Optical Distortion
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Optical Distortion Case
Introduction
Optical Distortion Inc. is a small new company, not yet in business, with a cash asset of $200,000 and a patent for an innovative new product (the only one) which is a contact lens designed to impair the eyesight of chickens. . These lenses are used instead of debeaking. Lensed chickens are more likely to survive. They also eat more efficiently than debeaked chickens. The key issue facing ODI is “How to market these lenses?”. The analysis in this paper provides recommendations for ODI on their marketing and pricing strategy to launch this new product.
Strengths include highly innovative product (main competitive advantages over debeaking arriving into savings from reduced cannibalization, trauma elimination, better feed efficiency, no weight loss and no reduction in egg production, a little bit less costs then debeaking for lense installation), tested with good results for couple of months in California and Oregon farms, without retention problems, trust from venture capital markets, patent and license protection for three years (which keep potential competition far), time plan (introduce in at least one region during Spring 1975 and national distribution by the end of 1997 latest), long-term license from New World Plastic for the exclusive use of hydrophilic polymer for nonhuman applications, marketing strategy (additional service – technical to follow up sales, to make sure that lenses are being used in such a way to maximize benefits to the farmer, sales force ÐŽV one person for 80 farms and one technical representative for each five salesperson, price – $0.08 $/chicken as incremental cost for farmer; benefits should be explained to farmers; they have two principles in mind not to start with a low cost, expansion to four to five regional offices in two-three years, advertising ÐŽV monthly in the eight leading poultry industry publications, investment in R&D ÐŽV to become a multi-product company, be ready to fight being a multiproduct, multimarket company, providing service anywhere in the country with competition (large agricultural supply firms) which will catch up by the late 1970s.
Weaknesses for ODI chicken lenses include limited market with a very slow increase, spread all over US, need for regional offices, big specialized sales force and technicals available all over US, potential increase of lenses, injection molds, shipping, boxes costs, advertising (more than forecasted), risk of R&D failure in developing new products, inertia of farmers, their capacity to understand advantages and to purchase ODI product. Product cannot be reused.
Opportunities include huge market, no competition for at least three years, potential huge margin, good marketing strategy.
Threats include farmers reluctance, competition, non-adequate pricing strategy, low trained salesforce and technicals, higher costs then forecasted.
Market Segmentation
There is substantial evidence in the case to suggest that ODI should segment the market based on flock size of the farms (small farms, medium farms, large farms with a clear tendency for concentration) and focus their marketing and sales strategy towards farms with more than 10,000 birds. As illustrated in Exhibit 4 of the case study, number of chicken farms with flock size less than 10,000 has vastly shrunk between 1964 and 1969. This trend has continued and it is estimated that between 1975 and 1979, 80% of the chicken population would be on farms (3%) with 10,000 or more birds. With limited resources and sales personnel it makes sense for ODI to characterize their served available market (SAM) as medium and large farms only and not focus on small farms at all.
Besides, Small farms have smaller henhouses and cannibalism in birds may not be a real concern for these farmers. The production loss because of cannibalism may not be large enough to make ODIÐŽ¦s product appealing to these customers. Also, Garrison believes that a farm would have to have at least 10,000 birds to be sold profitably by ODI. With these arguments and the fact that small farms market segment has been declining at a rate of 25% every year, ODI can wisely exclude this segment from their marketing focus.
Geographically, ODI should focus on the Pacific region, starting with California and Oregon because thatÐŽ¦s where ODIÐŽ¦s lens has been tested on a number of farms with satisfactory results. Acquiring 20 farms in just two Southern California counties can give them an impressive start with a market penetration rate of 7% in the first year. As they acquire farms in California, ODI should extend their operations to North Carolina and Georgia which along with California account for 25% of the nationÐŽ¦s chickens. Eventually ODI should spread their regional offices to serve chicken farmers all over the country.
ODI Managers believe direct sales to chicken farms are the best answer. Salesforce will promote the product targeting first ÐŽ§opinion leadersÐŽÐ from farms with more than 10,000 chickens, who tend to be somewhat less quick to adopt, but are more likely followed by others. One strategy for ODI is to identify the farmers who are perceived as opinion leaders.
Value to Farmers
Contact lenses from ODI restrict the vision for the birds which completely changes their behavior. This method of reducing cannibalization is much more effective than debeaking and has huge economic benefits for the farmers. The benefits for ODI lens are:
Reduced cannibalization (4.5%) as compared to debeaking (9%);
Greater feeding efficiency ÐŽV A farmer with 20000 bird flock could save 156 pounds of feed per day which amounts to a saving of $4500/year;
Unlike debeaking, contact lenses from ODI do not cause any trauma in the birds;
Debeaking causes greater social stress because establishment of peck order takes longer among debeaked birds;
No weight loss and no reduction in egg production;
A little bit less costs then debeaking for lense installation.
As explained in Appendix A, ODIÐŽ¦s contact lenses, when compared with debeaking, provide an estimated cost savings of approximately $94 for every 250 birds ($0.38 per chicken = maximum value for a lenses pair).
Pricing Policy