Case Facts

Robert D. Garrison working with Ronald Olson invented in 1965 the ODI lens to mimic
the effect of cataracts on chickens

The contact lens for use on chicken was originally designed by Robert Garrison and
collaborations were made with Ronald Olson to test and refine the lenses

In 1966 an investor saw the project feasible and they had formed a corporation; Optical
Distortion Inc.

The company was formed in response to huge opportunity lying due to inefficient practise
of debeaking

The process of debeaking carried a host of problems such as trauma, temporary weight
loss, and retardation of egg production.

The company had 2 most important assets:

United States product patent on the ODI contact lens

Companys contract with New World Plastics.

ODI agreed to pay New World $50000 & to purchase lens exclusively from New World

Several technical difficulties were there with the product:

Early prototypes did not always remain in the chickens eyes

Frequently caused severe irritation in the last month of chickens 12 month laying life

Retention problem was solved by modifying the size of the lens

New World sold lenses to ODI at a price of $0.032

Injection mold supplied by ODI to New World at a cost of $12000 each

California, North Carolina and, Georgia accounted for 25% of nations chickens
The number of small farms has been declining at the rate of 25% per year

Hierarchical type of social order was established through fighting and pecking
Cannibalism was a greater problem when birds were confined in cages

Replacing dead bird also disturbed the peck order

Debeaking reduced mortality rate from 25%(in case of full beak) to 9%

Debeaking led to loss of 1 egg/chicken per 5 months

A crew of 3 was used for debeaking at $2.50/hour for 220 chickens per hour

Chicken wearing ODI lens had its depth perception reduced to about 12
ODI lenses claimed to reduce mortality to an average of 4.5%

Trained crew could install the lenses in about 225 chicken per hour at $2.50/hour
The lenses were harder to take out than to put in

Food disappearance per 100 birds per day was reduced from 24.46 pounds when the feed
in trough was 2 deep to 23.68 at 1 deep
Annual savings amounted to $158

Annual cost of west coast regional office and warehouse was $196000,40000 for
salesperson and $35000 for technical representative

Monthly advertising cost in 8 leading poultry industry publication would cost

approximately $100,000 per year

Headquarter expenses would rise from 184,000 at 20 million pair to 614,000 at 60 million
and 1.2 million at volume of 20 million pair

Salespersons were expected to cover at least 80 farms each

Investment of at least $250,000 per year in research and development was expected

Price per pair of lens was $0.08

Competition

Although ODI does not face any direct competition as of now but has its competitor as
debeaking process; used to reduce cannibalization behaviour of chickens satisfying the
same need.

Despite the fact that the debeaking process lowers chicken morality caused by
cannibalism from 25% to 9%, there are heavy and drastic repercussions for the chickens
and farmers, in terms of production and chicken morale.

Thus ODI can maintain its monopoly if it is able to capture the market by targeting and
influencing the farmers in right direction.

Customer

The case says that its not profitable to sell to small farms having chicken count less than
10000. There are three segments based on size of farms:

Small Farms (10000 or fewer birds)

Medium Farms (10000-50000 birds)

Large Farms (over 50000 birds)

Recommendation
Increasing the selling price above 15 has lesser impact on the
reduction of required units for break even. So for the company it doesnt provide much
incentive to raise the price from 15 to 20 as compared to raising the price from 10 to 15.
Also, the decrease in the "net savings for farmers as a percentage of total profit" is more
when price is increased from 15 to 20 than from 10 to 15. Hence the farmers would lose
much more if price is increased from 15. Moreover, since it is a new technology, the
farmers would be reluctant to buy the product if it is highly priced. Hence it is
recommended to fix the selling price at 15.