MKTG 701 CASE STUDY 1
Optical Distortion, Inc.
Alexandra Generales & McCown Bridges
Generales & Bridges, Optical Distortion, Inc. 2
In 1962, Ronald Olson, a farmer in Arizona, found a strong correlation
between poor eyesight in chickens and a decrease in the amount of food eaten and
their mortality rate due to cannibalism. Olson was so impressed by his findings that
he began to seek a way to intentionally impair the vision of his chickens, so as to
duplicate the results he found. Twelve years later, Olson, along with his Optical
Distortion, Inc. business partner, Daniel Garrison, tested and marketed a product
that they had developed: contact lenses for chickens. While it may sound
unconventional, these contact lenses provide a needed alternative for farmers
seeking to decrease chicken cannibalism without the negative effects of the
alternative, debeaking.
Chickens, like many animals, have a social hierarchy that is adhered to by all
members of the flock, called a peck order. Pecking can occur if a submissive bird
enters a dominant bird’s territory, and submissive birds are pecked immediately if
they raise their heads. Pecking can cause the submissive birds to eat less food and
thus produce less eggs. Pecking sometimes continues until the chickens become
cannibalistic. Cannibalism amongst chickens is higher when the birds are kept in
cages and thus becomes a major concern for farmers.
According to our farmer analysis the cost of debeaking per 10,000 chickens is
$77,800.04. Even with the added cost of investing in ODI’s contact lenses, farmers
would spend only $73,813.33 per 10,000 chickens, if they switched to contact
lenses, an annual savings of 5.12 percent. Due to the increase in feed for debeaked
birds, egg loss and extra costs of replacing chickens due to cannibalism the contact
lenses prove to be a more economical approach to ending cannibalism.
Generales & Bridges, Optical Distortion, Inc. 3
Our target market for the first year is the large flocks of the Pacific Region
because it holds the biggest opportunity for gross product. With a reasonable
expectation of 30 percent penetration into this market in year one, we expect a total
gross profit of $582,290.27. Comparatively, the large flocks in the Pacific Region
offer a potential gross profit that is larger than any other region.
After further analysis, we have decided to open one more regional office,
along with our Pacific Region office, in year two. It will be located in the South
Atlantic Region and will be marketing only the small flocks. With a reasonable
expectation of 50 percent penetration into this market in year two we expect a total
gross profit of $2,826,938.18. These regions were chosen because they offer the
largest amount of potential gross profit.
In year one, with an expected penetration of 30 percent we expect to sell
7,766,078 pairs of contact lenses to the large flocks of the Pacific region with a total
estimated revenue of $1,553,215.60. In year one, we will have one time start up fees
along with other expenses including, salaries, office rent and utilities, and
advertising fees. However, including the $200,000 cash that our CEO raised, we
expect our net profit to be $782,290.27.
In year two, with an expected penetration of 50 percent in our chosen two
regional areas, we expect to sell 25,054,095 pairs of lenses with a total estimated
revenue of $5,010,819.00. After expenses, we expect a net profit of $2,826,938.26.
We chose our price of $.20 per pair of contact lenses in order to make a profit
after extracting expenses. With a lower price, our revenue would be too low in the
first year to support our expenses and to continue our company.
Generales & Bridges, Optical Distortion, Inc. 4
However, after computing revenue and expenses, as well as looking at the
cost benefit of farmers, we conclude that the ODI contact lenses will be successful in
the two regional markets we have chosen. Because the farmer would save $.40 per
chicken (after factoring in the $.20 contact cost per pair) after switching from
debeaking, we believe that the farmer would be willing to divert from traditional
practices. The ODI contact lenses are a successful venture and we choose to pursue
this business.