Optical Distortion Marketing Plan for Chicken Contact Lens

Optical Distortion, Inc.
Marketing Plan
Dean Howley
Christopher Longshaw
Connie Ng
Faryn Stanley
ADMN 210H WI2009: Introduction to Marketing
ODI Case Study Marketing Plan
06/04/2009
Marketing Plan
Contents
Executive Summary 1
Background 2
Product 7
Place 8
Promotion 9
Price 10
Recommendations 14
Exhibits 15
Optical Distortion, Inc. Marketing Plan 1
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Executive Summary
Optical Distortion, Inc. is the manufacturer of the worlds first contact lens for
agricultural use; the ODI contact lens. The innovative product is designed for use in the
egg producing chicken industry and provides a simple, humane, effective, cost saving,
and profitable technological advancement to farmers within the industry.
This document will develop a strategic direction for the marketing of Optical
Distortion, Inc. and the ODI contact lens through the exploration of numerous factors that
impact the effectiveness of a company within the market.
First, the background of the company, of its competitors, and of its customers will
be explored, providing a base for further discussion of the product.
Second, an identification of the appropriate segmenting, targeting, and positioning
strategies for Optical Distortion, Inc and the ODI contact lens will occur, providing a
basic understanding of the market structure to which the company and product will be
entering.
Third, the evaluation of the company and products strengths, weaknesses,
opportunities, and threats will be made, identifying the key areas to be valued as an
advantage, and those which require some attention to ensure effectiveness.
Fourth, an exploration of Optical Distortion, Inc.s product, place, promotion, and
price strategies will occur, rounding out the items that form the strategic direction of the
company and the initial product launch.
Finally, using the current strategies as a guide, a recommendation of key
considerations for the future will be made, indicating where future strategic decisions
need to be made, and how this marketing plan can form a starting point for the future
success of Optical Distortion, Inc. as a company, and the ODI contact lens as a product.
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Background
The Three Cs Company, Competition, and Customer
Company
Originally invented in 1965 to mimic the effect of cataracts on chickens, the
contact lens for use on chickens was a result of collaboration between Robert D.
Garrison, an inventor, and Ronald Olson, an owner of a large chicken farm in Oregon.
After product conceptualization, development, and testing, the two men, accompanied by
an investor, saw the project as feasible and by late 1966 they had formed a corporation;
Optical Distortion, Inc. (ODI).
The company was formed in response to the relatively ineffective practice of
debeaking. The process of debeaking is the current and most popular process of trimming
the chickens beaks in order to prevent cannibalism, which is caused by the close
proximity of the birds to each other within their cages. By debeaking the chickens, their
method of attack is eliminated and therefore morality rates are decreased and productivity
is improved. However, the process of debeaking carries a host of problems such as
trauma, temporary weight loss, and retardation of egg production. Consequently,
Garrison and Olson saw a need for an improved process and from that need developed
the ODI contact lens.
Two of the most important assets for Optical Distortion, Inc. are its United States
product patent on the ODI contact lens and the companys contract with New World
Plastics. In 1969 Optical Distortion, Inc. was granted a patent for the use of a polymer.
This polymer was the same matter used by Bausch and Lomb to produce soft contact
lenses for humans, and was controlled by New World Plastics. Unfortunately the
hydrophilic polymer could not be injection moulded, and therefore was not appropriate
for production of the ODI contact lens. Alternative production processes were simply too
expensive, and with New World Plastics polymer being the only material known at the
time to produce soft contact lenses, production was halted. However, in 1973 Robert
Garrisons grandson Daniel Garrison contacted New World Plastics to investigate if any
new developments had occurred with the hydrophilic polymer. As it turns out, New
World had discovered a method that allowed polymer to be injection moulded and thus,
Optical Distortion, Inc. entered into a contract with New World Plastics that gave the
company exclusive use of hydrophilic polymer for nonhuman use.
The company is still in a growth phase and as Olson explained theres a lot at
stake here; more than enough potential for a big company to put fifty people on the
project. It is from this point that the strategic direction of this marketing plan will begin
to shape the way Optical Distortion, Inc. grows into an expanding and prosperous
company.
Competition
Although there is no direct competition in the chicken contact lens market, the
real need being addressed is the taming of chickens through the reduction of aggressive
and cannibalistic behaviour. Until now, with the development of the ODI contact lens, the
process of debeaking has been the only process to address this need for the past fifty
years, and is therefore the main competitor of Optical Distortion, Inc. Given this
situation, the entrance of ODI into the nearly monopolistic, but actually oligopolistic
market structure, has turned that structure from a series of companies competing with
only one process, to a series of companies now competing against each other as well as
another process, creating a truly oligopolistic market structure containing both direct and
indirect competition.
The debeaking process seeks to prevent chickens from using their beak as a
weapon. The operation entails using a hot knife and anvil to cut off the upper and lower
mandibles of a chickens beak at different lengths. The beak is then pressed upon a hot
knife to seal the wound and stop excess bleeding. Although this process is successful at
rendering the beak less harmful in chicken attacks, the trauma it inflicts upon the
chickens makes the process more detrimental than productive. The severity of the trauma
is seen through temporary weight loss, retardation of egg production for approximately a
week, and increased social stress for the chickens. Despite the fact that the debeaking
process lowers chicken morality caused by cannibalism from 25% to 9%, there are heavy
and drastic repercussions for the chickens and farmers, in terms of production and
chicken morale.
The costs associated with debeaking are mostly composed of labour. The process
usually involves three labourers who earn approximately $2.50 each, per hour, who can
debeak approximately 220 birds per hour.
Given the described current market structure, it will be the purpose of this
marketing plan to enable an effective entrance of Optical Distortion, Inc into the market
as an indirect competitor to the debeaking process, which currently holds a monopoly on
the solution to the need at hand.
Customer
In order for Optical Distortion, Inc. to successfully sell the ODI contact lens to
chicken farmers, it is essential for the company to understand the customer and their
specific needs and wants. As Garrison stated chicken farmers, even the big ones, are an
independent-minded breed of men who might react very unfavourably if they get the idea
that they have been taken and as a result, it is important to show the chicken farmer how
the ODI contact lens meets their needs better than the competition.
There are three broad categories of chicken farms in California: small, medium
and large. Small farms constitute 10,000 birds or fewer and are usually family operated.
These farms most often sell their eggs directly to consumers or to local grocery, milk, or
egg stores. The birds are often housed in henhouses of about 1000-2000 birds leaving
farmers with the need to purchase starter pullers only once or twice a year. Although it is
possible for chicken cannibalism to be a problem on small farms, it is more unlikely
because the chickens are not placed in as close proximity to each other as in larger farms
and as such are less likely to attack one another. Therefore, because these small farms are
not greatly concerned by cannibalism the ODI contact lens does not truly fulfil a need for
them, and for that reason this customer group will not be targeted directly. Furthermore,
because these farms consist of a maximum of 10,000 birds, the costs associated with the
implementation of the ODI contact lens would likely be too expensive. In addition, small
farms are declining at a rate of approximately 25% per year and are therefore not a very
attractive market for Optical Distortion, Inc. to target.
Medium size farms range from 10,000 to 50,000 birds and are usually managed
professionally by the farmer. Due to the size of the farms, chicken cannibalism is often an
issue, and as such many of these farmers are familiar with the debeaking process and
have utilized it in the past. Moreover, farms of this size often have yearly cash flows of
$375,000, and therefore would be able to afford the purchase and insertion of the ODI
contact lenses. For those reasons, these medium sized farms will be directly targeted by
Optical Distortion, Inc. for the sale of the ODI contact lenses. In this case however, I t is
important for this group of customers to see the cost benefits specifically associated with
ODI contact lenses, as money is likely to be a significant factor in their decision making.
Large size farms contain upwards of 50,000 birds and are closer to resembling a
small manufacturing firm than a farm. Administration of this firm is far more complex
than both small and medium size farms, and often several people are involved in the
decision making process. As a result, unlike the other two farms, which are largely run by
a farmer who would make the majority of the decisions, Optical Distortion, Inc. may
need to appeal to and convince multiple individuals to switch from the debeaking process
to the ODI contact lens as their new prevention of chicken cannibalism. Although money
is less likely to be a significant issue for this customer group, as their annual cash flow
can reach and even exceed $12 million, it is absolutely essential that the cost
effectiveness and production enhancing ability of the ODI contact lens be made very
clear and prominent in the sales pitch. Regardless of these characteristics however, it is
within this customer group that the majority of Optical Distortion, Inc.s sales force will
be targeted.
STP Segmenting, Targeting, and Positioning
Segmenting
Optical Distortion, Inc. operates in the United States within the egg producing
chicken industry. In order to effectively market agricultural contact lenses, the company
must realize impediments, and take advantage of all opportunities that will project ODI
into a favourable position as a market leader, and stave off competition. In order to do so,
data has been collected to represent the entire industry within the United States to
establish the greatest outlet for ODIs initial penetration into the market.
Currently, the egg producing chicken market encompasses 400 million chickens
within the United States, embodying nearly 300,000 farms. The relevant data collected
suggests the market is comprised of four market segments based upon farm population
density. The four segments are farms with bird populations of: upward of 100,000 birds;
between 50,000 and 100,000 birds; between 20,000 and 50,000 birds; and less than
20,000 birds. At first glance the data show that each segment contains: 20.6%; 11.4%;
22.5%; and 45.5% respectively, as seen in Exhibit 14. These figures show that farms with
less than 20,000 birds hold a near majority of the chicken population within the United
States. However, with further analysis of Exhibit 14 the data show that the average
population of birds within each farm, separated by segment, is: over 200,000 birds per
farm; more than 65,000 birds per farm; less than 30,000 birds per farm; and a meagre 571
birds per farm respectively. Therefore, it will be most beneficial to market the ODI
contact lenses to more concentrated farms, placing priority with farms of population
densities in upwards of 20,000 birds, which relating back to the analysis of the customer
base defines the market segment as the upper half of medium farms and large farms.
Targeting
With a realistic understanding of the market segment, as defined by the size of
chicken farm and associated number of birds, to which the ODI contact lens will be
directed, it is possible to look more directly at the specific target market. As a starting
place, the geographic location of the product launch must align with the financial ability
of Optical Distortion, Inc. as well as be easily accessible for salespeople and technicians.
On that basis, and based on the previous test locations, there are two options for the
location of the product launch: California and Oregon. The decision can be quite easily
made however for two reasons. One, the area has already been subject to initial testing
and is therefore more likely to recognize and accept the product. And two, California has
traditionally been an innovator in the area of chicken farming and is therefore more likely
to accept a movement away from the traditional practice of debeaking.
In more detail, the California market can be broken down numerically as a means
of further defining the specific market that the initial product launch of ODI contact
lenses will target. From Exhibit 1 and Exhibit 2 it is possible to strategically isolate the
target market in which the product launch will occur by considering three factors. First,
the total number of chicken farms located in California; second, the respective size of
those chicken farms; and third, the number of chickens that are located in those chicken
farms. When interpreting each of those factors, the first question to answer is what is the
size of farm that should be targeted? The answer to that question, according to inferences
made by government surveys and our own segmenting analysis, is at least 10,000 chicken
farms, and more realistically, 20,000 chicken farms. The second question then, having
determined the size of farm to be 20,000 chickens or more, is how many farms of that
size are located in California? The answer, according to Exhibit 1, is 521. The final
question is then, within those 521 farms of 20,000 or more chickens, how many chickens
are there in total. The answer, according to Exhibit 2 and an expected growth rate in the
coming year of 23%, is approximately 50 million chickens. Therefore, the target market
for the initial product launch of ODI contact lenses will be in California, to 521 chicken
farms, with a total chicken population of approximately 50 million.
Positioning
As a positioning strategy, it is essential that Optical Distortion, Inc. assesses the
specific personality characteristics of the targeted customer base. It is evident that the
well known and traditional practices of farmers are difficult to sway as they are likely to
be hesitant to change and weary of technological advancement. It is therefore necessary
to stress easy application and the significant cost savings relative to the traditional
practice of debeaking. It should also be established that the product offers a more
humane approach to the hardships of chicken farming, and should prove to be a leading
product that stresses a two-way relationship between farmers and their chicken
populations. Positioning should incorporate the superior quality of the ODI contact lens
compared to the bleak and inefficient technique of debeaking and its associated negative
impact of chickens. It should be stressed that changing practices compares as a cost
structure similarly to that of debeaking, but yet provides significantly more cost savings
in the area of productivity.
ODI contact lenses offer a more humane, more efficient, and more cost effective
alternative to the reduction of chicken attacks and cannibalism than any other leading
practice in the egg producing chicken market. By nearly eliminating cannibalism among
the flock and drastically reducing the stress associated with traditional practices, the ODI
contact lens provides simple technology that will save the customer money, as reflected
by increased productivity and increased profit. It is this image of a simple, humane,
effective, cost saving, and profitable technological advancement that Optical Distortion,
Inc will use as a positioning strategy within the target market. With this approach, and the
right sales task force exemplifying and proving these attributes, the ODI contact lens will
surely become a market leader in the near future.
SWOT Strengths, Weaknesses, Opportunities, and Threats
All organizations are subject to the instance of both internal and external
circumstances. Those circumstances may be defined as positive or negative based on
their impact on the organization. The process of determining these circumstances is
known as SWOT, which defines this process as the organizations strengths, weaknesses,
opportunities, and threats. The following is the SWOT process for Optical Distortion, Inc.
Strengths Internal - Positive
1. TheProduct the use of contact lenses, as opposed to traditional practices, can reduce overall
costs by decreasing feed loss due to billing and drooling, procedural recovery time, and mortality
rates, while increasing chicken morale and productivity.
2. Product Patent the ability to prevent direct competition for three years.
3. Contract an agreement to prevent the manufacture from aiding competition; as they are the sole
producer of the required plastic.
4. NewMarket the first mover advantage in an untouched market opportunity; competition only
with outdated and inhumane processes.
5. HumanCapital internal knowledge of, and relation to, the agriculture industry and business and
commercial strategy.
Weaknesses Internal - Negative
1. CashFlow an instance of limited monetary and current investment resources.
2. HumanCapital with a limited employee base, the sales impact may be limited.
3. LimitedMarket the product is only beneficial for 20,000+ chicken farms.
4. Profit Margin penetrating the market requires a low-cost introduction strategy, but with high
expenses and limited cash flow sales must be significant.
Opportunities External - Positive
1. Competition no direct competitors exist in the market for agricultural contact lenses.
2. I ndustryGrowth the number of chicken farms, notably 20,000+ chicken farms, is increasing
steadily, creating a larger, concentrated market and increased share.
3. Advertising the industry contains a variety of publications and trade shows aimed specifically at
the target market, creating significant opportunity for product advertising.
4. Customer Need the instance of cannibalism, reduced production, and other associated issues
with current practices, creates a need for a better alternative.
Threats External - Negative
1. Competition the traditional practice of debeaking is considered the accepted norm and will prove
a challenge in convincing customers to change practices.
2. Competition the release of a patent gives competitors an ability to reverse engineer the product
using its specification, creating future competition.
3. Competition as the first market mover, it is expected that direct competition will emerge as the
product becomes more widely known and accepted.
4. Consumers the target consumer, the farmer, is often opposed to change, and is often wary of
scams regarding new agricultural products and practices.
5. Contracts pre-existing contracts between farmers and debeaking companies or food distributors
may reduce the size of the target market.
6. Product Patent the patented product was released before production was possible, wasting
protected time.
7. Environment the industry itself is expensive by nature.
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Product
As the company name might suggest, the ODI contact lens is designed to distort
the vision of an egg laying chicken and as a result improve egg laying productivity. The
contact lens, much like that used by human beings, is a soft plastic semi-spherical
covering that fits directly over the eyeball of a chicken. Unlike the human version
however, the ODI contact lens is slightly larger than the chickens eye opening and
therefore uses the outer eyelid as a retainer to ensure the lens remains in place after its
initial fitting. Furthermore, the contact lens is tinted a shade of red which, after the testing
of a variety of colours, was found to produce the best result in terms of improving
chicken temperament and productivity.
The inspiration for the product is derived from the relatively ineffective practice
of debeaking. The debeaking process was originally introduced as a method of reducing
chicken mortality that was the result of cannibalism brought on by the close proximity of
the chickens within each individual cage. By debeaking the chickens, their method of
attack was eliminated, therefore reducing mortality rates and improving productivity.
However, the debeaking process itself brought on other additional issues that in
themselves decreased productivity, and as such left room for improvement in industry
practice. Enter the ODI contact lens.
Through a series of product tests, conducted via Ronald Olsons chicken farm as
well as by external parties, the ODI contact lens was proven to maintain several
advantages over the traditional debeaking process. First of all, the fitting of the contact
lenses can be completed in a similar time frame to the debeaking process; however the
resulting trauma to the chicken is drastically reduced, as is recovery time, meaning the
chickens are able to resume production much more quickly. Once fitted, tests have shown
that the ODI contact lens is able to reduce the mortality rate in chicken flocks to an
average of 4.5%, down from an average of 9% using the debeaking process. Further
studies indicate that the use of ODI contact lenses as a replacement of the debeaking
process can significantly reduce the amount of wasted feed lost to fussy eating habits,
escaping saliva from the beak, and billing the throwing of feed from a trough caused by
the blunt end of a debeaked chickens beak.
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Place
The decision as to where and how Optical Distortion, Inc. should distribute the
ODI contact lens is a relatively simple one. That simplicity can be attributed to two
factors; one, the proposed operational structure utilizes the use of a mobile sales task
force, which eliminates the need for a traditional brick and mortar retail location.
Secondly, because of the nature of the product, which is the need to be professionally
installed by trained individuals, there is again no need to provide a retail location. With
that said, there are several key aspects of the operational structure that relate to the
effectiveness of the distribution channel for ODI contact lenses. The first is that there
must be an effective communications infrastructure in place, including both telephone
and first class mail systems being effectively implemented within the headquarters,
regional office, and warehouse to ensure efficient sales call requests and order
processing. The second is that the sales task force and associated technical
representatives are effectively dispatched and appropriately exemplifying the benefits of
the products, while also ensuring customer satisfaction through follow-up service calls.
And finally, the installation professionals must also be dispatched effectively and
ensuring high quality installation, while showing efficiency and cost effectiveness to the
customer.
By using this zero level distribution channel, that is selling directly to the
customer and providing installation, Optical Distortion, Inc. will be able to eliminate both
wholesale and retail distribution levels which could easily prove to be less cost effective
and diminishing of the high quality sales and service that will be essential for the
companys success. By ensuring that high level of quality and a truly cost effective
process through this distribution approach, ODI contact lenses will surely become the
industry benchmark.
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Promotion
For Optical Distortion, Inc. there are essentially six main mediums in which the
promotion of the ODI contact lens can take place. Those are trade publications,
newspapers, trade shows, fairs and community events, radio, television. There is,
however, a certain degree of restraint that must be placed on the availability of these
media to the company, based purely from resource availability. Realistically, the
maximum feasible amount that can be spent on advertising and promotion is $40,000.00,
which is then split between trade shows and fairs and community events, and the other
media. In that way, the use of television, at least at the moment, may be entirely out of
reach, with the possible exception of small local television stations throughout California;
which should be researched and approached if the opportunity for their use is presented.
Radio however, is mush more feasible given the allotted resources and should be utilized,
but in a directed fashion. Because the target market is comprised of individuals with
specific characteristics, it will be essential that market research be conducted to identify
the most appropriate radio stations to air commercials for the ODI contact lens for
example on country and western or local news stations. Similarly, the use of local news
papers for advertising must also be directed in a similar fashion as to ensure the readers
are comprised of the same target market to which the ODI contact lens will be directed.
There are as many as eight trade publications, aimed specifically at the target market for
ODI contact lenses that must also be utilized for the promotion of the product. Again, it
must be determined where these trade publications are distributed, namely regions and
specific locations, and therefore decided which of these publications the advertising for
the ODI contact lens be placed in. Obviously, advertising the product in a publication that
is not distributed in California or nearby locales is a waste of resources, at least for the
initial product launch.
In the case of trade shows and fairs and community events, those instances where
they take place within the target market for ODI contact lenses, that is in California, and
are of a large enough scope to encompass medium and large sized farmers interest,
should be utilized for the personal selling and promotion of Optical Distortion, Inc. and
the ODI contact lens.
The most important aspect of the promotion of ODI contact lenses, in addition to
choosing the appropriate media and locations, is the continuity of each of the
advertisements and their alignment with not only the Optical Distortion, Inc brand, but
also the positioning strategy that has now been set forth within this marketing plan. It is
essential that Optical Distortion, Inc. and the ODI contact lens is portrayed as a simple,
humane, effective, cost saving, and profitable technological advancement within the egg
producing chicken industry.
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Price
Objectives
Our role as marketing consultants is very simple and contains three basic topics.
First, we must use a set of scenarios to determine the levels of production and price
points that will allow Optical Distortion, Inc. to become minimally sustainable; that is a
breakeven analysis. Second, we must determine, through an analysis of the three basic
pricing structures, the prices at which the ODI contact lenses could be effectively
produced, marketed, and sold while allowing the company to remain minimally
sustainable. And third, we must determine, conclusively, the appropriate organizational
structure and accompany that by a recommendation for the most appropriate final pricing
strategy.
Issues
There are several significant issues impacting our analysis and associated
recommendations. First, the current financial position of Optical Distortion, Inc. limits
the size of a feasible organizational structure and therefore limits the target market that
can be approached during the initial product launch. Second, as a new technology
entering the market the ODI contact lens can be priced, hypothetically, at any level given
there are no direct competitors to reference that price level to. However, the issue arises
in that the currently accepted practice of debeaking must be referenced as a price level,
meaning the ODI contact lens must be seen as both competitively priced and future cost
saving while also ensuring the feasibility of production and that the company remains
sustainable. And third, the issue of market penetration may be significant as the
traditional practice of debeaking is engrained in the operations of current chicken farms
and to convince the farmers of a change, given they are often opposed to change, will
take a very attractive and statistically proven pricing plan.
Alternative Scenarios
By using a set of alternative scenarios, for this analysis a set of four, it is possible
to examine and reflect upon the differing levels of penetration into a market. In doing so
we are able to determine the exact cost structures associated with targeting a certain
percentage of the farms in the California market. To do so we have chosen the scenarios
to reflect the instance of Optical Distortion, Inc. approaching 100%, 75%, 50%, and 25%
of the farms in California. By using these percentage based figures we will be able to
determine the level of fixed and variable costs associated with approaching that number
of farms, as well as the sales requirement and associated market share necessary for the
company to remain minimally sustainable, that is to breakeven.
For each scenario there will be a set of annual non-adjustable fixed costs,
adjustable fixed costs, and variable costs based on the level of production. The non-
adjustable fixed costs include a contractual payment to the contact lens manufacturer,
New World, and the regional office and warehouse expenses for California. The
adjustable fixed costs include sales representative salaries, technical representative
salaries, publication advertising expense, tradeshow advertising expense, and
headquarters expense. The variable cost is a single figure that encompasses within it the
cost of manufacturing, cost of injection moulds, and cost of product packaging and
shipping, and can be examined in Exhibit 3.
Scenario One
Scenario one represents Optical Distortion, Inc. approaching 100% of the chicken
farms in California. At 100% of the market, the company will approach 521 farms, with
an associated population of 50 million chickens. As seen in Exhibit 4, the total fixed cost
while approaching 100% of the market is $1,121,000.00. At that fixed cost, there are a
range of price options and associated breakeven or profit generating sales outputs that are
found in Exhibit 5. Those options will be analyzed further within the analysis section.
Scenario Two
Scenario two represents Optical Distortion, Inc. approaching 75% of the chicken
farms in California. At 75% of the market, the company will approach 391 farms, with an
associated population of 37.5 million chickens. As seen in Exhibit 6, the total fixed cost
while approaching 75% of the market is $871,000.00. At that fixed cost, there are a range
of price options and associated breakeven or profit generating sales outputs that are found
in Exhibit 7. Those options will be analyzed further within the analysis section.
Scenario Three
Scenario three represents Optical Distortion, Inc. approaching 50% of the chicken
associated population of 25 million chickens. As seen in Exhibit 8, the total fixed cost
Scenario Four
Scenario three represents Optical Distortion, Inc. approaching 25% of the chicken
associated population of 12.5 million chickens. As seen in Exhibit 10, the total fixed cost
Cost and Profit Pricing
As a starting point for the analysis of pricing, the cost and profit pricing systems
work internally as company specific strategies that are applied to the products which are
being produced and sold. In the case of Optical Distortion, Inc. the instance of defining
the price for ODI contact lenses is relatively unlikely as the market to which the product
is being proposed, that is to chicken farmers, is highly unlikely to accept the product
simply based on an arbitrarily set number that is based only on a cost-plus or profit
pricing basis. That said, it will be important to consider the availability of profit when
pricing the ODI contact lenses, but that consideration must accompany both the
competitive and value based pricing strategies as well.
Competitive Pricing
The competitive pricing strategy in the context of the initial product launch for
ODI contact lenses is an interesting one for two reasons. One, the product must be priced
competitively with the existing practice of debeaking as a means of luring the target
market away from that tradition. And two, the product must also be priced in such a way
as to be representative of the value that is being brought forth over the existing practice
by way of introducing an entirely new and innovative product and process. In that way,
much the same as with cost and profit pricing, the strategy of competitive pricing must
not be considered on its own, but instead in conjunction with cost and profit pricing as
well as value based pricing.
Value Based Pricing
In the case of Optical Distortion, Inc. the implementation of a value based pricing
strategy is, in our opinion, the most important of the three different pricing options. This
is simply based on, as was stated earlier, the target market in which the ODI contact lens
is being launched. Although the product is new and innovative, the market itself is
relatively adverse to the entrance of new technology, and more generally to change.
Therefore, when pricing the ODI contact lens the first consideration must be the value to
the customer that will be obtained by switching from the traditional practice of debeaking
to the use of the ODI contact lens. That value is a very important factor in the ability of
the company to market and sell the product, and can be numerically represented by cost
savings to the customer as seen in Exhibit 12. With a close inspection of the cost savings
from switching to the use of the ODI contact lens, there seems to be a clear financial
benefit to the customer, in this case approximately $0.27per chicken. With that customer
value as a base, with additional input using cost and profit pricing and competitive
pricing strategies, we are able to break down the four scenarios, in Exhibit 3 through
Exhibit 11, and determine, concretely, an appropriate operational structure and pricing
strategy.
Operational Structure
Using the calculations developed within each of the four scenarios, in Exhibit 3
through Exhibit 11, we are able to determine the appropriate operational structure for the
initial product launch of the ODI contact lens. That structure is based upon the current
financial position of the company, the desired market penetration within the first year of
entry, and the sales outputs necessary to ensure the company remains minimally
sustainable, that is they are able to breakeven. Based on these parameters, the most
appropriate scenario and associated operational structure is scenario two, seen in
Exhibit 6, for several key reasons. First of all, the approach of 75% of the total market size
is within the financial ability of the company. This is based on an effective use of five
sales representatives and one technical representative which leaves no excess capacity by
the technical representative; a feasible headquarters expense that will provide effective
company contribution without being overextended; and an advertising budget that both
reflects an effective proportion of the publications and geographic areas while also
remaining feasible with reference to the budget. In each of the other three scenarios, one,
three, and four, there are ineffective uses of resources, namely in the lower population
approach scenarios, as well as inflated expenses, namely in the high population approach
scenario, that make those operational structures unfeasible and inappropriate for the
current position of the company. Therefore, for the initial product launch of ODI contact
lenses we recommend the approach of 75% of the market, as seen in scenario two, Exhibit
6, as an operational structure.
Pricing Strategy
Using scenario two, seen in Exhibit 6, as a basis for the recommendation of a
pricing strategy, we are able to conclude upon an appropriate price per pair of ODI
contact lenses. As was stated within the analysis section, the basis for the pricing strategy
must be the value created for the customer because of the characteristics of the target
market. That basis then, according to Exhibit 12, depicts that our customer value is
approximately $0.27 per chicken, and therefore per pair of ODI contact lenses. From this
we are able to determine that the appropriate price must be less than $0.27. However, to
remain sustainable the minimum price per pair, according to internal research must not be
less than $0.08 per pair of ODI contact lenses. Furthermore, based on a conservative
estimate of approximately 50% market penetration within five years, and therefore
approximately 10% penetration per year, we are looking for our price to reflect an
introductory market share for the first year of at least 10%. Using these parameters, and
the associated calculations found in scenario two, in Exhibit 6, we have determined that a
sustainable, competitive, and value based price for the ODI contact lens is $0.15 per pair.
At this pricing level the company is able to breakeven at a sales output level of 7,539,820
pairs, at 15% market share, which is more than feasible; the company is able to become
profitable at a sales output level of 9,271,122 pairs, at 19% market share, which is also
feasible; the company can remain internally sustainable based on its current and projected
financial position; and the company will be able to market to the customer a gross cost
savings of $0.27 per chicken, with a net cost savings of $0.12 per chicken. Therefore, it is
our recommendation that Optical Distortion, Inc. produce and distribute its ODI contact
lenses at a price of $0.15 per pair.
We strongly believe based on internal research, external research, scenario
analysis, and our personal expertise and judgement that our recommended target market,
operational structure, and pricing strategy will produce excellent results and a thriving
company for Optical Distortion, Inc.
_______________________________________
Recommendations
There are several key recommendations to consider for the future of Optical
Distortion, Inc. which are encompassed by the categories of resource availability, target
market, and promotion.
First of all, each and every recommendation made within this marketing plan was
impacted in some way by the current financial position of Optical Distortion, Inc. With a
limited cash flow currently hindering certain strategic moves, it will be important in the
future to reassess certain decisions based on increased operational ability that will come
from an increase in resources based on the income of revenue.
Secondly, and related to the first point, the current target market for the ODI
contact lens is relatively limited, although currently in perfect strategic line with the
ability and direction of Optical Distortion, Inc. However, in future years an expansion to
a wider target market, specifically the addition of regions outside of California, will
certainly be an important strategic move that will provide the company with a much
greater opportunity for market capitalization and overall profitability.
Finally and again related, the current promotional strategy is based on a very
limited resource allocation as well as a very limited scope regarding the target market. In
the future, when resources are less scarce and the target market has widened, it will be
absolutely necessary for Optical Distortion, Inc. to increase promotional expenditures and
expand the scope of these advertisements as it will enable them to connect to the
customer on a larger scale, ultimately resulting in greater product interest, market share,
and profitability. Additionally, as technological advancements are made in the areas of
telephone, facsimile, and computer technologies, it will be imperative that Optical
Distortion, Inc. maintain an up to date and efficient communications infrastructure to
ensure that their operational structure is efficient and effective, providing the highest
quality experience for customers.
_______________________________________
Exhibits
Exhibit 1 Chicken Farms in California, 1969 and 1955
Year: 1969 1969 1969 1975 1975 1975
Farm size /
market segment
# of farms
in segment
# of farms
in market
segment
share
of market
# of farms
in segment
# of farms
in market
segment
share
of market
<20 000 2,502 3,023 13.6% 2,502 3,023 82.8%
20000 - 49 999 320 3,023 10.6% 320 3,023 10.6%
50 000 - 99 999 114 3,023 3.8% 114 3,023 3.8%
>100 000 87 3,023 2.9% 87 3,023 2.9%
Total Market : 3,023 3,023 100.0% 3,023 3,023 100.0%
<20 000 market 2,502 3,023 82.8% 2,502 3,023 82.8%
Market >20 000 521 3,023 17.2% 521 3,023 17.2%
Exhibit 2 Chicken Populations in California Farms, 1969 and 1955
Year: 1969 1969 1969 1975 1975 1975
Farm size /
market segment
# of
chickens in
segment
# of
chickens
in market
segment
share
of market
# of
chickens
in segment
# of
chickens
in market
segment
share
of market
<20 000 6,274,308 46,203,988 13.6% 7,848,255 58,135,223 13.5%
20000 - 49 999 9,517,453 46,203,988 20.6% 11,975,856 58,135,223 20.6%
50 000 - 99 999 7,459,944 46,203,988 16.1% 9,417,906 58,135,223 16.2%
>100 000 22,952,283 46,203,988 49.7% 28,893,206 58,135,223 49.7%
Total Market : 46,203,988 46,203,988 100.0% 58,135,223 58,135,223 100.0%
<20 000 market 6,274,308 46,203,988 13.6% 7,848,255 58,135,224 13.5%
Market >20 000 39,929,680 46,203,989 86.4% 50,286,968 58,135,225 86.5%
Exhibit 3 Optical Distortion, Inc. Variable Cost
Variable Cost
Variable Costs
Manufacturing $ 0.03200
Injection Moulds 0.00080
($12,000/15,000,000 pair)
Plastic Boxes 0.00040
Filling Boxes 0.00056
Shipping 0.00072
Total Variable Cost $ 0.03448
Exhibit 4 Optical Distortion, Inc. Scenario One Fixed Costs
Scenario One
Annual Fixed Costs (100% of 50,000,000)
Contractual Payment $ 25,000.00
Regional Office and Warehouse Expense 196,000.00
Headquarters Expense 500,000.00
(50,000,000 x $0.01)
Sales Representatives 280,000.00
(7 @ $40,000)
Technical Representatives 70,000.00
(2 @ $35,000)
Publication Advertising 25,000.00
(100,000 x 25%)
Tradeshow Advertising 25,000.00
(100,000 x 25%)
Total Annual Fixed Costs $ 1,121,000.00
Exhibit 5 Optical Distortion, Inc. Scenario One Price and Breakeven Analysis
Scenario One
Price and Breakeven Analysis
Market Population 50,000,000
Total Fixed Cost $ 1,121,000.00
Breakeven Profit Level $ -
Desired Profit Level $ 200,000.00
Lens Price
Breakeven
Sales Market Share
Profitable
Sales Market Share
($ per pair) (# of pair) (% at b/e sales #) (# of pair)
(% at profit sales
#)
0.08 24,626,538 49 29,020,211 58
0.10 17,109,280 34 20,161,783 40
0.12 13,108,045 26 15,446,679 31
0.15 9,703,947 19 11,435,249 23
0.18 7,703,408 15 9,077,790 18
0.20 6,772,595 14 7,980,909 16
0.22 6,042,475 10 7,120,526 14
0.25 5,201,373 10 6,129,362 12
Price and Breakeven Analysis Formulas
Breakeven Sales Output = Total Fixed Costs
Unit Price - Unit Variable Cost
Profitable Sales Output = Total Fixed Costs + Desired Profit
Market Share = Sales Output
Market Population
Exhibit 6 Optical Distortion, Inc. Scenario Two Fixed Costs
Scenario Two
(37,500,000 x $0.01)
(5 @ $40,000)
(1 @ $35,000)
(100,000 x 20%)
(100,000 x 20%)
Total Annual Fixed Costs $ 871,000.00
Exhibit 7 Optical Distortion, Inc. Scenario Two Price and Breakeven Analysis
Scenario Two
Total Fixed Cost $ 871,000.00
Lens Price
Breakeven
Sales Market Share
Profitable
Sales Market Share
($ per pair) (# of pair) (% at b/e sales #) (# of pair) (% at profit sales #)
0.08 19,134,446 38 23,528,120 47
0.10 13,293,651 27 16,346,154 33
0.12 10,184,752 20 12,523,386 25
0.15 7,539,820 15 9,271,122 19
0.18 5,985,432 12 7,359,813 15
0.20 5,262,204 11 6,470,517 13
0.22 4,694,912 8 5,772,962 12
0.25 4,041,388 8 4,969,376 10
Profitable Sales Output =
Total Fixed Costs + Desired
Profit
Market Population
Exhibit 8 Optical Distortion, Inc. Scenario Three Fixed Costs
Scenario Three
(25,000,000 x $0.01)
(4 @ $40,000)
(1 @ $35,000)
(100,000 x 15%)
(100,000 x 15%)
Exhibit 9 Optical Distortion, Inc. Scenario Three Price and Breakeven Analysis
Scenario Three
Lens Price
Breakeven
Sales Market Share
Profitable
Sales Market Share
0.08 15,289,982 31 19,683,656 39
0.10 10,622,711 21 13,675,214 27
0.12 8,138,447 16 10,477,081 21
0.15 6,024,931 12 7,756,233 16
0.18 4,782,848 10 6,157,229 12
0.20 4,204,930 8 5,413,243 11
0.22 3,751,617 6 4,829,668 10
0.25 3,229,399 6 4,157,387 8
Profit
Market Population
Exhibit 10 Optical Distortion, Inc. Scenario Four Fixed Costs
Scenario Four
(12,500,000 x $0.01)
(2 @ $40,000)
(1 @ $35,000)
(100,000 x 10%)
(100,000 x 10%)
Exhibit 11 Optical Distortion, Inc. Scenario Four Price and Breakeven Analysis
Scenario Four
Lens Price
Breakeven
Sales Market Share
Profitable
Sales Market Share
0.08 10,566,784 21 14,960,457 30
0.10 7,341,270 15 10,393,773 21
0.12 5,624,415 11 7,963,050 16
0.15 4,163,781 8 5,895,083 12
0.18 3,305,388 7 4,679,769 9
0.20 2,905,993 6 4,114,306 8
0.22 2,592,712 4 3,670,763 7
0.25 2,231,811 4 3,159,800 6
Profit
Market Population
Exhibit 12 Optical Distortion, Inc. Scenario Four Price and Breakeven Analysis
Cost Savings and Customer Value
Cost Savings and Customer Value
(Achieved by switching from Debeaking to the ODI Contact Lens)
Bird Mortality $ 0.11745
(9% to 4.5% - $2.61 per chicken)
Bird Trauma 0.04417
(1 egg loss reduced to 0 egg loss)
Chicken Feed 0.11246
(78 lbs per day less - $158.00 per ton)
Total Variable
Cost $ 0.27407
Cost Savings and Customer Value Formulas
Bird Mortality = Percentage Savings x Cost of Chicken
Bird Trauma = One Egg x Income per Egg Carton
Total Eggs in a Carton
Chicken Feed = (Feed Cost) x (Chickens) x Savings per Day x Days per Year
(Lbs in Ton) (Flock Size)
Cost Savings and Customer Value Statistics
Bird Mortality
Percentage Savings - 4.5% according to internal and external research
Cost of Chicken - $2.61 per chicken according to external research
Bird Trauma
Reduced Egg Loss - 1 egg savings according to internal research
Income per Egg Carton - $0.53 per carton according to external research
Chicken Feed
Feed Cost - $158.00 per ton/$0.079 per pound according to internal research
Flock Size - Savings based on a minimum flock size of 20,000 according to internal
research
Savings per Day - $78.00 per day, using a 2 inch trough, according to internal research
Exhibit 13 United States Chicken Market, 1969
<20 000 20000 -
50000
50000-
100000
>100000 Total
# of farms 289,494 2870 631 345 293,340
# of chickens 165,238,279 81,547,775 41,566,445 74,856,267 363,208,766
share of total
chickens
45.5% 22.5% 11.4% 20.6% 100%
average chicken
population per farm
571 28,414 65,874 216,975 1238
Exhibit 14 100,000+ Flock Size Farms in the United States, 1969
South
Atlantic
California Total U.S.
# of farms 70 87 345
share of farms >100000 20.3% 25.2% 100.0%
# of chickens 12,065,486 22,952,283 74,856,267
share of birds within farms >100000 16.1% 30.7% 100.0%
average chicken population per farm 172,364 263,819 216,975

Optical Distortion Marketing Plan for Chicken Contact Lens

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