Genesis Olivero

Case Study: Optical Distortion, Inc. (A)

The objective of the case study is to analyze the introduction to the market of an

innovative product manufactured by Optical Distortion, Inc .: contact lenses specifically

designed for laying hens. This product partially blinds the view of the hens, resulting in less

feed consumption and easier handling of these due to the elimination of social hierarchies

between the hens and, therefore, cannibalism that occurs in the cages. This means a solution,

capable of generating significant cost savings for farmers. A profitable marketing plan can

convert ODI's unique new product into a successful business.

The case study presents two options that could solve the problem of cannibalism. The

first consists of cutting the beak of the birds (debeaking), reducing the efficiency of the beak

as a weapon. This operation subjects the hens to trauma, consequently to a temporary weight

loss and a delay in egg production of at least one week (One egg every 5 months). There was

also the risk of leaving the beak too long or too short. This mechanism generates a reduction

in mortality due to cannibalism from 25% to 9%. The process can be executed by an

experienced team of three people with a $ 2.5 / hour salary and could cut 220 spikes per hour.

The second alternative is that presented by Optical Distortion, Inc. through the contact lenses

for chickens. The effect of the product is to generate induced astigmatism in chickens, thus

reducing their field of vision, putting an end to aggressiveness and cannibalism in farms.

As mentioned in the case study, “chickens respond psychologically to the color of their

environment. When birds are placed in a red-colored environment, deaths due to cannibalism

are reduced, for this reason, the contact lenses are designed red.”. This method reduces the

mortality due to cannibalism to 4.5%. A trained crew of three, similar to the debeaking crew,

could install the lenses in about 225 chickens per hour. This process does not create trauma to
the hens as debeaking does. The chickens were up and about within a few hours, and neither

weight loss nor reduction in egg production was noticeable. Another important aspect is the

difference in food cost between both processes. A debeaked chicken could eat only if the feed

in the trough was at least 3/8” deep. However, this was not needed with ODI, since it does not

affect their beak. A study, conducted by Gil Jaeger, suggests that food disappearance per 100

birds per day was reduced from 24.46 pounds when the feed in the trough was 2” deep to

23.68 pounds when the feed in the trough was only 1” deep. The following tables compare

the average cost generated for both options.

9% mortality rate Replace dead bird 4.5% mortality Replace dead

10,000 900 $2,349 450 $1,174.5

50,000 4,500 $11,745 2,250 $5,875.5

Table 1. Mortality lost (Saving of $0.117 per chicken with ODI)

Debeaking ODI

Labor cost $2.5/h * 3 = $7.5/h $2.5/h * 3 = $7.5/h

Chicken per hour 220 225

Total per chicken $0.034 $0.033

Table 2. Labor cost (Saving of $0.001 per chicken with ODI)

Debeaking ODI

Egg lost (one year) 2.4 eggs per chicken No egg lost

Value per egg $0.5/12 = $0.042 $0.042

Total lost $0.1 $0

Table 3. Egg lost due to trauma (Saving of $0.1 per chicken with ODI)
 Debeaking ODI

Food cost $7.04 per chicken $6.8151

Table 4. Food cost (Savings of $0.225 per chicken with ODI)

All these savings lead to a total of $0.44 per chicken when the farmer chooses to use ODI

instead of debeaking. As it can be seen, this product can generate a huge saving for the

farmer.

The next point to treat is where and to whom should the product be introduced. ODI

should enter the market through the region-by-region strategy, starting with California, which

has 521 potential clients with farms between 20,000 and 100,000 chickens. After the 3-year

protection that the patent provides, ODI could face a level of strong competition that would

undoubtedly be able to imitate its product, reducing the market share gained thus far. That is

why an aggressive launch and distribution strategy is required. It is pointless to invest in

small farms (10,000 or fewer birds) since these farms are declining at a rate of 25% per year.

Medium farms (10,000–50,000 birds) and large farms (over 50,000 birds) are mostly

operated professionally. The medium farms are usually still owned and managed by the

farmer, while large farms are administrated by several people. ODI should focus on medium

and large farms because clients with large farms have professional knowledge, so they will

understand the rationale advantages of wearing ODI lenses. However, farm owners may

hesitate in investing in ODI, due to the price they would have to pay for it and the time that

would take to start seeing the benefits of it. For this reason, the should not be too high.

Now to calculate the initial price for this product some costs should be taken into

consideration. To manufacture the product, the use of hydrophilic polymer is required, which

allows the design of soft lenses that do not cause irritation or bleeding in the chickens' eyes.

1
Based on Gil Jaeger’s study 156 pounds of feed could be saved per day for 20,000 chickens. That is
56,940 pounds or 28.47 tons of chicken feed yearly. At $158 per ton of chicken feed this would leed to
(28.47*158) / 20,000 = $0.225.
Daniel Garrison obtained a long-term license from New World for the exclusive use of

hydrophilic polymer for nonhuman applications. New World agreed not to produce the

polymer for other firms seeking nonhuman markets, nor to carry out development work on

related polymers for such firms. ODI, in turn, agreed to pay New World $50,000 ($25,000 per

year for the first two years) and to purchase its lenses exclusively from New World. New

World would manufacture the lenses and sell them to ODI at a price of $0.032 per pair (in

bulk), regardless of quantity. ODI was to supply New World with injection molds (at a cost of

$12,000 each). Each injection mold had an annual capacity of 7.2 million pairs and an

expected life of 15 million pairs. In summary, the acquisition cost of each pair of glasses is

$0.032. The unit cost of the injection molds is $0.002 ( $ 12,000 for each mold divided by its

annual capacity of 7.2 million pairs per year). The plastic boxes (250 pairs per box) would

cost $0.10 each and could be filled by ODI at $0.14 per box. Order processing and shipping

were estimated at $0.18 per box.

Lenses cost per pair (from NWP to ODI) $0.032

Mold injection cost (each is US$12,0000 12,000 / 15,000,000 = US$ 0.0008

Box cost (for 250 pairs each) $0.10 + $0.14 + $0.18 = $0.42

Box cost (for 1 pair) $0.42 / 250 pairs = $0.0017

Total $0.0345 per pair

Table 5. Lenses total cost per pairs.

There also will be annual costs: The West Coast regional office and warehouse would be

about $196,000 per year, plus about $40,000 for each salesperson (each with 80 farms) and

$35,000 for each technical representative (each for 5 salespeople). ODI should be marketing

on a national basis within two to three years, which would require four to five regional

offices. Monthly advertising of approximately $100,000 per year, headquarters expenses from
$184,000 per year at a volume of 20 million pairs and $25,000 to NWP. To calculated the

number required of salesperson and technical representative the following table of California

farm was used.

No of Farms No. of Chickens

Flock Size 20,000–49,000 320 9,517,453

Flock size 50,000–99,000 114 7,459,944

Flock size 100,000 and over 87 22,952,283

Total 521 39,929,680

Table 6. Characteristics of California Chicken Farms, 1969.

As shown in table 6, there is a total of 521 chicken farms in California. To assign each

salesperson 80 farms, there would be needed 7 salesperson and two technical representatives,

costing a total of $350,000. These along with the costs mentioned before generates a cost

total of $855,000 yearly. As stated in the case study, the minimum unit value of the ODI

contact lenses for chicken is $20 per box of 250 pairs or $0.08 per pair. This price is too low

compared to the savings of the farmer when choosing to use this product. Is suggested to

place the price at a level where both parts are beneficiated, this would be at $0.24 per pair.

This price was chosen considering that Optical Distortion, Inc. has patents in effect for the

first three years. It would be reasonable to enter with a high price strategy, in order to obtain

the most benefits and market share before the product can be replicated or competition

appears. Additionally, this will serve to build the brand and image of a pioneering company

in this technology, which will give a competitive advantage for future sustainability in the

face of possible competition.

In conclusion, introducing the lenses at a low price initially in the hope of raising it

later will not work due to the nature of clients and the market. Chicken farmers, even the big
ones, might react very unfavorably if they get the idea that they have been taken. Also,

considering that Optical Distortion, Inc. has patents in effect for only the first three years, it

would be reasonable to enter with a high price strategy in order to get the most benefits

before the product can be replicated or competition appears. ODI should go on the market

with a moderate-high price, considering the savings margin it provides to the farmers is very

high. The minimum price is much lower and can lead to a greater commercial effort, so a

launch price of $0.24 is suggested. Customers with large farms have the professional

knowledge to understand the rationale advantages of using ODI lenses. If ODI wants to

become a market leader, the company must develop aggressive promotion and

customer-oriented strategy to improving customer service and relationships with potential

customers, in order to build customer loyalty, allowing ODI to obtain the largest market

share, even after the patent shield has expired. ODI, after consolidating in California, should

seek to expand to other regions, before its future competition, serving a larger target, which

will contribute to greater recognition and reliability of the product by its customers.