making.BASIC STRATEGIC PLANNINGCompetitive strategies typically depend on the market environment and thepositioning and product portfolio of the existing players. These are the basics:Reduce price to penetrate an existing market: By introducing a product at alower price than the pioneers, a latecomer can attract new customers who wouldnot have otherwise purchased such a product ¬¬ in effect expanding the totalmarket. Reduced price can also induce the pioneers current customers to switch.Still, this strategy is likely to result in reduced margins for the new entrantcompared with other players in the market, unless the new entrants cost ofproduction is relatively cheaper. This can be adopted by both the incumbents andpioneers.Improve a product or service, with focus on a niche market: Companies cancompete by being innovative in the marketplace. The innovation may be radicalor incremental. One example of incremental innovation is an enhanced version ofan existing product. The enhanced product can compete directly with existingproducts, or it can be positioned to attract a smaller segment of the existingmarket. In addition, the improved product or service can sometimes attract newcustomers that are not the current target for the existing product or service. Forexample: potential satellite-based wireless service providers are currently offeringa new feature called global coverage. This service could both complement andreplace options available to current customers -- but most of the potential playersin the marketplace are targeting either traveling professionals who need to be inconstant touch or the rural market, in which the cost-to-provision
telecommunications infrastructure is very high and satellite-based options helpgovernments offer ubiquitous telecommunications services. In both cases thetelecommunications market is expanded, generating additional revenue.Target new geographic markets for existing products: As markets mature in thehome base, companies traditionally look outside to more lucrative markets. Mostconsumer goods companies, for instance, are setting their sights on China. Manyheavy equipment manufacturers are targeting newly emerging markets that willneed tractors and cranes for building. Faced with intense competition andmaturation in the local markets in the United States, regional Bell operatingcompanies such as BellSouth are expanding into emerging markets such as Brazil.Develop new channels of distribution to access new markets or better penetrateexisting ones: Going global is not the only solution. Sometimes the risk and theinvestment required to penetrate international markets may not be worth thereturn. Focusing on existing markets, where your company has a goodunderstanding of the environment, can prove less risky and bring quickersuccesses. This can be accomplished by repositioning the product or servicethrough marketing, advertising, packaging and so on. For instance, Dell Computerwent after the mass market by having customers place their orders directly withDell by phone, fax or computer. This direct channel revolutionized the method ofselling computers to the end users, including corporate clients.In addition to choosing the appropriate marketing strategy, it is crucial todetermine the timing of the introduction of any new product. This is especiallytrue in high-tech industries, in which product life cycles are short and it is difficultfor late entrants to catch up and extract reasonable returns. In most cases, if youare entering second or later in such a market, you should do so immediately afterthe pioneer.
Integrating RFID: how and when will thistechnology change supply chain management?RFID commanded the attention of nearly everyone at Frontlines InternationalSupply Chain Week Expo in Chicago. Attendees sought out conference programsand symposiums to learn what the new technology was and how it worked.Exhibitors worked hard at explaining how they were incorporating RFID into theirproduct lines. And vendors tried to sell their vision of a future that included thetechnology. These are all pieces of a gargantuan effort to figure out how RFID willfit into the existing supply chain infrastructure and how companies should use it,from the introduction of the technology to more mature deployments."People are just now getting past the gee-whiz factor the technology evokes toexplore how this can create value in their supply chain," says John Thorn, generalmanager of the supply chain and brand solutions group at Checkpoint SystemsInc., Thorofare, N.J.Questions and issuesRFID is not new. Some areas of the manufacturing sector (e.g., automotive) havebeen using it for a while now. But for many retailers and consumer goodsmanufacturers, RFID is a newcomer on the scene, and it comes with morequestions than answers."While the benefits of RFID technology in the supply chain are rapidly beingrealized in real-world applications and installations, companies are going to haveto answer a number of important questions," says Michael Liard, a researchanalyst at Venture Development Corp., Natick, Mass.* How will RFID tie into existing systems, such as warehouse management, ERPand customer relationship management?* Who will help with the bar code/RFID transition? Large systems integrators,pure software vendors, RFID hardware suppliers or traditional data collectionhardware manufacturers?* Who is responsible for post-installation support?
* If there is no standard developed for RFIDs use in a particular industry orapplication environment, should customers wait to implement or move forwardwithout a standard?* What do end users do with all the data RFID can provide?Liard believes data synchronization concerns also need to be addressed, becausethe lack of a common nomenclature could be the Achilles heel for RFID in thesupply chain. The lack of education among end-user employees will requirecompanies to spell out what RFID is, how its used, what the benefits are and whythe company is implementing RFID.Probably the biggest question is: Will RFID supplant bar code? The answer is no."It is important to understand that RFID wont replace bar code," says DanBodnar, director of product marketing for data capture systems at IntermecTechnologies Corp., Everett, Wash. "Its really going to be used to augment theexisting data collection system."Bodnar says that Intermecs customers are facing compliance issues with RFIDbecause of mandates from companies like Wal-Mart, and thats what will drivecompanies to implement RFID in a more timely manner. But in the long term, theyneed to understand how they can integrate RFID into their existing data collectionsystem."The systems will coexist as folks become comfortable with the data they areextracting from these systems. If the promise of RFID pans out--that is, thebenefits outweigh the cost--there will be certain areas of the supply chain thatwill be converted to the new technology. But this may take years before anysubstantial impact is seen," says Checkpoints Thorn.What to doMany companies will be tempted to hold back. But a wait-and-see approach willhurt more than it will help. While there are no scientific or tested roadmaps tointegration, companies can do some things to make the migration to RFIDsmoother.Venture Developments Liard suggests you take the following actions:
* Find a need--if you dont require an RFID solution, dont force itsimplementation.* Gain an understanding of the technology (e.g., the physics, use, frequency andvarious parts of the system), and then educate your colleagues.* Review and evaluate commercially available technologies.* Select the appropriate frequency range for your requirements andenvironments and narrow the field of suppliers.* Talk with other end users and share experiences and information.* Obtain references for each player being considered for your systemimplementation (e.g., hardware, software/middleware, and integrationproviders).* Determine the ROI with those vendors you are seriously considering.* Select a vendor/integrator.* Perform a site evaluation.* Test the solution in a real-world setting."As they go through this process, they need to fully understand their businessprocesses and benchmark them against the legacy systems. With a baselineestablished, they can then begin to look for opportunities to reduce error, reducelabor/handling and speed throughput," says Thorn.ApplicationsIf bar code and RFID are expected to coexist within the consumer product goodsand retail vertical markets, in which segments of ADC will each dominate?Venture Developments Liard believes that bar code technology will continue todominate item labeling and marking, and that RFID use will center around thecrate and pallet.
RFID: Payback for ManufacturersThe RFID mandates issued by Wal-Mart, the DoD, and others place a significantburden on suppliers, but of course this kind of thing has happened before. EDI, forinstance, required major expenditures on software, systems development, andongoing VAN fees. RFID deployment has its own systems costs--for integration tothe ERP; for an ongoing supply of tags; for the network infrastructure, portals, andreaders; and for "savant" software that can sort and select specific data from themyriad signals emanating simultaneously from thousands (or tens of thousands)of tags. And for many manufacturers (particularly makers of "low-impact“products like groceries and household commodities), tag cost alone is asignificant barrier to RFID mandate compliance.Industry observers and analysts were quick to note that, in order to justify thecost of RFID compliance, manufacturers would need to find other ways to makeRFID technology pay off for them. Thus, an unplanned benefit of the movementtoward RFID is that manufacturers have renewed their focus on business processimprovements in the factory. Smart manufacturers are already thinking wellbeyond RFID "slap and ship."Companies that are considering RFID will have to choose one of two paths. On thefirst path, there is no clear return on investment (ROI) other than the follow-onbenefits of being in compliance with customer mandates. The second path leadsto where the real benefits can be found: RFID can be used to make businessprocesses more efficient.Not all companies can benefit equally from internal use of RFID technology, butmany (or even most) can benefit from process improvements that are driven bydata capture. This is especially true if the flow of real-time data is fully integratedto the ERP such that ERP processes become automated. The amount of benefityou can get from RFID is relative to the performance level of the company. Inlooking for potential RFID benefits, find the processes in which barcodes arecurrently being used.Companies that take the second path will find opportunities to eliminate tasks,save time, and add a new dimension of value through strategic application ofmore accurate and timely transaction data. Although this approach is likely to
require a bigger initial investment, operating cost reductions can easily justify it.In "closed-loop" applications in the factory, even the gap between RFID tags andbarcode labels begins to narrow. Each time the tag is read or written to, the costof the tag will continue to go down. In contrast, label cost accumulates over time.The world of data capture has become more complex in recent years. Gone arethe days when one technology or symbology was all that a manufacturer neededto meet its data capture needs. RFID creates compelling opportunities to changehow the data is captured and used, but you can be sure that barcodes and RFIDwill co-exist for a long time. These are the key questions to ask: Where is thebarcode method failing, and what can RFID do that barcodes cannot do?Heres one example of the answer to those questions: RFID can report finishedproduction and reconcile the product quantities with the finished goodswarehouse. Picture the end of a production line, where product is being put ontopallets. The pallet contains a barcode that is associated with the items put on thepallet. Such a barcode is referred to as a "license plate." Full pallets are picked upby a forklift operator. Each time a pallet is picked up, the forklift operator issupposed to scan the pallet barcode to record the production yield and back-flushthe components used. The same transaction also automatically receives thefinished product into a generic holding area in the finished goods warehouse.Wed like to think that this happens correctly every time a pallet is moved, but itdoesnt. The forklift operators concern is to move the material quickly, so thebarcode scan is not always done. And even if it is done, the barcode label may bemissed so the read may not be completed.Then, a material handler from the warehouse moves the finished product awayfrom the generic holding area. He scans the barcode and moves the material to afinished goods location and completes his transaction. Now the warehouse hasfinished product on the records, but because the first scan never happened, theproduction was never reported as being completed. Every day, the finished goodswarehouse reports how much finished product is put away and the report iscompared with what was produced, at which time errors are found. It iscommonplace in many factories for skilled personnel to spend significant timehunting down just where the transaction error occurred so that the error can bereconciled.
Fixing the Problem with RFIDThe problem could be fixed if the pallets had RFID smart tags. A smart tag hasboth a bar code and an RFID chip. An RFID portal could be put in place at thepassage point between the production area and the finished goods warehouse. Asfinished goods fill the pallet, the production number is encoded into the smarttag. This way, when the forklift operator takes the finished goods from theproduction lines to the generic holding location in the warehouse, passingthrough the portal, the transaction is completed every time, without doing abarcode scan. (Read-rate accuracy on slow-moving tags is not a problem.)Similarly, RFID could be deployed anywhere in the factory that a reusable tote orcontainer is utilized as product travels from one work center to another. Portalscan be positioned in the automatic conveyer lines to automatically record theproduction transaction.Take the Right PathMany companies seem to view RFID utilization as one big, expensive deploymentof challenging new technology. This leads them to try to identify everything thatcan be (or needs to be) done, which has the effect of stalling the whole effort. Thebest way to start is to focus on the small benefits that will add up to a big benefit.This can be called your "benefits stack."In factory applications, RFID utilization can be far less difficult than RFIDdeployment in high-volume distribution. So rethink the top-down approach to thebusiness case for RFID. Consider a bottom-up approach in which you start byfixing one problem at a time. It is surely more efficient to start with small,inexpensive tactical deployments, and the first solution doubles as your proof ofconcept. Then, following your "benefits stack" priorities, the small solutionscombine to solve the bigger systemic business problem.Part 2 of this article will look at more ways that RFID can be used to create valuein the manufacturing process and more ways that potential benefits can begained.Anthony Etzel is VP of Data Capture Solutions at RTTX: RealTime Technologies,
Inc. He has been designing and deploying automatic data capture solutions inmanufacturing for over 20 years.RFID Adoption in the Paperboard Packaging IndustryIntroductionRadio Frequency Identification (RFID) has generated much buzz in the supplychain arena. The technology itself is not new, and it has been used in variousapplications for more than 20 years. However, the technology is maturing andcosts are continuing to decrease. Increasingly RFID is viewed as a tool to track themovement of items throughout a supply chain, not just within a facility (Hugos,2006). RFID has the potential to add value across the entire supply chain. Bothmanufacturing and retail operations have the opportunity to be involved with theadoption of this technology. While much of the research to date has been focusedon the retail industry, increasingly research suggests that RFID applications will betaking off in many other diverse industries including transportation, aerospace,utilities, and defense, to name a few (Bendavid, Lefebvre, Lefebvre, Fosso-Wamba, 2009; Bhattacharya, Chu and Mullen, 2008; Das, 2007; White, Johnson,and Wilson, 2008). One such industry seriously considering the adoption of RFIDtechnology is the Paperboard Packaging Industry (Andel, 2005). Experts believethat many opportunities exist for early adopters of RFID technology within thisindustry.While numerous studies (Aberdeen Group 2006; Boeck and FossoWamba, 2007; Loebbecke and Palmer, 2006; Fosso Wamba, Lefebvre, Bendavid,Lefebvre, 2007;Vijayaraman and Osyk, 2006) have been conducted to study theimpact of RFID technology on other portions of the supply chain includingretailers and consumer goods companies, not much work has been publishedregarding the impact of RFID technology on packaging providers.A review of the case study material available to date indicates that early adoptersin the packaging industry are uncovering real bottom line benefits from the use ofRFID within their own operations and that further benefits arise when integratingapplications with their trading partners (Poirier and McCollum, 2006). However,not all in the supply chain have looked at RFID as a strategic enabler.A majority ofthe early adopters have implemented RFID because of the mandate by theirbusiness partners. These adopters have simply looked at RFID as a technologyupgrade and an added cost of doing business with no ROI in the near future.
In order to keep the deployment cost down and meet the compliance mandatedby their business partners, many implementers have adopted the "slap and ship"approach to RFID technology deployment (Vijayaraman and Osyk, 2006). Sincesuch an approach applies RFID tags at the last step in the fulfillment process, itlimits the ability of a business to exploit the technology through its supply chainprocess and realize a positive ROI. White, Johnson, and Wilson (2008) found thatcompanies employing a "slap and ship" approach did not expect the samebenefits as those that integrated RFID into their enterprise systems.A number of packaging companies, like other manufacturing companies havebeen mandated by their customers to implement RFID at the case and pallet level.Apart from this some of the packaging companies are exploring the option ofembedding RFID tags in the individual packages such as cardboard cartons so thatthey can meet the mandates by the retail company without spending money onRFID tag applicators. According to Andel (2005), with rapid adoption of RFIDtechnology in the consumer product goods industry, it is possible that thesemandated suppliers and manufacturers would request packages with alreadyapplied or embedded RFID tags from their packaging providers. This presentsdouble the challenge for companies in the packaging industry compared tocompanies in the manufacturing industry.Strategic uses of RFID technologyIt is difficult to determine the extent to which packaging companies arestrategically using RFID within their organizations. Many of the reported benefitsof RFID are anecdotal. Angeles (2005) cites a number of benefits realized oranticipated by diverse organizations including Unilever, United Biscuits,the Port ofSingapore, and Toyota. These organizations and others have reportedly realizedbenefits in time savings, improved workflow, better tracking, and improvedquality. From a business process standpoint, supply chain adopters, includingpackaging providers, stand to derive several potential benefits from RFID. First,within the companys warehouses, RFID can improve receiving, picking, andshipping accuracies (Asif and Mandviwalla, 2005). This could in turn facilitategreater efficiencies in shipping and receiving of goods. Second, improvinginventory visibility decreases stock failures (Moran, Ayub, and McFarlane, 2003).Benefits can be gained here with improved ability to track goods and savings ofassets as well as eliminating loss of revenues through out-of-stock conditions.Industry research has also shown that retail shrink levels historically are
approximately two percent of sales, costing retailers an estimated $32 billion inthe USA and some $30 billion in Europe in 2001 (Hidaka, 2005). RFID is expectedto have drastic effects in reducing the amount of shrinkage and claims/theftsoccurring in the retail environment and other delivery processes.Further, by automating data collection, businesses can eliminate the manual dataentry and manual business process transactions. This can provide significantbenefits in terms of labor efficiency and overall cost reduction. Since with RFIDthe data captured from the tags is sharable by the business partners and could bemade available in real-time, closer connections with supply chain partners arepossible.This could provide for realtime visibility into customer purchase decisionsin value chains, which in turn can position businesses to react more quickly tomarket trends.RFID technology is often cited as an alternative to and eventual replacement forbar codes, although it has been argued that there is a lack of empirical evidenceto support this claim (White, Gardiner, Prabhakar, Razak, 2007). Some of theadvantages of RFID technology over the use of bar codes include the fact thatRFID does not require line of sight and it can potentially be read at large distances(Clampitt,2009). This would be an advantage in the packaging industry where thetags may not be visible. RFID has other advantages over bar coding, including thepotential for a longer lifespan,the ability to withstand harsh environments, andthe increased traceability capabilities. The main disadvantage compared to barcodes is the high cost of RFID technology, including the cost of tags, readers, andthe necessary software. However it has been argued that the various benefits ofRFID in the supply chain including reduced shrinkage, better visibility, and betterprotection against counterfeiting, improved stock management, and reduction inlabor costs, must also be considered (Lewis, 2005). These and other potential costsavings should be considered when determining the ROI of an RFIDimplementation.So where do packaging providers fit in with respect to the benefits in the overallsupply chain? What is their role in contributing to the value proposition that RFIDmight have to offer in the supply chain? The Aberdeen Group (2004) researchsuggests that RFID benefits will vary depending on the type of enterprise. Theysuggest that one of the most promising areas of application will be formanufacturers of high value and low volume products (such as pharmaceuticaldistribution). Also, in cases where retailers create mixed pallets also may result in
high value. On the other hand, distribution centers receiving many mixed palletsmay not see much value in using RFID. So perhaps the packaging industry may ormay not be able to make much of a contribution, depending on where in theprocess its services are required. Packaging provided to distribution centersreceiving mixed pallets may be of no value, while packaging provided tomanufacturers of high-value products may be of significant value.Challenges of RFID technologyDespite potential benefits, many companies continue to implement RFID basedon compliance rather than based on ROI (Warehousing Education and ResearchCouncil, 2006).This can be attributed to several reasons. Lack of demand frombusiness customers has been one major reason. Since the technology demandslarge initial investments, little incentives exist for organizations that see nocustomer demand for RFID. Another challenge to RFID adoption is the lack ofworldwide tag standards. The standards for RFID technology are still evolving.EPCglobal, a non-profit organization, is working with member organizations toestablish standards for tags. Retailers such as Wal-Mart, Target, Tesco, etc. arerequiring suppliers to use the EPC standards (Vijayaraman and Osyk, 2006). In thepackaging industry itself, a number of operational and technical concerns havebeen raised regarding the limitation of RFID systems (Albright, 2006).These concerns continue to represent a challenge to the packaging providers indeploying RFID technology.The placement of tags on the packages for readabilityis one such concern. According to Clarke, Twede, Tazelaar and Boyer (2006), eventhough tag orientation has little effect on readability for empty cases, when aproduct such as rice or bottled water is added, tag orientation has a great effecton readability.The overall cost of implementation is another major factor indetermining the speed at which RFID technology is adopted. RFID system requiresexpenditures for tags, readers, hardware, software, and system maintenance.Within the packaging industry, significant cost additions to packaging operationsare seen as a concern.Achieving a positive ROI on RFID implementations in the supply chain continues tobe a challenge for many organizations. The cost of high technology is still themake or break issue for many packaging suppliers and their customers (Andel,2005). A primary cost component of RFID technology is the repetitive cost of RFIDtags. Additionally, companies considering RFID need to plan for additional
network infrastructure, storage capacity, RFID printers and readers, andadditional data generated by millions of new tags flowing in its supply chain (Asifand Mandviwalla, 2005). With regard to the cost, the recent focus within thesupply chain industry has been on low cost RFID tags. Over 1.3 billion RFID tagswere produced in 2005, and by 2010 that figure is expected to soar to 33 billionreports InStat (Mumford,2006). With the anticipated scale and scope of RFIDdeployments, tag costs are expected to continue their decline. However, even atlow cost, they are a significant investment for packaging providers since theyrepresent a recurring cost for them in an open supply chain. As discussed earlier,some feasible benefits which have the potential to improve ROI for packagingproviders include an improved ability to track packages, greater efficiencies inshipping and receiving, claims/theft reduction, out of stock reductions, inventoryreduction, labor efficiency and closer connection with supply chain partners.According to Mahna (2005), the use of RFID will demand more flexible processingsystems irrespective of whether the packaging is done at the production facility orat a co-packer. This will have a direct impact on the operational efficiency andprofitability of the packaging company. For instance, if packaging suppliers wereto consider adding tags to their boxes and displays, each tag would have to beindividually identified and placed according to a specific product packaginglevel.This would require each batch of material to be specifically designed for theultimate product packaging level and would require a certain placement precision(Andel, 2005). In addition, the presence of products or packaging containing metalcomponents that block the RFID signal, or conveyor belts made up of staticproducing nylon, or glass fiber that produces radio noise may necessitateexpensive changes in the physical infrastructure, thereby increasing costs(Margulius, 2004).System integration has been another major concern for adopters.The challenge ofRFID implementation comes from integrating RFID systems and the data theygenerate with other functional databases and applications (Jones, Clark-Hill,Shears, Comfort, and Hillier, 2004). Presently, since a majority of the adopters arebuilding their own RFID system from parts offered by different vendors, they arefaced with the additional challenge of integrating these systems with theirinternal database and ERP systems. Given the vast amount of data involved,capturing and communicating the data among disparate systems is a majorconcern.A survey by Cap Gemini Ernst &Young of 275 respondents working in thepackaging industry revealed that 46 percent of the respondents consider
integration as the single biggest concern with RFID (Ferguson, 2004). Lack ofstandards is yet another concern for packaging converters.To derive benefits fromtheir RFID investments,supply chain partners need to use similar tags, readers andoperational frequencies. According to Whitaker, Mithas, & Krishnan (2007), thelack of RFID standards leads to a delay in realizing a return on investment of RFIDtechnology. While standardization of information formats placed on the RFIDconsumables have gained wide support with the Electronic Product Code (EPC) inthe retailing industry; standards dealing with RFID frequency and protocols for thecommunication of readers and consumables such as tags and labels arecontinuously evolving. The lack of technology uniformity and standards has keptthe overall cost of implementation high and is a concern for the packagingsuppliers.Embedding of RFID tags in packagesThe trend towards embedded RFID tags in the packaging material is gainingmomentum within the packaging industry. A popular trend is smart packaging,which involves the use of chemical, electrical, electronic, or mechanicaltechnology,adding numerous features and functions to packaging (NanoMarkets,2006). Smart packaging is expected to consume $1.1 billion in printable and chip-based RFID tags by 201 I (RFid Gazette, 2006). For packaging suppliers, though,embedding these tags within their packages may pose challenges during thecorrugating process. A bigger challenge could be the placement of tags,considering the chance the tag could be cut off or diecut out (Palmieri, 2006).Despite the concerns and challenges, there is little doubt that tremendous marketopportunity exists for packaging providers given their market customerrelationships and expertise in product labeling. Even though the cost mayoutweigh the returns at this point, RFID provides an ideal platform for packagingproviders to offer added value to their customers.With the advent of newerprinting technologies and RFID adoption by multiple participants in the supplychain, RFID embedded packaging may prove to be a very attractive option for thecustomers facing the mandates.According to Roberti (2006), end users want to move toward embedding RFID incartons for shipping cases rather than applying labels. Some packaging companiessuch as Georgia Pacific, Smurfit Stone, and Weyerhauser have begun to researchhow to embed RFID tags in corrugate but the vast majority of the industry is
behind. According to OConnor (2006),Tl and Smurfit-Stone Container Corporationhave co developed a prototype consisting of corrugated cardboard casecontaining an integrated RFID inlay made with an antenna printed directly intothe case with conductive ink. The companies predict that using packagingmaterials with integrated RFID tags could save labor and materials costs forconsumer packaging goods companies since doing so would eliminate the need topurchase separate RFID labels and place them on cases. According to Smurfit-Stone Company, despite the low demand for RFID integrated packaging today, thedemand will rise as tagging mandates and the number of goods that must betagged continue to grow. Therefore, in order to be cost effective, consumerpackaging companies are going to move to the embedded approach (OConnor,2006)In an effort to determine the extent to which packaging companies are pursuingthese potential benefits, a research study was undertaken. The rest of the paperdiscusses the analysis of the data collected from Paperboard Packagingcompanies in the US and Europe and highlights the benefits, challenges, futuretrends,and implications of RFID in the Paperboard Packaging industry.MethodologyA research study was undertaken to determine the extent to which thePaperboard Packaging industry has adopted this technology to date and todetermine what problems they have faced. In February and March of 2006, emailswith links to a web-based RFID survey were sent to U.S. readers of PaperboardPackaging magazine and to members of the European Federation of CorrugatedBoard Manufacturers (FEFCO), requesting they fill out the survey. One follow upreminder was sent to each group approximately three weeks later. A web-basedsurvey was chosen because it was an effective means of collecting data from thetargeted group of Paperboard Packaging magazine readers. Other reasons forusing a web-based survey were lower cost, time savings, automated data capturefor analysis, and the flexibility to ask only relevant questions in each of theadoption categories. The respondents included the following:Geography
A total of 174 companies participated in this survey. Of the 174 companies thatparticipated, 136 companies were from the US and the remaining 38 companieswere from Europe.Job Title/FunctionA majority of the participants who responded (81%) were in the managementcategory and the rest were in the supervisory or staff specialist category. Thelargest percentage of survey respondents were owners (13.8%), general managers(12.6%), presidents &vice presidents (12.6%),and sales managers (9.8%).IndustryFifty-two percent of the companies who participated in the survey wereindependent corrugated or folding carton converters, and 32% of the companieswere integrated converters of corrugated and/or folding carton, or rigid boxconverters. A majority of these companies provide packaging products toconsumer packaged goods and food products industry. Only a small number ofcompanies provide packaging products to the apparel industry. Most of thecompanies surveyed have more regional sales and manufacturing presence andwere evenly distributed between national and international sales andmanufacturing.Company SizeThe size of the companies ranged from small to very large, in both annual revenueand number of employees. The largest percentage (55%) of these companieswere small with annual revenue for 2005 of less than $50 million,followed bycompanies with annual revenue of 50 million to $100 million (13%) and $100million to $500 million (12%). Only 14% of the companies surveyed reportedannual sales of more than $1 billion. A majority of the responding companies(69%) were small, with fewer than 500 employees, where 10% of the respondingcompanies were very large, with more than 10,000 employees. Table 1: Status of RFID Implementation (US versus Europe) Implementing Pilot Considering Not Total Testing Considering
US 11 5 44 76 136 Europe 0 5 19 14 33 Total 11 10 63 90 174 Percentage 6% 6% 36* 52% 100%Data Analysis and FindingsTable 1 indicates the status of RFID implementation among the companiessurveyed. A very small percentage of respondents (12%) are either pilot testing orimplementing RFID. Fifty-two percent of the respondents are not consideringimplementing RFID technology in the near future whereas 36% of the companiesare at least considering implementing RFID during the next couple of years. All thecompanies that are implementing RFID are in the US and the companies that arepilot testing are evenly split between the US and Europe. Table 2: Status of RFID Implementation by Annual Revenue for 2005 Revenue Implementing Pilot Considering Not Total Testing Considering Less 1 2 24 69 96 than $50 Million 550 to 1 3 8 10 22 $100 Million $100 3 1 10 6 20 Million to $500 Million $500 0 1 8 1 10 Million to $1
Billion $1 2 0 7 2 11 Billion to $5 Billion More 4 3 5 1 13 than $5 Billion Total 11 10 62 39 172Table 2 indicates the breakdown of the status of RFID implementation amongcompanies by their annual revenue. Over half of the companies who areimplementing RFID have revenues of more than $ I billion. However, a majority ofcompanies with revenues of $50 million or above are at least considering theimplementation of RFID. Only in the smallest companies (less than $50 million)did a majority (69 out of 96) respond that they were not considering thetechnology. So it would appear that this technology is of interest to all but thesmallest companies. This is consistent with the Information Week 500 surveyanalyzed by Whitaker, et. al. (2007). They found the companys revenue waspositively correlated with RFID adoption, implying that large firms are more likelyto adopt RFID.
Companies that are not considering RFID technology at presentSlightly over half (52%) of the companies surveyed are not considering RFIDtechnology at present. A majority of these companies (70%) expects to implementRFID in 2008 or beyond, and 24% of these companies think they would neverimplement RFID technology in their organization for their internal supply chain orintegrating with their packaging materials. A majority of survey respondents seeRFID technology adoption over the next few years. Lack of customer demand wasthe most important reason for these companies for not considering RFIDimplementation. Lack of standards, cost, lack of foreseeable benefits, and lack ofunderstanding were other reasons for not considering RFID technology. Majorconcerns for these companies with respect to RFID technology were cost related,including the cost of implementation, the cost of tags, and the cost of automatedlabel applicators. Other concerns that were somewhat important were lack offoreseeable benefits and lack of implementation standards. Altering the packagedesign due to RFID implementation and the placement of tags on the packages forrecyclability and readability were of the least concern (see Figure I).
Companies that are currently considering RFID technologyThirty-six percent of the companies surveyed indicated that they are currentlyconsidering implementing RFID technology. Seventy-one percent of theserespondents indicated the reason for considering RFID is to meet their customersrequirements and the rest (29%) indicated the reason is to improve their internalsupply chain efficiencies. When they were asked to rate the reasons on a scale of I- 5, I being least applicable and 5 being most applicable, meeting their customerrequirements ranked the highest (4.73) followed by a closer connection withbusiness partners (3.56). Other reasons such as claims/theft reduction, out-of-stock reduction, inventory reduction were not rated very high. Reasons thatimprove internal supply chain efficiencies, such as improved ability to track goodsand greater efficiency in shipping & receiving were considered somewhatimportant. A majority of companies (57%) that are considering RFID technologyexpect to implement RFID in less than 2 years (see Figure 2).Many of these companies (75%) are still doing initial research and gatheringinformation on RFID systems, another 16% of these companies are doing costjustification and budgeting, 7% are developing a project plan, and only onecompany is at the stage of selecting a vendor. Five of these companies areexpected to implement RFID technology is less than one year, 30 in one to twoyears, and the rest in more than two years. A majority of these companies expectthat the RFID applications which help manage inventory services for customerswould be the most beneficial reason for implementation, followed by packagetracking. Other RFID applications such as raw material tracking, containertracking, component tracking, loss prevention, asset management and securityare beneficial to a limited number of companies (see Figure 3). Many of thesecompanies expect their RFID technology to be integrated with warehousing andsupply chain applications and with IT infrastructure. The RFID solution will also beintegrated with organization and IT strategy by many companies. Only a smallnumber of companies expect their RFID application to be stand-alone.When asked about the concerns they have with respect to issues related to RFIDtechnology, several issues emerged as very important to these companies. Cost ofimplementation, cost of RFID tags, cost of automated label applicators, and lackof implementation standards all scored very high on the list of concerns (seeFigure 4). Altering the package design and lack of foreseeable benefits werecomparatively the least of their concerns. The placement of tags on the package
for readability and integration with warehouse and inventory systems wereconcerns to some extent.These concerns were very similar to the concerns ofresponding companies that are not considering RFID technology at present. Costseems to be one of the biggest barriers to RFID implementation for manycompanies. Cutting the cost of RFID tags and the cost of implementation wouldbe critical to widespread adoption of RFID technology.
Companies that are pilot-testing/implementing RFIDTechnologyA very small percentage of companies (12%) that responded to the survey areeither pilot testing or implementing RFID technology. When these companieswere asked for reasons for deploying RFID, meeting customer requirements wasthe overwhelming response. This is consistent with the findings of White,Johnson, and Wilson (2008), based on their survey of European supply chainmanagers. Seven companies also indicated "improvement to their supply chainefficiencies" as a reason for implementing RFID.When asked to rate nine different reasons on a scale of I to 5 from leastapplicable to most applicable, meeting customer requirements was ranked thehighest followed by closer connection with business partners (see Figure 5). Theleast important reasons were claims/theft reduction, out-of-stock reduction,inventory reduction, and cost reduction. Reasons such as improved ability to trackgoods, greater efficiency in shipping and receiving, and labor efficiency weresomewhat applicable. The reason for RFID deployment for many companiessurveyed is still driven by customer requirements and not very much onimproving internal supply chain efficiencies.These results were very similar tocompanies that are considering RFID technology.The companies that are pilot testing/implementing RFID are at different stages ofimplementation with a small number of the companies having already purchasedand developed the RFID systems. A majority of these companies are offeringpackages with applied RFID labels. Some of the major concerns of thesecompanies were cost: cost of tags, cost of implementation, and cost of labelapplicators. The other major concern was the placement of tags on the packagesfor readability. Minor concerns were integration with warehouse/inventorysystems, lack of implementation standards, and lack of foreseeable benefit.Altering the package design was at the bottom of the list of concerns (see Figure6).
When asked about the time it takes to implement RFID, companies that are pilottesting indicated anywhere from 3 months to 6 months. These companies werealso asked to indicate the types of problems they are experiencing in their pilottesting. Some of the problems these companies indicated are licensing, cost andgeneral availability of tags, combining generation II tags with standard laser-printable paper labels, strength and durability of generation II tags, cost ofimplementation and variety of choices of RFID tags, and damage to tags/antennaduring the application process.Among the RFID applications that the organization benefit from the most,inventory management services for customers was ranked highest followed bypackage tracking. A handful of companies are expected to benefit fromapplications such as container tracking, asset management, loss prevention, rawmaterial tracking and security. Only two companies indicated component trackingto benefit from RFID application.With respect to integration of the RFID application with other systems, themajority of these companies are integrating with their current IT infrastructurefollowed by warehouse applications. A third of these companies are deployingRFID applications as stand-alone systems. Several companies expect to integratetheir RFID applications with warehousing and SCM applications. Respondingcompanies also indicated that their RFID solution would be integrated with overallorganizational and IT strategy.Many of the companies that are pilot testing and implementing have a smallbudget for their RFID project. Five companies indicated that they are spendingless than $100,000 and 5 other companies indicated $100,000 to $500,000. Onlyone company is spending up to one million dollars and another company isspending more than 10 million dollars. These companies expect their cost savingsto come from improved ability to track packages, out of stock reduction, andminimized inventory losses (see figure 7). Cost savings from a better ability toidentify the source of defectives was at the bottom of the list.Of the companies that responded to the question on anticipated savings fromtheir RFID projects in the year after implementation, forty percent expected nosavings at all. Another 40% indicated I to 5% savings and 15% indicated 6 to 10%savings. Only one company indicated savings of I I to 15%. Although not manycompanies are satisfied with RFID technology at this time (overall satisfaction of 3
on a scale of I to 5 where I is not satisfied and 5 is extremely satisfied), companiesare somewhat pleased that they do not have to alter the design of the package.Security and integration with warehouse and inventory systems were high on theaverage satisfaction rankings. Respondents were less satisfied with the cost ofRFID tags, automated applicators and overall implementation. Standards andoverall performance also had satisfaction scores under 3 (see Figure 8).