Introduction Optical Distortion, Inc. (DOD), is a small, new company that has developed contact lenses designed to impair the vision of egg-producing farm chickens. This development came after an accidental discovery that partially blind chickens demonstrate more manageable and productive behaviors that are valuable to chicken farmers. Market Trends As within many industries, the poultry and egg production market has evolved dramatically in the last centuryвЂ” from small backyard barnyards to today’s high- production farms of more than 2. 5 million birds. Due to the varied demands and operations necessitated by this current, broad spectrum of customers (here, chicken farmers), the current market is best understood by segmenting it first by flock size. As shown in Exhibit 4 of the case study, we see the percentage growth (decline) of each flock size segment as it relates to farm size and chicken count from 1964 to 1996. Based on this data, farms with flock sizes less than 10,000 chickens have dramatically reduced in this time period while farms with flock sizes larger than 10,000 have consistently grown in each of the four high-volume segments.
Additionally, the market data also demonstrates a significant progression of incineration both regionally as well as in the nation’s number of industry producers. In 1974, 80% of the laying hens in the United States were housed in Just 3% of the country’s chicken farms. Ii Regionally speaking, the farms have evolved into concentrations in where Just three statesвЂ”California, North Carolina, and GeorgiaвЂ” account for more 25% of the nation’s chickens. Iii Finally, additional research projects continued growth in the U. S. Chicken population in the following five years (1975-1979). The projection estimates a steady population growth of 4. % within this timeshare. Coinciding with this projected population growth is the parallel expectation that the trends of large-flock farms will continue to realize the highest industry margins. Also expected to continue is the concentrated trend whereby 80% of chickens are owned by Just 3% of U. S. Chicken farms. Iv Benefits and Risks to Chicken Farmers The main benefit to farmers is in their replacing the practice of debarking with Odd’s contact lenses. Chickens are social birds and part of their natural desire to organize a social order within their respective flocks relies upon physical fighting and pecking to create a hierarchy.
This process leads to chicken mortality and also impacts egg reduction, among other disruptions. The following are benefits realized by substituting DOD lenses for debarking: Reduction in flock mortality from 9% to 4. 5%. Vi This reduction in bird replacement costs would represent approximately $2,160 in annual savings. Debarking-related trauma results in the loss of 1 egg per year per wearing DOD lenses, chickens feed more efficiently, therefore allowing farmers to reduce the depth of the feed in troughs by 3/8″ or more.
Farmers would save more than 156 pounds of feed per day if their chickens are using lenses and not debarked. 1 56 pounds per day is the equivalent of 56,940 pounds per year, or, 28. 7 non-metric tons. This is a savings of $4,498. 26 per year. Annual associated labor costs are virtually a wash, but lenses fall slightly cheaper than debarking. See Exhibit A. Summary of key (gross) savings to be realized by farmer = $7,506. 74 5. 15). Estimated cost of DOD lenses = $4,000. 00. Net savings = $3,506. 74 per year.
The risks that exist for farmersвЂ” should they substitute the DOD lenses for the practice of debarkingвЂ” may include: The lenses may not function as expected, require additional maintenance or time inspecting or correcting improper installation Unknown risks associated with long-term wear (complete blindness, impact on egg production, appetite) Flock reliance upon the product and lack of control on changes in product costs (and no competitive alternatives) Marketing Program Farmers will find out about this product from trade shows and local, on-the- ground salespeople.
These are traditionally independent-minded men that will need to be convinced face-to-face (preferably by someone that they trust) that Odd’s lenses work, are easy to incorporate into their flocks, and create significant savings for their farms. They’ll decide to buy once they are convinced that the lenses work. They are likely not high-risk buyers that would be willing to spend money on less-traditional operating methods.
DOD must demonstrate local or regional knowledge of the market and industry, and ideally, will be able to share and demonstrate local success within one or more of the region’s chicken farms as part of the effort to convince new farmers to replace debarking with Odd’s lenses. Additionally, being able to demonstrate real savings to farm operations will be very important to convincing the rammers to purchase the lenses. As a segment, they will be suspicious of the value of the lenses until after considerable experience with the lenses. Viii I believe that DOD should launch the new lenses and I would recommend the initial price be set at $50. 0 per box of 250 pair, or $0. 20 per pair. I believe that this price will allow the product to have the necessary credibility in the marketplace as a product that is a legitimate alternative to debarking. Additionally, this will allow for discount pricing if needed for trial periods and demonstration projectsвЂ”two tragic activities that will be valuable to the initial roll out of the product to this market segment. While the increase in initial pricing may require more intense sales efforts, I am also proposing a sharper, more focused regional market: California.
Geographically, California is the largest region for Odd’s targeted market of chicken farmers with more than 521 farms and approximately 40 million chickens (on farms of 20,000 flock size or greater). I also propose that DOD focus all efforts on California, particularly its larger farms in an effort to maximize its sales force and to increase Odd’s chances of success (as previously demonstrated, savings are larger for larger larger farms may have the potential to be more innovative or at least more likely to be interested in new opportunities since they are typically managed as more sophisticated businesses.
Going forward, I believe that the product has a place in the market. Projections demonstrate an increase in chicken populations nationally in the coming five years as well as an expansion of the large-flock farms. Fortunately for DOD, the savings realized by the utilization of the lenses are dramatically higher when called against larger flocks/farms, particularly as it relates to feed savings. For farms of 50,000 chickens (which have grown by more than 83% in the last five years and are forecasted to continue), the gross feed savings alone can exceed $11,000 per year. X Additionally, at $0. 20 per pair, DOD can afford to maximize its start-up costs I further recommend that DOD utilize a more focused roll-out method and to identify a test farm to which it can donate and install the lenses (preferably not for free, but discounted). This opportunity would demonstrate valuable proof to other rammers in the region that may be more difficult to convince or that need more experience with the lenses before making a decision.
One difficulty is proving (or realizing) benefits with the lenses by installing lenses on a few of the birds. By design, the social behaviors of the flock will not measurably change unless the lenses are on all of the birds. Break Even Analysis An analysis of the proposed price for the DOD lenses less the fixed costs (Exhibit B) and the variable costs (changes in production costs) would provide the profits for DOD. The break even pricing will be between $0. 08 and $0. 15 per pair.