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Aiste Slenyte UPF MSc

Management – Marketing
Giampaolo Viglia November 3rd,
2010
Francisco Vargas Vaz Garcia
Kashif 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

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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.
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

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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.

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 hen


Birth mortality 4.5% 0,102
Food laying trauma per
bird 0,0078 0,204037641
1 more egg per
Egg laying trauma chicken 0,044166667
Total 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.

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 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 ASSUMPTIONS
Following 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.
 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 ALLOCATION


This 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

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First Two Years
From 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 Uncont. Trial Adopt Reject


farms

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

Ending state

Medium Uncont. Trial Adopt Reject


farms

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 Uncont. Trial Adopt Reject


farms

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

3rd 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

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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.

4th 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.

5th 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.

OTHER IMPORTANT TOOLS

Complexity
The 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.

Compatibility
Debeaking 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.

Communicability
It 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.

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Divisibility
The 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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