Vivek Sinha

Optical Distortion Case Writeup

Optical Lens is an innovative new technology but at the same time very radical. The success of technology will depend on the following factors: 1. How the product is priced to make business sense for farmers 2. How easy it will be for farm houses to adopt 3. How fast and efficiently they cover the market to keep away future competitors

Pricing Let us first look at cost based pricing. Based on the analysis in Table 1, it costs 5.92 cents/lens. This includes the cost that the business must recover for each unit sold to break even. The lowest the lens can be priced at is 3.44 cents/lens to recover the variable costs alone.

ST BASED PRI ING Targe marke i ze - alif rnia No of farms 201 No of chicken 30412227 Lifetime of chicken 2 years No of chicken / year 15206113.5 (a ctu a l No of salesmen 3 No of tech people 1

196000 dollars 120000 35000 0 351000 per year

ariable Cost/lens Fixed costs/lens Total cost/lens

3.61 cents/lens 2.31 5.92 cents/lens

Table-1

Now let us look at what the technology is worth to the farmers in order to calculate what they would be willing to pay for this new technology. The calculation is shown in Table 2 and it gives a value of 39 cents. However, this does not take into account the switching costs that the farmers would be facing. This include the cost of testing the technology, the time and effort spent in adopting and learning the new technology or cost of failure, if any. Taking these into account, the value derived by the farmers would be lower than 39 cents.

Patent cost Injection machine cost Production cost Unit manufactuing cost

ARIABLE C

T 0.164408 cents/lens 0.08 cents/lens 3.2 cents/lens 3.44 cents/lens

No of lens in each box Cost of platic box filling cost rder processing-shipping Boxing-shipping cost/lens

FIXED C T Total projected annual cost alesman cost Tech rep Advertising T al c r ra e and admin c

a n n u a l m a rk e t)

250 10 cents ea 14 cents ea 18 cents ea 0.168

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Table-2 Based on the above calculations, it can be said that the price of cents/pair is good introductory price. Over time, once the farmers have recovered the switching costs, then the prices can be increased to reflect the value the farmers are deriving from the lens. Ease of a option espite the benefits offered by the technology in terms of ease of operation as well as cost savings, there are other factors that can hinder the adoption of the technology. Some of them are:
  

1. It is a new technology and most of the effect is studied by the company and not e perienced by the masses. Given such a start, the adoption can be slow. lso, this is still an idea that many farmers may not just believe in to give it a first shot. 2. The farmers may not be in a position to make the increased upfront investment for the new technology. This can be either driver by reluctance to make the investment without confirmed benefits or because of their own financial position or cash flow problems. 3. There is always an inertia to move from a known business practice to a new one O I can minimize the risks by offering price promotion or certain form for guarantee in the beginning to ease adoption of technology and address the above mentioned concerns.
 

Mar eting & trategy Given the limited resources with O I, they need a more targeted sales plan where they start with alifornia, which is the largest market. Over time they can e pand to other markets. lso, since they have a limited sales force, they should target large farm houses. Larger farm houses are easier to educate and better managed. Therefore, they may be more willing to give the technology a trial and then later adopt it completely. The savings would be greater for them and once proven successful and adopted, they can act as a good sales point to sell to smaller farm houses.
    

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