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Optical Distortion, Inc. HBS Case Study

ODI Discussion/Analysis Questions

1)

  • What characteristics of the ODI lens are likely to make it appealing/unappealing to farmers?
    • Appealing

      • debeaking causes problems of their own in terms of the trauma it causes hurts short term production (for a full week, only 1 egg lost by 5 months) and in the long term in feed is wasted. Debeaking is not an exact science but reduced cannibalism to 9% from 25%.
      • for $2.50/hour could debeak approximately 220 birds per hour.
      • actually modifies behavior as opposed to reducing the weapon. Reduces cannibalsim to 4.5% (1/2 of debeaking)
        • 225 birds an hour to put in lense
      • reduces feed costs from 24.46 pounds to 23.68 lbs per 100 birds
        • 20,000 bird flock could save 156 pounds of feed per day ($12.324/day)
        • $158 per ton - $.079/lbs
    • unappealing

      • more upfront cost
      • can cause eye infection/fall out of place
      • change from current practice.

2)

  • What is the value to famers of lenses over debeaking? Can you quantify it? (Hint: Think about savings from cannibalization, egg reduction, feed, and labor)
    • $.00073 a bird for the debeaking process (which would be unneccessary).
    • $.22 per bird feed savings over a hen’s lifetime
    • $.108 in reduction in replacement cost of of $.21 since lenses reduces cannibolism by 1/2.
    • $.224 of added production in egg production. Hen lays 22 dozen eggs a year. If they lose a week of production from debeaking that is .423 dozen a week (which is 5 eggs a week) and if you assume that is $.53 a dozen that is $.224 cents of lost egg production per bird.

    • adds up to ~$.33 in added value per bird over their lifetime -> for large farms (50,000 birds) that $17,500 in added revenue a year (though it is annual cashflow of $12 million). For a small farm (10k) is it $3,500.

3)

  • What Pricing policy should ODI adopt and why? What is the savings per bird for farmers at these prices?
    • need market acceptance
    • somewhere around $.35 per bird in added value, which would easily cover the $.07 price increase.

    • Skimming Price

      • For products that represent a drastic departure from accepted ways of performing a service, a policy of relatively high prices coupled with heavy promotional expenditures in the early stages of market development (and lower prices at later stages) has proved successful for many products.
    • Penetration pricing
      • This policy is the reverse of the skimming policy in which the price is lowered only as short-run competition forces it.

    Pricibg Strategies

4)

  • Can ODI turn a profit at these prices?
    • sell at $0.08 per pair
    • cost $0.032 per pair + 12k (for first 15 million pairs)
    • cost $592,000 to operate
    • .048 per pair in profit
    • 592,000 / .048 = 12,333,333 lens to break even meaning they need .1% market penetration.

5)

  • How would you focus ODI’s marketing efforts? How would you segment the customer base?
    • 345 farms have 20% of america’s chickens. If they closed 4 of those farms they would be able to able to turn an operating profit.
      • crowded farms would benefit most from this change and the sales process would be easiest.

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