Optical Distortion Case Study

Optical Distortions (ODI) is a start up with limited resources and a product that can change the egg production business. Its product, distortion lenses for chickens, would reduce the vision of the hen and achieve two desirable results in the behavior. These behaviors include reduction in cannibalism and reduction in amount of food required for the chickens. The reduction in cannibalism rates removes the need to debeak the birds, which adds further economic value to the farmers. These benefits far outstrip the costs of the contact lenses themselves or the labor costs to insert them.  There are definitely profits to be had if the products can be marketed effectively before the competitors have the opportunity to enter the market in a few years.  The issue ODI is facing is that it currently has no revenue. To create a market in the industry ODI is estimating it will require large up front expenses to grow fast enough to establish market share. To do this ODI must act quickly. Barriers are that the product is completely unknown to its customers and will demand an educated and persuasive sales force.  ODI will face an uphill battle to convince potential customers that it’s solution is better than the traditional methods utilized in the poultry egg production industry. On the competition side, ODI has little time. It expects that the competitors can be kept out of the market for at most two to three years due to patents and licenses that ODI currently holds. ODI believes that competitors will likely try to enter the market as soon as possible due to the potential benefits the ODI lenses.

1. What are the trends in the chicken farm market?  Nationwide there are 197,970,487 laying hens. According to exhibit 4 of the case analysis, the trend in egg production farming shows that this market will continue to increase for two reasons. First, there is a net growth in the number of laying hens of approximately 1%/year. Second, there is a trend for reduction of smaller farms and consolidation into the medium and large farms sizes. Since we will be targeting medium and large farms, we can expect the number of birds in this market to continue to increase.

2. How would the farmers find out about a product like this? Why would they buy it?  Large egg production farms are operated like large complex corporations.  They function as a high volume low profit industry.  They are always looking for ways to increase productivity and reduce costs.  Word of mouth from sales force, advertising in industry journals, and presence at regional conferences will be the best way to reach customers.  In addition, the firms that provide debeaking services may also be potential customers.  They may wish to diversify their offering if they see additional value for their end customers (the farmers). These firms will become interested if debeaking becomes less popular due to the market disruption caused by ODI’s contact lenses. These firms could be an attractive potential partner since their primary offering is labor, and they have established relationships within the industry.  They already have a viable sales/technical workforce with relationships and knowledge in this arena.  The biggest driver to buy this product is the cost savings it provides. The estimated savings per hen is $0.27. (appendix 1).   The product also leads to a desirable change in the chicken behavior.  Prior experience has demonstrated that chickens with distorted vision have more sedate behavior and smaller food intake.

3. What are the benefits and risks of using the lenses from the farmers’ perspective?  First we need to understand the early adopters versus the market laggards. I believe that the early adopters would be some of the large farms. They have the most to gain from purchasing the lenses. With such large flock sizes they could run a test trial on 10,000-20,000 birds for the first year and observe the results before rolling out the lenses to the rest of the birds. Since the product hasn’t been on the market previously, I can imagine that there will be significant resistance at the start due to the lack of experience with the product. We need to acknowledge that there is a possibility that these large farms are likely to have existing contracts with other firms (for example debeaking services) that would make changes in practice difficult. Additionally, since large farms are managed in a corporate manner, there may be challenges in convincing several stakeholders to make a change.  The market stragglers would definitely be the smaller farms and service firms. For smaller farms, it is just too much risk for the untested product. And service firms will not purchase until there is sufficient number of farms switching from debeaking to contact lenses. Another appeal to the ODI lenses in addition to cost savings is the elimination of some of the problems associated with debeaking.  The trauma from this process causes short-term production losses and long term feeding inefficiencies. Debeaking is not an exact science and requires skill and experience to gain the benefits.  The lenses do not mutilate the birds and are technically easy to insert once trained.  

4. Considering the potential market, should ODI launch the lenses?  If yes what price point would you set at launch?  What implications does your chosen price have on ODI’s likelihood of success? First, we must determine the market size of the ODI’s contact lenses. According to information provided by Garrison, ODI can only be profitable if selling to farms with at least 10,000 chickens. As our first target market we must determine the region with the highest number of farms with more than 10,000 chickens. We are shown the distribution of these farms in Exhibit 3 from the case analysis. However, we are only shown breakouts of farms with 20,000 or more chickens. There are 521 farms in California with 20,000 hens or more, which is a market of 39,929,680 chickens, and 201 farms with flock sizes >100,000, which is a market of 30,412,227 chickens. The market size for ODI’s lenses in California is fairly big and geographically concentrated.  

5. Considering the potential market, should ODI launch the lenses?  I would recommend the introduction of ODI chicken lenses if the forecasts that we see were accurate.  There are clearly benefits for both ODI and the customers. However, we need to explore the possibilities of alternatives. The only other feasible alternative is to license the product to larger agricultural supply firms. The benefit of licensing is that ODI would dramatically reduce its costs and recognize income right away. And they would not have to convince individual farms. All they have to do is pitch the product to corporate executives. However, they do face the issue that the large agricultural supply firm would likely kick ODI out as soon as the patent protection runs out. And without the boots on the ground presence, ODI would lose all revenue sources in three years. Therefore, this approach is extremely dangerous compared to actually selling the lenses themselves, which according to my analysis will be profitable.  Therefore, ODI should introduce the lenses on its own.