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.