Case Study: Optical Distortion Incorporation

Topics: Variable cost, Costs, Chicken Pages: 5 (1658 words) Published: March 27, 2013
Optical Distortion, Inc.
HBS Case Study 9-575-072

Marketing Management MKT 6301.002 – Fall 2012

Team Members
Young soo Han
Kevin Yang
Jay Chi
Lenny Liao
Brad Standridge

As of 1974 the chicken population in the US is already in excess of 400 million birds, with slow but steady growth expected through 1980. Given that fact that a great many of these birds live in tight quarters on very large chicken farms, a means of combating the chicken’s natural instinct to peck other chickens is needed. Pecking can actually lead to high mortality rates in flocks (cannibalization), which in turn raises the costs of farming. Debeaking has been used for some time with good results, but it has its own set of drawbacks. The lens developed by Optical Distortions, Inc. (ODI) holds the promise of reducing the threat caused by pecking, without some of the issues associated with debeaking. The specific advantages of these lenses will be discussed in the following report, as will a plan for marketing this new product. By permanently inserting a pair of sight distorting lenses into the eyes of an egg-laying hen, studies have shown that cannibalization can be reduced from 9% to 4.5%. Moreover, feed loss due to “billing” is substantially reduced relative to debeaked birds, allowing for much greater efficiency in feed consumption (less waste). Finally, given that lens insertion does not inflict the same trauma that debeaking does, egg production is not adversely affected. Given the above advantages, it is expected that farmers could increase their profit from egg sales by more than one-third (37%) simply by employing the use of the ODI lenses (Exhibit 1). Although the potential impact of the ODI lenses is substantial, there are some important assumptions underlying the anticipated value to farmers. For example, one of the biggest financial gains could be in the reduction in feed waste, so the assumption that hens with lenses will “bill” much less is critical. Test results have shown that flock mortality can be cut in half relative to debeaking, so another important assumption is that these positive results can be duplicated consistently in the field. Despite its disadvantages, debeaking is a practice which is familiar to chicken farmers, and the labor and cost associated with debeaking a flock is reasonably well known. It is assumed that a team of individuals trained to perform the lens insertion could process approximately as many chickens in an hour as they would if debeaking were done instead. This would keep the cost of insertion on par with debeaking and would thus lessen the concerns of the farmer. Tied to this is the assumption that a farmer’s own personnel could be readily trained in the art of lens insertion. Should this turn out not to be the case, it could prove nearly impossible for a large number of lenses to be deployed – a small team simply could not address the millions of chickens which would need to be targeted. If millions of lenses cannot be sold in the first year of business, ODI would find it difficult to survive against bigger competitors who are waiting to enter the market. This is thus an area of potentially high risk which needs to be addressed as early in the product introduction phase as possible. Bound up in the assumptions listed above is the underlying assumption that all chickens will respond in more or less the same way to the lenses. There are a number of factors which could allow ODI’s lens technology to quickly penetrate the market. One of the most important is the potential for farmers to experience a large profit increase (> 30% increase) through lower operating costs. Chicken farming is very price sensitive due to its low profit margin (roughly 6% profit on a dozen eggs from a debeaked bird). Use of lenses could allow this margin to increase to 8% or more (Exhibit 1); promoting this possibility should entice many farmers to give the lenses a try....
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