Optical Distortion Essay
I. Executive Summary The dilemma ODI faces is whether introduce its product at a higher price and continue process its multiproduct and multimarket strategy. Based on ODI limited resources and current situation of poultry industry in United States, it should focus on large-sized chicken farms and price ODI lenses at a higher level for the sake of its profits and its future business plan.
II. Introduction With the fact existed in poultry industry in late 1970s that most of the chickens in United States were owned by some large farms. Optical Distortion, Inc., a contact lens company, has developed a kind of contact lens applied on chickens considered to hold enormous market potential. However, it is hard for ODI to decide how to price its products and how to extend its business nationwide considering its own limited resources.
III. Analysis and Problem Identifications
* Consumer Needs and WTP There are various-sized customers: small farm, medium farm, and large farm. They all suffered the loss caused by pecking order and cannibalism, and now most of them adopt the method of debeaking to reduce the impact of peck order, however, debeaking has some defects itself, and no matter what choice farmers make, they would concern following aspects before making the decision: whether the product or service is cost effective; the trauma that would bring to chickens, since traditional depeaking method would cause damage to the chickens in some degrees; the convenience of product usage is important especially for large farm; the after-sale services means if the company can provide professional follow-up services to the farm after purchasing. The larger farms, the more suffered from pecking order, will be more interested in our product and care about more on the quality of product or service and what economic value the product will bring to them. The value of ODI lens for farmers is the incremental benefit over existed depeaking methods minus the switching costs from depeaking to ODI lenses. Therefore ODI should take all the possible benefits that ODI would bring to farmers and also the costs of adopting ODI lens in to consideration. (See Exhibit 1)
* Marketing Strategy Price The company agreed on the minimum price of $0.08 per pair, however, benefits the farmers would obtain justify a higher price than it. Nevertheless, with the price higher than $0.08, it would be risky to convince farmers take the products in to consideration seriously until they experienced the products themselves. Because of ODI limited resources, it should obtain maximum contribution as soon as possible to support its increasing fixed cost and variable cost. So I think ODI should price its lens higher than $0.08 per pair from the beginning, and forget the idea about introducing the lenses at lower price and raising it later since chicken farmers would probably not agree.
Product Now ODI focus on developing contact lenses for chicken applications, and it is an innovative product for poultry industry that contains many advantages compared to depeaking method. However, it remains some problems like the lenses probably could not be reused. For ODI most potential customers, in this case, large farms, this problem may bring doubts about product’s economic value and ease of use which may increase the purchasing frequency and labor input. In addition, ODI may also think about becoming a multiple-product company in the future after establishing ODI lenses business with large chicken farms. They may consider develop additional product related to poultry industry based on more sophisticated technology and higher-level demand, they could also develop contact lenses for human applications as well as for nonhuman applications.
Marketing and Communications ODI mainly focus on two ways approaching to its customers: advertising in the leading poultry industry publications, participating in the most important industry trade shows. I think ODI should continue the strategy and also take a multiple-dimension advertising strategy, such as advertising on some Business-to-Business commercial website related to poultry industry, since most of ODI target customers are large farms. Currently, ODI has one salesperson cover no more than 80 farms and one technical representative for each five salespeople, although it may bring labor cost if ODI decided to hire more people, the number of salespeople might not be enough for ODI to process its “think-big” strategy and when dealing with its large farm customers, ODI may need more technology representative as well as salespeople. ODI may also seek cooperation with large-sized farms by obtaining long-term licenses from them.
Distribution Based on the region-by-region strategy, and the fact that most of the large farms which have the flock size 100,000 and over are located in California region and south Atlantic region, ODI should build its regional office and ware house in those regions and gradually establish the net to cover other regions by setting up smaller-sized regional office or warehouse in regions of lower demand.
Promotion Since the customers usually would order large amount of pairs of lenses especially large farms, ODI could offer promotions like if purchasing over some level of amount, they might get a rebate or discount on the products. However, since ODI is still fragile with its limited capital resource and the margin of its products is connected tightly with the price, the price promotion may introduced after gaining more power of capital and coming up other competitors. Before ODI having the capability of processing price promotion, it could improve its service like prolong the time for which salespeople and technology representatives can track the entire course of application.
* Competitive Strategy Benefit from its innovative technology and its patent and licensed protection of its products, ODI can hold off competitions for at least three years, therefore, ODI should not relax on its goal of multiproduct and multimarket company in the country, find a way to build brand image and close business relationship with suppliers and consumers, ODI should prepared well for confronting competitors by continuing product update and improving services, and ODI should also protect its proprietary technology by issuing patent.
* Intermediary Consideration – Supplier New World Plastics is the exclusive supplier to one of the materials for ODI lens. Because New World Plastic controlled the patents for hydrophilic polymer, on one hand, ODI should maintain the relationship with New World Plastic since ODI obtained a long-term license from it for exclusive use of hydrophilic polymer for nonhuman applications, and New World Plastic agreed not to produce polymer for other firms seeking nonhuman markets, this would provide more time for ODI to expand its influence in industry, on the other hand, ODI should keep the multiple-product strategy so that seek more bargaining power in this relationship and try to diverse risk of depending on limited suppliers
IV. Alternatives Evaluation Option 1: Keep “think-big” strategy with lower price If ODI plan to cling to its multimarket and multiproduct strategy, it should try to open the market as soon as possible, since for now it was limited by its scale and resources, it is hard for ODI to obtain considerable investment. To this end, ODI may consider capturing market at first place, therefore, it should provide price which its customer preferred. However, once the price is introduced, it is difficult for ODI to raise it in the future, moreover, it is urgent for ODI to obtain maximum contribution on account of its current situation.
Option 2: Keep “think-big” strategy with premium price Although farm owners may not recognize the benefits of adopting ODI lenses are much greater than $0.08 per pair, ODI can altering this by advertising extensively or promoting products by free samples and making more approaches to customers. Because ODI lenses are a kind of innovation for poultry industry, and there are certainly no incumbents in the market or competitors in at least 3 years, ODI have some level of pricing power. Given premium price, ODI are able to maintain its marginal profits, and also beneficial for its business expansion, since the margin should cover the costs of additional region offices and warehouse and advertising costs. Once ODI established its ODI lenses business, it can seek more opportunities in the market by expanding its production lines and creating newly favorable categories with additional capital and production capability.
Option 2: Keep “one-product” strategy with premium price Considering its limited resources, it is unrealistic for ODI to expand its production lines immediately, the ODI lenses are still an immature product in market, and ODI will face uncertainties as the project carrying on. Therefore, ODI currently has not extra resources regarding other products and markets. Despite of growing numbers of chickens and farms, poultry industry shows a trend that chicken population are more and more focus on large farms but the growth in number of large farms of over 100,000 flock size is not as rapid as in the number of the chicken that they own (See Exhibit 2). Therefore, the market potential is quite limited in the long run and ODI should open a broader market.
V. Recommendations and Conclusion If ODI lenses priced at a premium level at first, ODI could obtain more margin and it don’t need to worry about the difficulties in raising price in the future. It should also focus on improving the quality and services of ODI lenses, try to build up solid business relationship with its suppliers and customers, also find multiple ways of advertising and increasing the customers’ awareness and accessibility of products. For ODI business expansion plan, I think ODI should focus on large-sized farms at the beginning; put aside its business expansion temporally and focus on promoting ODI lenses regionally based on its limited resource. ODI should rely on technology updating, more effective advertising, and better services to build up brand image and occupy market share. After ODI lenses widely accepted by the market, ODI can start marching to other categories maybe poultry related products or non-poultry industry, based on its experiences and technology in this field.
University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 6 October 2016
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