Optical Distortion Inc Case Study
Case Analysis—-Optical Distortions, Inc. MKT6301 MARKETING MANAGEMENT 2012 FALL Group Members: Mina Ai Wenxin Gao Shuyue Jia Yang Pan Yiou Zhou Expected Value to Famers Reduced cost due to feed (For 1/2 feet) Cost per pound: 158/2000=0. 079 $/pound Saving per year per bird: 156/20000*1/2*0. 079*365=$0. 1125 Saving on egg production Loss one egg 5 months: loss of egg per hen a year is 2.
4 Cost per dozen: $0. 50 Saving per hen per year: 0. 50*2. 4/12=$0. 099 Reduced cost due to mortality Cost of mortality with debeaking 2. 4*9%=$0.
216 Cost of mortality with ODI lenses 2. 3%*4. %=$0. 108 Saving per hen: $0. 108 Total saving by using ODI lenses compared to debeaking: 0.
1125+0. 099+0. 108=$0. 319 Because farmers won’t accept this price of $0. 319, and the expected value to farmers is: 0.
319-0. 08=$0. 239 Value Sensitivity to Assumptions Assumptions——-go wrong As we see in this case, the value of the lenses is 20$ per 3 boxes of 250 pair or 0. 08$ per pair, it includes cost as follows: Payment for NW| inventory| Headquarters| Sales| Technic| Ad| Trade shows| product| molds| Box (Page 7)| 25,000| 196,000| 184,000| 280,000| 70,000| 100,000| 100,000| 3. | .
08| 17| Let’s see how sensitive this value is to assumptions made. Assumption: the value of the lenses, which is 20$ per 3 boxes of 250 pair or 0. 08$ per pair. If factor inventory increases, according to Little’s law: Inventory=Flow rate * Flow time, it means the though rate declines, inventory turnover declines, so the fixed cost will increase. If the number of sales increases, which means the inventory turnover, is fast and cycle time is short, in the end, the company will make profit. If the cost of Ad increases, it means fixed cost goes up.
In the market, if Ad has a positive effect on the selling, with the net margin increasing, the cost of the lenses will decline relatively. To these assumptions, there are many reasons towards these assumptions go wrong; we can put these parts as follows: 1. Population and its composition. This factor is related to the number of size of poultry industry. Theoretically speaking, if the number of customer goes up, the lens company can get more profit. 2.
Income level. In marketing environment, consumer demand is not only depend on consumption desire but also rely on income level.
Therefore, income level and its growth rate to the lens market demand and the structure of the population variation play a decisive role there. 3. Commodity prices.
In the same purchasing power circumstances, if the price of lens goes up, which means that the same amount of money can buy fewer goods; on the other hand, a product or the price change also can cause the transfer of purchasing power, so that the market demand structure will change. 4. Goods supply condition change. The supply of lens change, the emergence of new products, and the quality of lens changes, etc. can cause commodity demand increased or decreased, so the purchasing power transfers between in the commodity. 5.
Political law and change of the demand idea. During economic interval, the change of the economic development trend, development scale, increasing speed and so on can affect purchasing power and demand of the lens market. SWOT Analysis: Strengths: (easy to penetrate) 1 For Company: (1) The Optical Distortion Inc. owns the patent and license protection. (2) They obtain a long-term license from New world for the exclusive use of hydrophilic polymer for nonhuman applications.
2 For Product: 1) The lenses can reduce 4. 5% of flock mortality compare to debeaking. (2) It can reduce cannibalization, less trauma, and greater feeding efficiency. (3) It can save time and reduce labor cost. Weaknesses: (difficult to penetrate) 1 For Company: (1) Their assets, managerial and financial resources are limited.
(2) They lack of intensive sales and technical coverage. 2 For Product: (1) The lenses cannot be reused. (2) The hydrophilic polymer is high cost for chicken market. (3) The product does not profitable to small market. Opportunities: (easy to penetrate) 1 There are large market places in this field. Small farmers, Medium Farms, Large Farms) 2 There are fewer competitors in this field.
Threats: (difficult to penetrate) 1 Farmers may not totally understand the product value. They may not easily accept new product that they have never heard about. 2 It is a challenge for the company to adopt the new technology. Market Price Sensitivity In addition to ODI’s patent, ODI had signed a contract with New World that it couldn’t offer the polymer, the main material for the contact lens, for other firms who also intended to enter the market, and prevent others from using the updated products.
Although this patent-protect agreement made sure that competitors in the same field had no access to duplicate the contact lens, the companies who offer the debeaking service are rivals to ODI.
Farmers are so familiar with debeaking process, so they are more likely to choose this way other than lens. In conclusion, the requirement of the contact lens will be so sensitive to the price. Marketing Strategy: As to the introduction and value assurance strategy, we notice that the company’s financial and human resources are limited.
Here build up strategies from following aspects. Target Segment: Considering the marketing segment, we choose the target market from small, medium and large farms.
If products are sold to small farms, the sales revenues even can’t cover the cost, and the company needs to recover the cost with a view to its financial situation. Comparing selling products between to the medium and large farms, saving cost on human resources including salesperson and technical representatives should be taken into account.
From the Exhibit 3, we can see the number of farms reporting flock size of 20,000-49,000 is 2,856, so 36(2,856/80) salespersons are needed and 7(36/5) technical representatives are needed. This will cost $40,000*36+$35,000*7= $1,685,000 Similarly, also from the Exhibit 3, the number of farms reporting flock size over 50,000 is 871, so 11(871/80) salespersons are needed and 3(11/5) technical representatives are needed. This will cost $40,000*11+$35,000*3= $545,000. Obviously, the big farms can save more sales force for the company.
In addition, the owners and managers of big farms are more easily to accept the new product and technology. So the target segment will be the farms with the flock size over 50,000. And from geographical view, we should begin introducing the product in California then develop towards the nearby profitable areas. Mode of Distribution: For this kind of innovative product, in the beginning stage of the product lifecycle, sales are slow and cost of production is high, relatively short channel should be used during the introduction period, such as direct selling.
The company needs to send direct sellers to cultivate customers. And during the introduction First establish a face-to-face personal selling, and when the product’s features are deeply comprehended and generally accepted, the company can cooperate with some regional distributors and sell products directly to them, and give the distributors reasonable and attractive profit margins.
Promotion: The major issue of ODI is the shortage of fund and the hardness of farmers accepting the new conception of contact lens.
So the first step to enter the market is to narrow down the number of promoted states at the beginning, by which ODI can focus more on every cost they spend on promotion. Secondly, ODI need qualified salespeople to make sure that the farmers understand the advantages of the products and use them in the right way. The last but not the least, ODI can offer appropriate number of trail products for farmers to get familiar with the contact lens. And the reputation can be passed from mouth to mouth.
What’s more, taking part in the trade fair would make more farmers know the product.
Price: On account of the product life cycle, ODI should refer to the method of Price Skimming, which means to price higher in the beginning, obtaining the most profit potential which covers the investment. When it comes to the growth period, the market will be competitive and farmers already know the lens, so that the price will go down. Correspondingly, ODI can set its price lower and lower in the different periods.
