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Research, Case

Optic Distortion, Inc. HBS Case Study 9-575-072 Promoting Management MKT 6301. 002 – Fall season 2012 Associates Young very Han Kevin Yang The author Chi Lenny Liao Mike Standridge Since 1974 the chicken human population in the US is already in excess of 500 million chickens, with sluggish but steady growth expected through 1980.

Given that fact that a great many of the birds are in tight quarters on very large chicken facilities, a means of combating the chicken’s normal instinct to peck various other chickens should be used. Pecking can in fact lead to large mortality rates in flocks (cannibalization), which often raises the expense of farming.

Debeaking have been used for time with great outcomes, but it possesses its own set of downsides. The contact lens developed by Optical Distortions, Incorporation. (ODI) holds the promise of lowering the menace caused by pecking, without a few of the issues connected with debeaking. The actual advantages of these lenses will probably be discussed in the following statement, as will certainly a plan to get marketing the brand new product. Simply by permanently applying a pair of eyesight distorting improved lenses into the eye of an egg-laying hen, research have shown that cannibalization may be reduced from 9% to 4. %. Moreover, nourish loss as a result of “billing” is definitely substantially reduced relative to debeaked birds, enabling much greater effectiveness in give food to consumption (less waste). Finally, given that contact lens insertion will not inflict similar trauma that debeaking truly does, egg development is not really adversely damaged. Given these advantages, it really is expected that farmers can increase their benefit from egg product sales by more than one-third (37%) simply by using the use of the ODI lenses (Exhibit 1).

Even though the potential effects of the ODI lenses is usually substantial, there are several important presumptions underlying the anticipated value to maqui berry farmers. For example , one of the greatest financial profits could be inside the reduction in feed waste, and so the assumption that hens with lenses will “bill” much less is critical. Check results show that go mortality can be cut in half relative to debeaking, so another important assumption is that these good success can be copied consistently during a call.

Despite their disadvantages, debeaking is a practice which is familiar to chicken farmers, plus the labor and cost linked to debeaking a flock is reasonably well known. It is assumed that a crew of individuals conditioned to perform the lens insert could method approximately several chickens in an hour because they would in the event debeaking had been done rather. This would maintain the cost of insertion on equiparable with debeaking and might thus reduce the concerns of the farmer. Associated with this is the assumption that a farmer’s own employees could be easily trained in the ability of lens attachment.

Should this kind of turn out to not be the truth, it could show nearly impossible for the large number of contacts to be used – a tiny team basically could not address the a lot of chickens which usually would need to end up being targeted. If perhaps millions of contacts cannot be bought from the first year of business, ODI would find it hard to survive against bigger competition who happen to be waiting to enter the market. This is certainly thus the of potentially high-risk which needs to be addressed because early inside the product introduction phase as is feasible.

Bound in the presumptions listed above is the underlying presumption that all birds will act in response in more or perhaps less not much different from the way to the lenses. There are a number of things which could enable ODI’s contact lens technology to quickly enter the market. Probably the most important is definitely the potential for maqui berry farmers to experience a significant profit enhance (&gt, thirty percent increase) through lower operating costs. Chicken farming is very price sensitive due to its low profit margin (roughly 6% profit on the dozen ovum from a debeaked bird).

Use of contacts could enable this perimeter to increase to 8% or maybe more (Exhibit 1), promoting this kind of possibility ought to entice a large number of farmers to give the lenses an attempt. Another key to quick marketplace penetration is a achievement of 1 or two obvious success stories. Given its really small size, ODI needs to concentrate its limited resources in product intro at one or two large farms, continuing the focus there before the farmer/owner can be pleased with the results. The farmer’s future endorsement in the lens approach would in that case be important in creating interest from potential customers.

As a means of appealing to the contribution of the former or two trial farms, ODI could offer totally free lenses for as much as 1000 chickens, including attachment labor. It should be noted that transmission of the marketplace can only arise if ODI can source product in sufficient amounts. Given that you will find millions of birds to be serviced, it is imperative that ODI’s supplier be ready to likewise source millions of lenses on a steady basis. The simple fact that ODI is destined by deal to a one lens distributor is on its own a risk which must be analyzed.

By a business continuity perspective, it would be preferable in the event ODI may obtain it is lenses coming from two distinct New World Materials plants. This may then reduce the risk to some extent should generally there be, as an example, a serious item quality issue at one of many facilities. As regards target segment, it would seem which the focus should be initially upon farms using a flock scale 50, 000 and over, due to the fact that this would limit the over head (fixed costs) needed to services these accounts (fewer product sales and specialized experts required).

Also, by simply focusing on huge farms, the sales team can interface with the farms straight, and there would be no need for a “middle man” to be involved with product distribution. Avoiding this intermediary will help keep costs down. Given the denseness of large facilities in Washington dc (flock scale 50, 000 or greater), it seems advisable not only to execute the initial product introduction presently there but to concentrate the entire 1st year of business through this single Western Coast point out. The 1st year’s prepared production volume level is approximately 20 million, basically the same as California’s chicken human population.

Success in this region could after force facilities in other says to put into action the zoom lens simply as a method of staying competitive. Rather than counting on word of mouth only, ODI could promote their lens technology by playing both sector trade shows and advertising in the leading fowl industry magazines. Moreover, it is additionally possible that California’s Department of Agriculture may become a friend in promotion of lens as a feasible alternative to debeaking. It is suggested that lenses be bought at a price of $0. 09 per couple, which would in turn give a profit per pair of $0. 026 (see Exhibit 2).

Though the lens appear to possess a value towards the farmer much larger than being unfaithful cents, to get price inside the “single digits” has a effective psychological effect and could help foster the perception that they can be a good value. Moreover, in case the price grows much further than this, the merchandise will certainly be less attractive to farmers who might already be anxious about using a new technology. Given a volume of 20 million units, a price of $0. 09/pair would produce an annual earnings of $520, 000. This sum might easily enable $250, 1000 to be aimed future R, D (so the company can become more than a one-product company).

Additionally, there would be more than a quarter of a million dollars remaining to finance rapid expansion the following season (to develop a new regional office, pertaining to example). Demonstrate 1 – Monetary Value of ODI Contacts to Farmers As regards putting a monetary value on the lenses, this is estimated as follows: a. ($2. 50/hr*3 workers)/225 birds = $0. 033 (cost of inserting a set of lenses in one chicken) This is certainly essentially the same cost involved with debeaking a bird, that is why it will not need to be taken into mind when considering the key benefits of lenses relative to debeaking.. Proposed cost of lens to farmer: $0. 09 per pair c. ($2. 40*0. 045) = $0. 108 every chicken (savings in portion for changing dead chicken breast, relative to debeaked flock reduction in flock fatality from 9% to some. 5%) g. ($158 as well as ton)(ton as well as 2000 lb)(156 lb each day / 20, 000 chickens) (365 days) = $0. 225 per chicken (annual savings in feed assumes elimination of feed reduction due to billing) e. Let’s see how b. and c. above lead to cost of development for a dozens of eggs (assuming a chicken produces twenty two dozen eggs per year): ($0. 108 + $0. 225 , $0. 09)/22 = $0. 11 per dozen ova Thus, the fee to produce a dozens of eggs could drop coming from $0. 55 (for a debeaked bird) to $0. 489, and a farmer’s profit per dozen ova increases by $0. goal for a debeaked flock for an estimated $0. 041 (assuming a value of $0. 53). Therefore a farmer’s profit could increase simply by approximately 37% if the lenses were used throughout the flock. Exhibit a couple of – Charges Considerations for any Pair of Lens Fixed Costs 1) Hq: $184, 000 annually (for volume of twenty million pair) 2) Regional Office and Warehouse: $196, 000 yearly 3) Advertising in Trade Publications: $100, 000 yearly ) Contribution in Industry Trade Shows: $100, 000 yearly 5) Costs of Molds: $12, 1000 x a few = $36, 000 (3 molds happen to be needed to create 21, six-hundred, 000 set annually) 6) Licensing Contract with New World Plastics: $25, 000 (per year, should be paid for first and next year of production) Varying Costs $0. 032 per pair of lenses (cost to purchase from producer, New World Plastics) So , in the first year of development, if 20, 000, 500 pairs of lenses are offered, the TOTAL PRICE would be: [($184, 000 + $196, 000 & $100, 000 + hundred buck, 000 & $36, 000 + $25, 000)/20, 500, 000] + $0. 032 = $0. 064 per match