Optical Distortion, Inc (ODI) is a company that has developed special contact lenses to harmful impact the eyesight of egg-laying chickens. The reduced vision from the contact lenses helps preserve the life of chickens, increase the productivity of egg laying and reduce costs for farmers using the lenses for their flocks. At the end of 1974, ODI’s owners and management were finalizing a strategic marketing plan to introduce the lenses commercially early in 1975 and work towards nationwide penetration within 5 years.
The poultry and egg production industry began as a form of family barnyards and backyards. Innovations in the housing and care for egg laying hens lead to the consolidation of commercial egg laying farms from over 5. 8 million in 1935 to only 471,284 in 1969. The trend of consolidation was projected to continue and by 1974, 80% of the over 440 million egg laying chickens in the USA were housed on only 3% of the then known chicken farms.
A study performed in 1969 showed that California had the largest state population of chickens with over 46 million chickens reported and almost 55 million chickens in the pacific region alone. With the increased population and concentration of chickens on farms with less and less space for chickens to live in, several behavioral problems were amplified including cannibalism from resulting from the “pecking order” of chickens. The pecking order is a social tool that chickens use to order chickens in a group and to identify dominance within the flocks.
This lead to the least dominant chickens being attacked, pecked to death and eaten by its own flock. Debeaking was the most common way to reduce the deaths by cannibalism from 25% to 9%. The side effects of debeaking caused a reduction in egg production, increased the recovery time to begin laying eggs again and increased social stress among the flock that further harmed egg production. ODI had tested the lenses on chickens on several farms in California and Oregon with satisfactory results. And found a reduction mortality due to cannibalism to only 4.
5%. Through ODI’s development of the chicken contact lenses, they determined that they needed to be made out of hydrophilic polymer in injection molds. New World Plastics owned the patent for hydrophilic polymer and ODI CEO Daniel Garrison was able to work out a deal for a long-term license for the exclusive use of hydrophilic polymer for non-human applications. The deal was structured to protect ODI’s interest in the non-human use of the hydrophilic polymer and set a reasonable cost for New World Plastics to produce the contact lenses for ODI.
ODI’s management team felt that the long-term license and ODI’s patent for the lenses would offer them protection from competing firms for about 3 years before the large and established agricultural supply firms found away around the patent and license. Recognizing the window of opportunity, Daniel Garrison asked ODI marketing vice president, Ronald Olson, to develop a marketing plan for their first and only product.
Garrison had had several conversations with Olson and Olson was fairly certain about ODI’s strategic plan. ODI would enter the market through a region-by-region rollout beginning in California and the western regional office in California would have annual costs of $196,000 annually. They would hire one salesperson for every 80 farms and would pay them $40,000 per year, plus expenses. ODI would also hire one technical representative for every five salespeople they employed at $35,000 per year.
Garrison and Olson agreed that a price of $20/250 pairs of contact lenses, $. 08/pair, would be the minimum price they would charge. The labor costs of inserting the lenses over debeaking were approximately the same, but a skilled chicken contact lens team could process 5 more chickens per hour than a similarly skilled debeaking team. Taking this information into consideration, Olson should have recognized the following issues he is facing when developing ODI’s marketing plan.
• ODI has a window of approximately 3 years to establish a competitive advantage over the competition they expect to face and to establish themselves in a way to negate the advantages large agricultural suppliers would have.
• The marketing plan needs to target the 3% of farms that control 80% of the chickens and who will likely increase their market share in a constricting industry.
• ODI’s pricing policy needed to find the balance between providing attractive value to farmers while generating enough revenue for ODI to reinvest in R&D and national expansion.
In order to gain the most advantage from their long-term license with New World Plastics and patent for the lenses, ODI must establish themselves as a differentiated brand that will be able to with stand the pressures that will come as much larger and established agricultural suppliers enter the chicken contact lens business. In order for ODI to succeed in introducing a new product through adoption and build the differentiated brand they need to become, they should identify how they rate in the characteristics of innovation, they are relative advantage, compatibility, complexity, divisibility and communicability.
1. Relative Advantage – This is the degree the new product appears superior to existing products. The apparent superiority of the lenses seems high compared with debeaking. The lenses offer reduced mortality rates among the flocks, savings from reduced amounts of feed required, negates the loss of a single egg due to debeaking trauma, increased egg production from the chickens who would have died due to the pecking order and over all less stress for the entire flock to encourage higher egg production rates.
2. Compatibility – This is the degree where the new product matches the values and experiences of the consumers. There would be a relatively small cost to retrain the debeaking crews to insert the contact lenses, probably not enough to discourage the adoption of the lenses itself. The biggest problem facing the adoption of the lenses is that the thought of buying contact lenses for chickens seems ridiculous to most people, and more so to the farmers raising them.
3. Complexity – The degree to which the new product is difficult to understand or use.
As identified above, the idea of chickens wearing contact lenses would pose a serious problem for people understanding the reason why. Most farmers are used to a simple way of life and doing things their way. This will be lessened the larger the farm is and can be reduced even more if ODI can provide technical support and training.
4. Divisibility – The degree to which the new product can be tried on a limited basis. The lenses have a very high divisibility as farmers can select as large or small target population of chickens to test the lenses on. This is very attractive because they can try them out with minimal risk.
5. Communicability – The degree to which the benefits of the new product are observable or describable to others. The farmers will likely have an issue overcoming the notion of putting contact lenses in chicken and explaining it through advertising is not likely to be successful. It will require a lot of face time with a sales rep and/or a tech rep to understand the benefits of the lenses and how they work. This is a hurdle to ODI’s successful expansion.
However, once they try the lenses, the farmers can easily track the results over the course of months to determine the effectiveness. By being first to market and having 3 years to educate farmers, ODI stands a decent chance to accomplish their goal of nationwide penetration and differentiating themselves as a name brand that offer quality, innovation and experience. They could focus on nationwide advertising and pay lots of money for placement in industry magazines, but a better investment of their money would be to focus on one-on-one time with farmers and attending trade shows to educate bigger groups of farmers at once.
To focus on the 3% of farms with 80% of the egg producing chickens, ODI could take lots of approaches. They could assign their sales force to geographic areas that contained 80 farms, the determined maximum number of farms a sales rep could cover. They could also use blanket advertising to try and reach all farmers regardless of size and chicken population. I feel that the best choice would be to identify the largest 25% of farms in a geographic area and assign them out by proximity to your sales force so that they can manage 80 farms.
This targeted approach will help them focus on the largest and most profitable potential customers and use their limited funds where it can do the most good. The constricting nature of the industry leads me to believe that the largest and most innovative farmers will buyout the smaller farms. With the introduction of a new product, it takes time to determine the price that can be charged in order to reach the 8-10% adoption range that will lead to the quick growth and expansion of adoption.
In an industry where pennies/chicken and each egg produced is a big deal, the product pricing must be attractive enough to entice farmers to adopt the lenses, but be high enough to generate the revenues needed to fund the aggressive growth ODI wants. The price savings identified in the case show that farmers could save 25. 75 cents per chicken; per year with the lenses over debeaking at the $20/250 pairs price point. With a farm of 20,000 chickens, that equals $5,150 in savings annually.
To cover the costs of operating the western region office, they would need to sell over 4 million lenses alone. That does not include investment in R&D, the sales force or technical representatives. With 46 million chickens in California alone, they would need almost 9% market share. I think that they should start the price per pair a little higher, at $. 10/pair rather than $. 08/pair. This would generate an additional $400/20,000 chickens and reduce the total number of pairs sold to less than 2. 9 million pairs to cover office costs and require just over a 6% market share.
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