Aiste Slenyte UPF MSc Management – MarketingGiampaolo Viglia November 3rd, 2010Francisco Vargas Vaz GarciaKashif Khan

CASE:

OPTICAL DISTORTION, INC.

1. Attributes/characteristics of the Optical Distortion, Inc. contact lenses.

Appealing attributes

The already on the market product/ service - debeaking of hens – causes considerable trauma to chickens resulting in weight loss and retardation of egg-production. There is a greater social stress due to a longer maturity process.

Therefore, one of the main positive characteristics of the ODI’s contact lenses is the reduction in mortality due to cannibalism among chickens. This is the first product to confront the cannibalism. By reducing chickens’ depth perception to about 12” and having a red tint, lenses alter the behavior of birds. The interference in the formation of pecking order/hierarchy (during 8th-10th week of age) eliminates violence and aggressiveness, hence reducing mortality to 4,5% when the lenses are used, in comparison to the 9% when debeaked.

Another attribute of the lenses that is going to be appealing to farmers is decrease in egg-production loss, existing due to considerable trauma to the birds when/after debeaking is done. Since debeaking causes at least a week in retardation of egg-production (productivity slightly decreases), not only farmers – especially those of medium and large farms – experience loss in their annual revenue, but also it creates a greater social stress to the birds due to the establishment of pecking order and hierarchy. Moreover, the quality of birds’ lives is better: they are not that affected and traumatized.

The third positive characteristic is monetary savings for the farmers. Small to large farms can save on feed expenses. Especially medium and large farmers could benefit from using the lenses, because the ability to reduce the depth of the troughs from 2” to 1” would calculate to 156 pounds of feed per day saved (for every 20,000 birds). While a debeaked chicken could eat only from a deeper trough. Smaller amount of feed needed could represent considerable savings annually, especially for larger farms/large flocks. A hen also doesn’t bill much, therefore doesn’t throw feed out of the trough, she doesn’t drool into the feed (like she does after debeaking) neither. Savings would come also from replace less dead chicken, and higher productivity of hens. These advantages of the product can be taken especially by medium and large farms and made into big savings, and greater revenues afterall.

Medium to large farmers should be appealed by a fast process of installing the lenses: it’s even faster than debeaking (225 contact lenses per hour, comparable to 220 debeaked birds per hour). It is also a product that can be tried on a small fraction of the flock/population of chickens – therefore making sure the lenses work well. This might be especially appealing for a farmer of large farms –less risk in the beginning without trying it on a smaller sample.

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Unappealing attributes of ODI contact lenses

First, unappealing characteristic might be a higher price that ODI is going to charge, in the beginning. Before getting to know the positive attributes and huge opportunity to save money, the higher pricing might get a bad first impression for a farmer who is most likely not that prone for changes. Also, an unappealing characteristic might be a history of problems that arose while developing the lenses. Even though retention and irritation problems were solved, farmers need to know and see the positive effects and efficiency of it now. Direct sales and a good word of mouth will be needed to spread correct and newest information to the farmers. ODI salespeople will have to inform and convince them to try out the new product developed. The concept and positive effects of lenses to chickens’ life and farmers’ revenue might be difficult to grasp for a farmer who is less educated and more used to his good old way to do farming. However, medium and large farmers, who usually have high business and agricultural skills, should not hesitate to try a new technology (the product developed) as soon as they learn all the qualities/positive effects of it.

Medium and large farms probably already were paying a service company to get the debeaking done, therefore for them it should not be too big of a change to pay for technical representatives. The process is even faster and less brutal most likely. However, to a smaller farmer, this might be too difficult, if he/she is used to get debeaking done by him/her personally.

2. Geographic areas and additional market segments that in the company should focus its efforts towards to. Short- and long-term.

The first place where we can concentrate our effort are the California and Oregon market. This way of conducting our business relies on the fact that we need to create a wider support in a restricted area where we are able to concentrate our sources. In addition, if we focus only on these markets during the first year, we can use only a 5% of the total budget if we use a low strategy and a 30% with a fast strategy for advertising. These lands are also the place where such a product was tested successfully and where our main offices and headquarters are located.

After the first year, however, we have also to invest in other markets, because we have patents only for a limited amount of years, therefore we need to be present in those regions before competitors are able to be there. We can enter after the first year in Washington and West North/Sud Central. The additional market size in those regions is composed by 40752930 chickens that is substantially the same amount of California and Oregon (41421605)

Our market target are medium and large farms, in small farm it’s difficult to convince farmers how are addicted to traditional techniques. Moreover, small farms are a decreasing business. The number of such farms has been declining in recent years, at a rate of ~25% per year.

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3. Pricing policy the ODI should adopt.

We think that ODI should adopt a slow-skimming strategy due to the characteristics of the customer (medium to high farmers sensible to cost savings) and of the product (introduction phase, debeaking in mature/decline phase), with this strategy the company aims to build market share quickly among big producers. We estimate savings of 35 cent per hen (see spreadsheet) so we recommend a price of 20 cent per pair, which will transfer a lot of value to the customer and allow the producer to capture a good margin (12 cent higher than the minimum). The largest concern should be the awareness of farmers of the cost savings allowed by the lens, this is the key to convince farmers to swith to ODI. Sales people efforts should be made on hen suppliers and directly on medium/large farmers. The breakeven point with this price is 3803828 which accounts to 9,5% of the chicken population in California (see spreadsheet in attachment).

This margin will allow the company to be profitable and generate the cash that it needs.

Saving per henBirth mortality 4.5% 0,102Food laying trauma per bird 0,0078 0,204037641Egg laying trauma 1 more egg per chicken 0,044166667Total savings 0,350204308

4. Marketing efforts and promotional activities that would be the best for the company in the introduction period.

First, we would like to examine the buying behavior of ODI Lenses. It will provide the bird’s eye view of how poultry industry regulated.

BUYING BEHAVIOR OF ODI LENSES Who is the buyer? The owners of chicken farms. What is the buyers’ requirement? ODI contact lens for chickens. When will the buyer need the product? When chickens are about 8 to 10 weeks

of age. It is at this time that a complete pecking order is established. Why will the customer buy? To reduce the chickens’ vision and hence

cannibalism and feed cost. Where will the customer buy? The buyer will get them through ODI's salesperson

with technical representatives to make sure that lenses are being used in such a way to maximize benefits to the farmer.

UNDERLYING ASSUMPTIONSFollowing are few basic assumptions which help to formulate effective marketing strategy

to achieve the desired result; The target population of chickens per quarter is about 10 million growing at 1% a

year.

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The unit price is set to 35 cents with 1 regional office and a total of 582 target farms (20.000 chickens or more each).

At the end of the second year we have a cash balance of $2.174.854. We use this cash flow to finance our expansion in North Carolina and Georgia

before going national.

PROPOSED MARKETING EFFORTS Marketing zones (Regional - National). During the inception stages ODI should start their marketing from the California

region and later expand to North Carolina and Georgia and then all U.S. Targeted Farms (Medium & Large), as medium farms are a better arena to

launch the product in the initial stages so that it’s easy to penetrate the market rather than target larger farms due to their adoption scales.

SALES FORCE ALLOCATIONThis utmost important tool for ODI to reach to its target audience, we decide to cover only

California farms with 20.000 or more chickens each (582 farms) we need 8 salespeople (582/80 rounded up) that cover about 73 farms each and 2 technical representatives (1 for 5 salespeople). For this we need only a regional office and warehouse without headquarters before reaching 20 million pairs in sales. The sales force effort should be directed towards the most efficient medium farms at first and then the large farms because large farms prefer professional and experienced suppliers with efficient supply capacity. We need to do field trials on medium firms and construct a strong database as a proof to farmers. We should count on direct marketing without advertising, at first, since the product has to be well explained to farmers and tested by them.

PLAN OF ACTION SPREAD TO FIRST 5 YEARS

First Two YearsFrom the beginning of the second year we increase our investment in advertising and trade

shows to $40.000 a year from $15.000 a year invested before. For the first 2 years the salespeople were advised not to cover more than 60 farms each, which would increase the adoption probability in the transition matrix of visited farms. Below you will see the transition matrix of sales force for visited farms:

Transition Matrix for Visited Farms

Ending state

Small farms Uncont. Trial Adopt Reject

Uncont. 0 0.4 0.2 0.4

Starting Trial 0 0.2 0.5 0.3

state Adopt 0 0 0.9 0.1

Reject 0 0 0 1

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Ending state

Medium farms Uncont. Trial Adopt Reject

Uncont. 0 0.3 0.2 0.5

Starting Trial 0 0.5 0.3 0.2

state Adopt 0 0 0.9 0.1

Reject 0 0 0 1

Ending state

Large farms Uncont. Trial Adopt Reject

Uncont. 0 0.5 0.2 0.3

Starting Trial 0 0.3 0.4 0.3

state Adopt 0 0 0.9 0.1

Reject 0 0 0 1

3 rd Year The company after becoming the market leader in the 3 major states expands to other

parts of U.S. It will then also set up a R&D lab with a high investment. It would be necessary to do this so to keep the market share through a new and innovative product. The price of the lenses would be reduced in this year to 18 cents to capture the small size and unprofessionally managed farms.

4 th Year Reinvent the product following changing trends and rising competition. Try to come up

with more products for the poultry industry. The investment in R&D department should start paying by now. The company would start making a shift towards a multiproduct company rather than a single product company. The company would start looking at new avenues in the poultry industry, like poultry management services.

5 th Year This year ODI should come out with new products in this year. Concentrate on launching

and marketing the new products for the next two years. By this time the R&D department should be booming with new innovative ideas. From this year the target of the company would be to come out with new products every 1.5 years. The lenses should be re-invented following the technological advances. Become the number one company in the poultry products and services industry in the U.S.

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OTHER IMPORTANT TOOLS

ComplexityThe concept of chickens using contact lenses might be difficult to grasp for a consumer

who is less educated and more stuck in his or her own ways. This is especially true for farmers owning small farms as compared to those owning large farms. This can only be reduced if ODI provides technical and marketing support to the farmers.

CompatibilityDebeaking crew needs to be re-trained (one-time cost). This is a small switching cost for

the farmers. But the idea of chickens using contact lenses is very incompatible to the existing way of life and beliefs of the farmers. Hence, ODI is compatible in the sense that the switching cost from debeaking to using ODI is less, but is also incompatible in the sense that it’s a bizarre idea for the farmers.

CommunicabilityIt is hard for a farmer to comprehend putting a pair of contact lenses into chicken will

improve their overall operation, therefore, large degree of work is needed to educate the farmers. Also, no amount of advertising would help here – personal selling needs to be done. Communicability also entails how observable the benefits are. The benefit of reduced cannibalism can only be observed after 1 year. The benefit of reduction in feed level can be observed in a month or so in large farms. But smaller farms would take around 6 months or so to fully observe the feed saving benefits. The benefit of reduced egg laying traumas can be observed in a week.

DivisibilityThe product is divisible in the sense that the farmer can try out the lenses on a small

fraction of the population of chickens. If the lenses work well for the small sample, then the farmer can buy the lenses for his/her entire stock.

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