Optical Distorition Case

...

capacity it is better to target a smaller number of higher return customers, the large farms, than to dilute its efforts with medium sized egg producers.

Sales efforts should target selling the savings from reduced chicken mortality and feed costs with no significant differential in labor cost to adopt lenses versus debeaking birds (See Figure A below). In other words, the sales efforts should focus on laying out the competitive superiority of the ODI Lens over the current debeaking practice.

Large farms are likely to be more attracted to the cost savings than small and medium size farms as they stand to gain more from margin improvement (they operate at tight margins and profit on volumes). Large Farms will also ascribe some un-quantifiable value to the ethical superiority of the ODI Lens over debeaking as it is larger farms that are more concerned about public image and their relationships with animal rights activists.

Positioning: For egg producers seeking a more ethical and profitable alternative to debeaking, Optical Distortion Inc is the only company offering the ODI Lens, a vision modifying contact lenses that reduces mortality due to cannibalization from 25.0% to 4.5% a year – a savings of $0.11 a bird. While debeaking is responsible for increased bird trauma and feed costs, the ODI Lens has also been shown to save egg producers $0.22 cents a bird in feed savings each year. Experience the benefits of applying this new, low-cost technology to your laying stock.

Product: The ODI lens represents a revolutionary new application of contact lens technology to non-humans. It is fabricated from a thin hydrophilic polymer lens (same material used in humans) that fits over the eyes of chickens with distortion built into the crown of the lens, “a bird wearing the ODI lens had its depth perception reduced to about 12” and its visual acuity greatly reduced through an induced case of astigmatism” (Clarke, 2009). The lenses are also colored red which has been shown to further reduce chicken aggression.

Price: In determining a strategically effective price for a pair of ODI Lenses, one must first determine the theoretically minimum and maximum price for a single pair of lenses. As was shown in Figure A above, the theoretically maximum price that a customer would be willing to pay for a pair of lenses is $0.37 cents (at $0.38 cents the customer would be indifferent). Under the projected volumes and fixed / variable cost structure featured in Exhibit A (sourced from the case and a Bass Diffusion model) one can also project the minimally profitable price ODI could charge. The true EBITDA breakeven price is $0.162 cents per pair of lenses – or $0.17 per pair assuming whole numbers will be used as a minimally profitable price for a pair of lenses.

Within the range of $0.17 to $0.37 ODI should not expect to capture all (or even a majority) of the maximum EVC allowable price as the product is new and completely unproven to customers. ODI could charge near $0.17 if it wished to pursue a price penetration strategy but the weaknesses of the Company, particularly its capital constraints, limit its ability to support rapidly expanding market share / volumes. Moreover, ODI’s real needs dictate that it should focus more on maximizing cash flow for reinvestment in legal defense of its patents (and expanded corporate infrastructure). For the purposes of this analysis, the Company should price the product at $0.27 – the halfway mark between $0.17 and $.037. This “price skimming” approach is meant to maximize contribution in the early years so as to generate the excess cash necessary to scale and defend its operations. (See Exhibits A and B for the projected volumes sold and P&L at the assumed price point).

Promotion: The Company should engage in a phased roll out by region and should focus its initial sales and promotions efforts in the regions with the highest chicken farming concentration – California, Georgia and North Carolina (25% of US chickens; Clarke, 2009). The Company believes that one salesperson per 80 farms and one technical representative per 5 salespersons is the maximum effectiveness of its human resources and this has been assumed for modeling purposes. Direct sales force efforts with the key decision makers at the egg producers is likely to be the most impactful promotion effort the Company can engage in. Direct sales force efforts will be supported by monthly advertising of the cost savings and ethical superiority of the product in trade publications and at industry shows – but these will play a true support role to the efforts of the sales force. In the advertising efforts mentioned above it will be important to portray debeaking as an antiquated and crude practice when compared to the technologically superior benefits of the ODI lenses. This will make the ethical and cost savings advantages of the ODI lenses more believable.

Place (distribution): The product will be sold through a mobile sales force that will sell directly to the key decision makers at customer farms. There is no evidence of any distributors or agricultural stores that can be leveraged in this space, and given the need for trained technicians to facilitate the installation of the contact lenses, it seems that a direct sales and support model is the path forward.

Exhibits