Team 1 – Section C

Celine, Claudius, Marina, Mateo, Vikas, Yitao

Optical Distortion, Inc.(A)

1. What characteristics of the ODI lens are likely to make it appealing or unappealing to
different types of chicken farmers?
Appealing:
 Reduce the cannibalization:
 For ODI lenses, the flock mortality is reduced to an average of 4.5%. While the
purchase cost is $2.40 per hen, the total cost is 4.5% × $2.40=$0. 108. If
farmers chooses to use the debeaking method, the rate of cannibalization will be
as high as 9% which resulted the total cost of 9% × $2.40= $0.216. In general,
the ODI lenses can save the cost for chicken farmers.
 Reduce the feed costs:
 The food disappearance was reduced 0.78 pounds from 24.46 pounds to 23.68
pounds per 100 chickens. So the daily average can be saved per birds is
0.78/100=0.0078 Ibs and in a year the total pounds can be save is 0.0078 × 365=
2,847 Ibs. Since 1 Ibs=0,000453 ton, the saving food for each chicken annually is
2,847 × 0,000453= 0.00129 ton. At $158 per ton for chicken feed, this would
represent the annual savings costs equal to 0,00129 ton × $ 158/ton= $0,20382
per bird per year.
 Reduce the labour costs:
 For the ODI lens, a trained crew which included 3 people could install the lenses
in about 225 chickens per hour. Considering the cost of workers is $7, 5/ hour,
the labour cost on each bird is $7, 5/hour / 225 (birds/hour) = $0.033/bird.
By contrast, an experienced crew of three with the same salary could debeak 220
birds per hour. The labour cost on each bird is $7, 5/hour / 220(bird/hour)
=$ 0.034/bird.
In general, the ODI lenses can save the cost for chicken farmers.
 Elimination of debeaking trauma:
 In the debeaking operation, the birds were subjected to a considerable trauma
because of a short term weight loss and the retardation of egg production for at
least 1 week. But the insertion of the lenses would not result the weight loss or
reduction in egg production to the chicken, which means no loss for farmers.
Unappealing:
 Just as the debeaking the insertion also needs the professional teams to do the work,
which means the farmers should pay for the operation as well.
 It`s a totally new method for the chicken farmers, ODI wants to change the old
method means they should change farmers` habit.

2. Different bases for segmentation and what segments to focus on.

Team 1 – Section C
Celine, Claudius, Marina, Mateo, Vikas, Yitao

 South Atlantic has 22.63% of whole chicken population while Pacific region, including
California possesses 15.08%.
 In 1974, 80% of the laying hens in the USA were housed on 3% of the known chicken
farms. California, North Carolina and Georgia accounted for 25% of the nation`s
chickens.
 Regarding the size and number of chicken farms, South Atlantic accounted 30% farms in
the flock size 20,000-49,000 which is the highest in the USA. And Pacific Region
(including California) occupied the second position with 13.285.
In the flock size 50,000-99,000, South Atlantic also was in the first place with 26.62%
farms and Pacific Region ranked the second with 21%.
However, in the flock size 100,000 and over Pacific Region had the highest number of
farms with 33.33% and South Atlantic had 20.29%.

 Market size of South Atlantic:

Total number of farms= 860+168+70=1098
Penetration rate=50%
Market volume=Number of farms × Penetration rate= 1098×50%=549
Average Value= Potential sales of chickens/number of farms=
(24,221,265+10,085,341+12,065,486) ×$0.08/1098=$3378.66
Market size=Market volume×Average Value=549×$3378.66=$1,854,884.3

 Market size of Pacific Region:

Total number of farms=381+132+115=628
Penetration rate=50%
Market volume=Number of farms× Penetration rate=628× 50%=314
Average Value=Potential sales of chickens/number of farms=
(25,886,924+8,352,322+11,276,775) ×$0.08/628=$5798.22
Market size=Market volume×Average Value=314×$5798.22=$1,820,614.1
Geographically, ODI should focus on South Atlantic and Pacific regions, especially South
Atlantic that may has the highest market value. When we are thinking about the size of farms,
they should focus on the larger farms primarily and then on medium one. The administration
of the large farm requires the skills and efforts of the employees and they have more power to
negotiate with the large grocery chains, that it`s easier to make the decision to adopt the new
technology and their labor force understand better the advantage of innovation. Later,
according to the region-by-region rollout, expand the business to medium farms.
From other side before the market is aware of the new technology, the innovative and new
product can help the company to capture the market value before the patent expires. And also
because they have the exclusive technology advantage, the short-term profits must be very
high. In the last with the established brand features, the company gains the consumer choice
and market reputation earlier than other competitors.
3. What pricing policy should ODI adopt? What marketing efforts? What can be the
possible objectives of the marketing campaign (e.g., trial, repurchase etc.)?
Team 1 – Section C
Celine, Claudius, Marina, Mateo, Vikas, Yitao

In order to find out the price that ODI should adopt, we calculated the willingness to pay of
the clients. As we already discussed, the farmers would have the main savings associated to
labor cost, reduced cannibalization, feed cost and, in parallel, increase the profit because of
the reduction of a “trauma” cost. This said, we calculated that each farmer would save/earn
$ 0,3251 (details of the calculus on the XLS file) if decided to purchase the lens instead of
doing the debeaking procedure. Thus, this is what we considered as the willingness to pay.
To understand the cost structure of ODI, we calculated the fixed and the variable costs and
came up to a total of $ 0,0756 per chicken. It is important to highlight that, in the calculus, we
are considering that the lens are going to pay every fixed cost, including R&D. We see that
ODI is highly investing in R&D because doesn´t want to be a one product company. The
details of the calculus are also on the XLS provided.

Lens
Willingness to pay $0.3126
Cost (fixed+variable) $0.0756
Suggested Price $0.14

Considering both, the willingness to pay and the cost structure of ODI, we would suggest a
price of $0,14 per lens, for the following reasons:
 ODI is having a profit margin of 25% over the costs.
 The profit can be reinvested in the company for the development of new products.
 ODI will not need to increase the price for the next years. The company needs to
prove to the farmers the savings they are making and, if the company needed to
increase the prices very quickly because of the small margins, the farmers would be
unsatisfied, and this could influence negatively the brand.
Analyzing the possibilities of marketing campaigns, with the budget of $ 200.000,00, we
would be launching 8 publications and spending $ 100.000,00 on trade shows. The objective
of the marketing efforts should be to teach the farmers about the product, show the savings on
costs they are making and also the extra profits they will be able to make if their chickens
have the disturbed vision. The effort should be to show the efficiency of the product,
emphasizing the reduction on the trauma for the chicken.