The Privacy Challenges And Strategies In Retailing Industry On Rfid Implementation.

T H E PRI V ACY CH ALLEN GES AN D ST RAT EGI ES I N
RET AI LI N G I N DU ST RY ON RFI D I M PLEM EN T AT I ON

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

T

his paper aims to investigate privacy challenges faced by producers and consumers in retailing industry
as a result from recent changes in acquiring and disseminating information by RFID. The technology
is now in early stage of adoption among retailers, promising potential benefit for retailer particularly

in efficiency enhancement and cost reduction. Though it 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 interact directly to consumer. As analysis
steps further, it was found that there is a discourse between hegemonic and counterhegemonic in demonstrating
the use rhetorical management of meaning by major retailer group to alter the understanding of consumers
concerning RFID. Additionally, the use of power, though effective in absence of legal foundation, in longer
term provides harmful for producers since trust issues emerge and affect to increase of uncertainty level of a
given product.
Information society should be able to get a 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, an
investigation that is deemed more extensive 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 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 a more supply visibility to track the physical product flow of
their goods from the moment their manufacturer partners ship the goods to the receiving.
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,

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
is regarded to pose 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.

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Hamzah Ritchi The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

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 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 reducing costs. 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
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.

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The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

Discussions
Business Interest Issues
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)
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 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 welldesigned 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

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Hamzah Ritchi The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

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 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 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.

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The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

Though consumers are voluntarily giving their personal information by RFID tag, the
current developments still identify 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 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 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
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Hamzah Ritchi The Privacy Challenges and Strategies in Retailing Industry on RFID Implementation

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 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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See Reference
CASPIAN - Consumers Against Supermarket Privacy Invasion and Numbering

9