The Privacy Challenges and Strategies in Retailing

Industry on RFID Implementation

Hamzah Ritchi
Department of Accounting and
Business Information System
Jl. Dipatiukur No.35
Phone: (021) 2509055
Fax: (021) 2509055
April 2006

Padjadjaran University
Bandung, Indonesia
 Abstract

This paper aims to investigate privacy challenges faced by producers and consumers in
retailing industry as a result from recent changes in information acquisition and
dissemination by RFID. The technology is now in the early stage of adoption among
retailers, promising potential benefit for retailer particularly in efficiency enhancement
and cost reduction. Though sounds promising, fear of being tracked and monitored into
personal life drives consumers to protest the adoption down to retailing level.

Major retailers are acting as producer in which they are the one who interacts directly to
consumer. As analysis steps further, it is found that there is a discourse between
hegemonic and counterhegemonic demonstrating the use rhetorical management of
meaning by major retailer group to alter the understanding of consumers toward RFID.
The use of power though effective in absence of legal foundation, in longer term provides
harmful for the producers since trust issues emerges and impact to the increase of
uncertainty level of a given product.

Society should be able to get the balance to provide adequate privacy protection without
unjustifiably harming economic efficiency and business needs. Consequently there is a
need to create balance between using RFID as enabler of business need and protecting
privacy of consumer’s life and information, ranging from establishing regulation to
protect privacy up to letting consumer to choose provided privacy requirements are
satisfied.
The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

Introduction
The advancement of Information and Communication Technology (ICT) has
been continuing rapidly, enabling information and knowledge dissemination to
become faster, more accurate and in multi format basis. ICT are undergoing
dynamic and continuous rapid development which is driven by new
technologies that are emerging fast and business environment demand (Mutsaer,
van der Zee and Giertz, 1998). As wired-based internet continuously evolves as
standard to connect computers to computers all over the globe, a deemed bigger
investigation has been also explored in wireless domain. Much better than bar
code scanning, Radio Frequency Identification (RFID) technology arises to bring
a belief that its development may evolve as a way to connect things to computers
in wireless way (Markman, 2003).

RFID has recently received promotions for commercial use particularly in

retailing industry. Major retailers (Wal-Mart, Tesco, Marks and Spencer, Target,
etc) have been endorsing their business partners to embrace RFID in their value-
chain operation, ranging from logistic, shipment and warehousing (Twist, 2005;
Jones, Hill, Hillier, and Comfort, 2005; Jones, Hill, Hillier, Shears and Comfort,
2004; Juban and Wyld, 2004, Kinsella, 2003). This news created an immediate
reaction among the leading distributors, integrators and sellers to find out
everything known about this new technology and how it could benefit them.

Notably, RFID provides considerable benefits to retailers. It allows them to have

a better inventory control, saving them from stock out problem and inventory
theft (Kelly and Erickson, 2005). They also have supply visibility to track the
physical product flow of their goods from the moment their manufacturer
partners ship the goods to the moment it is received. Tracking facilitates quick
resolution of disputes between manufacturers and retailers over what items,
what quantity and when items were delivered (Caputo et al., 2003). Similarly,

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The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

shrinkage from the shipment of goods to the point of receipt is readily

identifiable. All of these benefits are eventually thought as a gain for consumers
in term of efficiency and price reduction. However, like many new technologies
RFID is still in its embryonic stage, and it definitely poses potential harm to
producer and consumer society.

This paper aims to investigate privacy challenges faced by producers and

consumers in retailing industry as a result from recent changes in information
acquisition and dissemination by RFID. Additionally, the paper examines
strategy employed by each group of society to address obstacles exposed that
may hinder them from getting the most out of ICT. While RFID has been actually
used in many areas since early 1980s (Juels, 2006 ; Kelly and Erickson , 2005;
Jones, Hill, Hillier, Shears and Daphne, 2004), the focus on this paper will be on
the recent commercial use and as in retail industry.

Moreover, since major retailers are regarded as the one who promote RFID of
being applied and do direct contact with buyers, this paper will focus on major
retailers that symbolize producer side paired with buyers as consumer side.
Throughout this paper it will be demonstrated how internet are positioned in
conjunction of discourses between hegemonic (represented by major retailers)
and counterhegemonic (represented by libertarians) (Warf and Grimes, 1997). It
also strives to examine how challenges attributed to RFID innovation determine
how retailer’s products are valued and selected.

It is argued that major retailers face a number of major challenges that should be
addressed regarding in effect of RFID implementation, not only limited to
technical issues such as lack of standard, high cost of tags, and security
improvement, but also how to induce consumer to accept RFID on their
products. They do this on behalf of consumer convenience, triggered with profit

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The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

interest. On the other hand, consumers are facing fear that their personal life
would be monitor under RFID chips surveillance. In other words, RFID has the
potential to threaten consumers in their most personal part, privacy and security
(Kelly and Erickson, 2005; Little and Brown, 2006; Albrecht, 2006). This results
with community that fight against these major retailers.

Additionally, combining producer and consumer together, it is suggested that

RFID creates a tension between power and ethics as such that major retailers
push their interest to gain dollar and efficiency benefit at the expense of
consumer’s privacy and security. Trust issue created by this tension problem in
return, impacts the quality of the perceived value of products by consumers. This
raises a proposition that selection system proposed by Wijnberg and Gemser
(2000) might be not sufficient enough to explain the relationship.

Therefore, these challenges merit attention. Retailers need to collaborate with

RFID vendors to obtain open standard, and continue to reduce cost. On the
other hand, an open dialogue about the technology’s advantages and potential
dangers is an important step in introduction, coupled with strong set of fair
information principles.

This paper draws a range of various literature mainly of those performed by

Akerlof (1970), Darby and Karni (1973), Warf and Grimes (1997), Westin (2003),
and Wijnberg and Gemser (2000). Literature review is conducted as primary
method of data and analysis. This paper will start by describing short
understanding of RFID, continued by evaluation of challenges posed by the two
sides, along with strategy employed to overcome those challenges. Lastly,
conclusion and recommendations will be discussed.

Definition

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The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

RFID is a small tag containing an integrated circuit chip and an antenna, and has
the ability to respond to radio waves transmitted from the RFID reader in order
to send, process, and store information. The RFID system consists of three basic
components: a tag, a reader, and back office data processing equipment. The tag
contains unique identification information of the item to which it is attached; the
reader emits and receives radio waves to read the information stored in the tag,
and the data-processing equipment processes all the collected data. This
equipment can be as simple as a personal computer or as complex as an entire
networked enterprise management information system (Wu, Nystrom, Lin, and
Yu, 2005)

RFID is better than bar code technology in that barcode is limited in the
information provided and position-dependent to the scanner (Kelly and
Erickson, 2005). For retailer, the technology allows consumers to just select the
items they want, and when it comes to payment, they do not need to take all
items for scanning. They just only need to push their shopping cart through a
RFID-tagged gate, and all the items taken will be automatically detected and
summed to debit consumers’ debit account.

Discussions
Business Interest Issue
As mentioned earlier on, challenges for producer are dominated more by
technical rather than social, such as no globally agreed standards and global
radio spectrum (Mullen, 2004), costs consideration, and security (Twist, 2005).
Ranges of improvement have been done (e.g, tag technology, network and data
integration improvement) to justify all of those technical challenges (Wu et. All,
2005; Sarma, Weis, and Engels, 2003)

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The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

Major retailers are striving to get consumers’ welcome that their RFID-embedded
products will not harm them. However, in spite of technological achievements
and measurable customer benefits resulting from the RFID application, privacy
complaints have gained public attention and increasingly put pressure on what
was meant to enhance customer convenience (Loebbecke, 2005). Though
consumer seem receive benefit from the increasing customer service, price
discount, and other loyalty program (Albrecht, 2002), tagging RFID chips to
individual items (may this be cultural product or non cultural product) after
leaving the store from retail store and keeping them active into their very
personal life such as home and offices are also somewhat disturbing.

There seems to be a gap between major retailers with consumers in

communicating RFID endorsement. There are two possible explanations which
might satisfy this situation: Firstly, major retailers are introducing RFID
implementation when public policy that arranges technology assessment do not
exist (Jones et.all, 2005a). Existing public policy permits commercial enterprises to
collect information on consumers with few restrictions, indicating unbalanced
assessment favouring to commercial interest. It is believed there is nothing
inherently unethical in collecting information on customers when appropriate
procedural justice safeguards are put into place to protect legitimate consumer
interests (Kelly and Erickson, 2005). Secondly, there are concerns that customers
may not be aware, or be given notice, that RFID tags have been attached to
products within retail outlets (Henley Centre, 2005; Albrecht, 2002).

Based on this situation, it can be seen how business interest maintains its
mainstream hegemony by driving major retailers to use their power by altering
public meaning on total surveillance that may resulted from hidden use of RFID
tags. Power is defined as the capacity to shape reality and to preform somebody
in such a way that he or she does what one wants without any need of explicit

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The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

power (Lukes, 1974, cited in Boonstra and Gravenhorst, 1998:107). Power can be
enabled by the use of management of meaning (Hardy and Sullivan, 1998).
Through a beneficial loyalty offerings, wrapped-up with well-designed package,
major retailers have power to manage the meaning of consumer’s personal data
pooling as something necessary to continue the offerings. As consumers regard
this an inevitable way of for the sake of consumer, they become powerless
relative to major retailers. And consequently, these corporations do not hesitate
to launch and maintain its RFID tagging program.

Another meaning alternation supported by major retailers is that consumers

rejection on RFID is not a unified voice. Consumers have already proved
themselves willing to trade some confidentiality for convenience. An example is
the one-click service at Amazon.com, in which shoppers allow the Web site to
harbor their credit-card information in exchange for the ease and speed of single-
click purchasing. In a fully RFID-powered world, a smart-card carrying
consumer could conceivably roll her shopping cart directly out of a supermarket
past a reader that would tote up her purchases, charge her credit line, deduct the
items from inventory and hand her a receipt -- and then disable the tracking
devices. That is one type of convenience (Markman, 2003).

Additionally, prior to ICT, information collection is of little concern because of

the primitive data collection technology available. But now, with rapid
development in ICT, personalization of an identifiable scattered data is made
possible. Moreover, the standardized and universal connection of internet
enabled data acquisition and dissemination is conducted in a centralized place
that is readily accessible by anyone.

Privacy and Security Issues

Privacy is defined as the claim of an individual to determine what information

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The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

about himself or herself should be known to others (Henley Centre, 2005; Westin
(2005); Solove, 2002) The privacy threat comes when RFID tags remain active
once you leave a store. That is the scenario that should raise alarms--and
currently the RFID industry seems to be giving mixed signals about whether the
tags will be disabled or left enabled by default (Markman, 2003)

In more privacy detailed concerns, RFID has the potential to threaten consumers
in numerous ways, namely through intrusion on their privacy – either physical
or informational – and security. Informational privacy refers to the right of an
individual to retain control over the collection and use of personally identifiable
facts and information about their daily lives. Unregulated use of RFID may cause
aggregation of personal information and product purchase information (Jones et.
all, 2005). If the unique product information on an RFID tag is linked to
personally identifiable customer information, such as a store or credit card
number, which may in turn hold or offer access to further personal data,
including address, income and credit rating for example, then this allows the
retailer to build up detailed profiles of their customers and of their browsing as
well as their purchasing behaviours.

This would allow retailers to initiate individual telephone based target

marketing of customers who had not even been purchasing particular items.
Retailers could also use these profiles to make inferential assumptions not only
about a customer’s buying habits but also his/her health, lifestyle and travel. The
widespread network of RFID receivers could be constantly observing, processing
and evaluating consumers’ behaviour and thus rapidly eroding an individual’s
freedom to enjoy their lifestyle in anonymity.

The linking of personal identification data with a unique product code would
also mean that individuals could not only be profiled but also physically tracked

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The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

without their knowledge or consent, which is referred as physical privacy issues.

As predicted by Albrecht (2002), the ability of RFID to track physical item
whereabouts, combined with internet as a “world mainframe of information”
generates the possibility of what is called data reidentification. Data
reidentification can allow retailers’ marketers to re-attach names and addresses
to “anonymous” records – even after all identifying information (e.g birth date or
ZIP code) are removed. For example, using ZIP code combining with a given
name can locate the specific information where the person live.

Though consumers are voluntarily giving their personal information by RFID

tag, the current developments still identify the security issue in the technology.
RFID tags can be manipulated easily by hackers, shoplifters, or disgruntled
employees (Claburn and Hulme, 2004). This can create another problem
particularly in relation to crime. There is a chance one’s stored personal
information is misused and as if this person is committing a crime.

As consequence, grass-root movements and libertarians are now just down the
road to protest RFID use in retailing and demanding RFID to be used within
supply chain only. In September 2003, Liberty, the UK’s leading human rights
and civil liberties organisation, launched a campaign against retailers that
employ RFID technology (Jones, et all, 2005). Consumers Against Supermarket
Privacy Invasion and Numbering (CASPIAN) leaders, one of the grass root most
community that is most vocal on battling RFID, produce a book titled “Spychips:
How Major Corporations and Government Plan to Track Your Every Move with
RFID” (see spychips.com). In 2005 at New Hampshire and Texas, protest took
place to protest Wal-Mart's use of RFID. They are still moving on with primary
source of fund comes from donation (see motherjones.com and nocards.org). The
counter attack by these grass roots portrays the counterhegemonic that employs
internet as tools to express opinion freely though domination is still under

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The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

commercial retailers.

It is appealing to recognize that conflicts identified in this paper, mostly take

place at the commercial point (retail) rather than indirect supply, manufacturing,
distribution, and logistics. It shows that because retailers – the final stage of
producer side of supply-chain – are those who interface immediately with buyers
as consumer side entire products. Therefore, every retailer’s movement that may
potentially harmful on consumer is by all means sensitive.

Though it seems there is no direct connection to valuation of retail products

quality (the product will still be the same) as suggested by Akerlof (1970), yet the
tension driven by opposite views of RFID innovation establishes “trust issue” in
longer term. Consumers perceive retailers of doing unethical opportunistic
behaviour by entering their privacy territory. Consequently, it augments
uncertainty and in return, distorts the quality of the perceived value of products
by consumers.

Individuals are not always aware, however, that their privacy might be at risk
when the technologies they encounter on an everyday basis, or those they choose
to own, are used in ways other than those first anticipated. Trust becomes critical
to individual willingness to engage with retailers, and it will decline when the
companies lose public confidence (Henley Centre, 2005). Relating this
phenomenon to what is proposed by Wijnberg and Gemser (2000), selector
system may not change much in verifying retailers’ products that are essentially
the same. Nevertheless, selection system in determining quality of retailers’
products are now shifting beyond the product itself but also how safe,
convenient, and private does the product is perceived. The use of non profit
organization such as grass-root communities that concerns on specific matters
provides an ‘expertise’ system that helps consumers in deciding quality of

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The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

product.

Strategy
Society should be able to get the balance to provide adequate privacy protection
without unjustifiably harming economic efficiency and business needs. The
development and introduction of RFID must be guided by a strong set of fair
information principles. Range of strategies may be conducted to address the
privacy and commercial problem. First, given the tremendous potential for harm
to society, the use of RFID technology should be legally regulated. CASPIAN in
this context has contributed the legal input entitled “Position Statement on the
Use of RFID on Consumer Products “(CASPIA, 2003). Second, requiring major
retailers employing RFID to notify buyers about RFID tabs are being used. Such
tags should be clearly visible and readily removable. Third, RFID tags should be
automatically disabled at checkout unless the consumer expressly opts to keep
the tag enabled. Fourth, since consumers need to feel they have control over the
RFID infrastructure before they routinely trust its services, educating consumer
of Privacy Enhancing Technology should be intensified (Günther and
Spiekermann, 2005). Fifth, governmental authorities should be required to obtain
a court order in order to be able to access RFID tags.

Conclusion and Recommendation

RFID technology is now in the early stage of adoption among retailers. It is
found that hegemonic discourse exists as dominant party that attempts to obtain
its profit goals. As RFID is regarded of being beneficial which outweighs other
cost considerations, conflicts arises between major retailers and consumers that
fall under two categories, business orientation and privacy violation.

The discourse between hegemonic and counterhegemonic also demonstrates the

use rhetorical management of meaning by major retailer group to alter the

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The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

understanding of consumers toward RFID. The use of power though effective in

absence of legal foundation, in longer term provides harmful for the producers
since trust issues emerges and impact to the increase of uncertainty level of a
given product.

As the economic benefits become evident and the price of the technology
continues to decline, usage will undoubtedly rapidly expand among retailers. As
noted previously, retailers have always collected information on their customers.
Existing public policy permits commercial enterprises to collect information on
consumers with few restrictions. Once RFID tags are deployed on a widespread
basis in consumer goods, it will be virtually impossible for a consumer to “opt-
out” of using those goods. Therefore, there should be a balance between using
RFID as enabler of business need and protecting privacy of consumer’s life and
information, ranging from establishing regulation to protect privacy up to letting
consumer to choose provided privacy requirements are satisfied.

This paper has limits in a way that it focuses more on developed economies
practices. Another limit is discussion of the RFID if it is viewed from innovation
base theory. Therefore, addressing the two areas are open for further research
and discussion.

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The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

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See Reference
CASPIAN - Consumers Against Supermarket Privacy Invasion and Numbering

Hamzah Ritchi 14