Optical Distortion Marketing Plan - Online Sample

Optical Distortion, Inc. Marketing Plan

Dean Howley Christopher Longshaw Connie Ng Faryn Stanley

ADMN 210H – WI2009: Introduction to Marketing ODI Case Study – Marketing Plan 06/04/2009

Optical Distortion, Inc. Marketing Plan

Contents Executive Summary 1 Background 2 Product 7 Place 8 Promotion 9 Price 10 Recommendations 14 Exhibits 15

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Executive Summary Optical Distortion, Inc. is the manufacturer of the worlds first contact lens for agricultural use; the ODI contact lens. The innovative product is designed for use in the egg producing chicken industry and provides a simple, humane, effective, cost saving, and profitable technological advancement to farmers within the industry. This document will develop a strategic direction for the marketing of Optical Distortion, Inc. and the ODI contact lens through the exploration of numerous factors that impact the effectiveness of a company within the market. First, the background of the company, of its competitors, and of its customers will be explored, providing a base for further discussion of the product. Second, an identification of the appropriate segmenting, targeting, and positioning strategies for Optical Distortion, Inc and the ODI contact lens will occur, providing a basic understanding of the market structure to which the company and product will be entering. Third, the evaluation of the company and product’s strengths, weaknesses, opportunities, and threats will be made, identifying the key areas to be valued as an advantage, and those which require some attention to ensure effectiveness. Fourth, an exploration of Optical Distortion, Inc.’s product, place, promotion, and price strategies will occur, rounding out the items that form the strategic direction of the company and the initial product launch. Finally, using the current strategies as a guide, a recommendation of key considerations for the future will be made, indicating where future strategic decisions need to be made, and how this marketing plan can form a starting point for the future success of Optical Distortion, Inc. as a company, and the ODI contact lens as a product.

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Background The Three C’s – Company, Competition, and Customer

Company Originally invented in 1965 to mimic the effect of cataracts on chickens, the contact lens for use on chickens was a result of collaboration between Robert D. Garrison, an inventor, and Ronald Olson, an owner of a large chicken farm in Oregon. After product conceptualization, development, and testing, the two men, accompanied by an investor, saw the project as feasible and by late 1966 they had formed a corporation; Optical Distortion, Inc. (ODI). The company was formed in response to the relatively ineffective practice of debeaking. The process of debeaking is the current and most popular process of trimming the chicken’s beaks in order to prevent cannibalism, which is caused by the close proximity of the birds to each other within their cages. By debeaking the chickens, their method of attack is eliminated and therefore morality rates are decreased and productivity is improved. However, the process of debeaking carries a host of problems such as trauma, temporary weight loss, and retardation of egg production. Consequently, Garrison and Olson saw a need for an improved process and from that need developed the ODI contact lens. Two of the most important assets for Optical Distortion, Inc. are its United States product patent on the ODI contact lens and the company’s contract with New World Plastics. In 1969 Optical Distortion, Inc. was granted a patent for the use of a polymer. This polymer was the same matter used by Bausch and Lomb to produce soft contact lenses for humans, and was controlled by New World Plastics. Unfortunately the hydrophilic polymer could not be injection moulded, and therefore was not appropriate for production of the ODI contact lens. Alternative production processes were simply too expensive, and with New World Plastics’ polymer being the only material known at the time to produce soft contact lenses, production was halted. However, in 1973 Robert Garrison’s grandson Daniel Garrison contacted New World Plastics to investigate if any new developments had occurred with the hydrophilic polymer. As it turns out, New World had discovered a method that allowed polymer to be injection moulded and thus, Optical Distortion, Inc. entered into a contract with New World Plastics that gave the company exclusive use of hydrophilic polymer for nonhuman use. The company is still in a growth phase and as Olson explained “there’s a lot at stake here; more than enough potential for a big company to put fifty people on the project.” It is from this point that the strategic direction of this marketing plan will begin to shape the way Optical Distortion, Inc. grows into an expanding and prosperous company.

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Competition Although there is no direct competition in the chicken contact lens market, the real ‘need’ being addressed is the taming of chickens through the reduction of aggressive and cannibalistic behaviour. Until now, with the development of the ODI contact lens, the process of debeaking has been the only process to address this need for the past fifty years, and is therefore the main competitor of Optical Distortion, Inc. Given this situation, the entrance of ODI into the nearly monopolistic, but actually oligopolistic market structure, has turned that structure from a series of companies competing with only one process, to a series of companies now competing against each other as well as another process, creating a truly oligopolistic market structure containing both direct and indirect competition. The debeaking process seeks to prevent chickens from using their beak as a weapon. The operation entails using a hot knife and anvil to cut off the upper and lower mandibles of a chicken’s beak at different lengths. The beak is then pressed upon a hot knife to seal the wound and stop excess bleeding. Although this process is successful at rendering the beak less harmful in chicken attacks, the trauma it inflicts upon the chickens makes the process more detrimental than productive. The severity of the trauma is seen through temporary weight loss, retardation of egg production for approximately a week, and increased social stress for the chickens. 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. The costs associated with debeaking are mostly composed of labour. The process usually involves three labourers who earn approximately $2.50 each, per hour, who can debeak approximately 220 birds per hour. Given the described current market structure, it will be the purpose of this marketing plan to enable an effective entrance of Optical Distortion, Inc into the market as an indirect competitor to the debeaking process, which currently holds a monopoly on the solution to the need at hand.

Customer In order for Optical Distortion, Inc. to successfully sell the ODI contact lens to chicken farmers, it is essential for the company to understand the customer and their specific needs and wants. As Garrison stated “chicken farmers, even the big ones, are an independent-minded breed of men who might react very unfavourably if they get the idea that they have been taken” and as a result, it is important to show the chicken farmer how the ODI contact lens meets their needs better than the competition. There are three broad categories of chicken farms in California: small, medium and large. Small farms constitute 10,000 birds or fewer and are usually family operated. These farms most often sell their eggs directly to consumers or to local grocery, milk, or egg stores. The birds are often housed in henhouses of about 1000-2000 birds leaving farmers with the need to purchase starter pullers only once or twice a year. Although it is Optical Distortion, Inc. Marketing Plan

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possible for chicken cannibalism to be a problem on small farms, it is more unlikely because the chickens are not placed in as close proximity to each other as in larger farms and as such are less likely to attack one another. Therefore, because these small farms are not greatly concerned by cannibalism the ODI contact lens does not truly fulfil a need for them, and for that reason this customer group will not be targeted directly. Furthermore, because these farms consist of a maximum of 10,000 birds, the costs associated with the implementation of the ODI contact lens would likely be too expensive. In addition, small farms are declining at a rate of approximately 25% per year and are therefore not a very attractive market for Optical Distortion, Inc. to target. Medium size farms range from 10,000 to 50,000 birds and are usually managed professionally by the farmer. Due to the size of the farms, chicken cannibalism is often an issue, and as such many of these farmers are familiar with the debeaking process and have utilized it in the past. Moreover, farms of this size often have yearly cash flows of $375,000, and therefore would be able to afford the purchase and insertion of the ODI contact lenses. For those reasons, these medium sized farms will be directly targeted by Optical Distortion, Inc. for the sale of the ODI contact lenses. In this case however, I t is important for this group of customers to see the cost benefits specifically associated with ODI contact lenses, as money is likely to be a significant factor in their decision making. Large size farms contain upwards of 50,000 birds and are closer to resembling a small manufacturing firm than a farm. Administration of this firm is far more complex than both small and medium size farms, and often several people are involved in the decision making process. As a result, unlike the other two farms, which are largely run by a farmer who would make the majority of the decisions, Optical Distortion, Inc. may need to appeal to and convince multiple individuals to switch from the debeaking process to the ODI contact lens as their new prevention of chicken cannibalism. Although money is less likely to be a significant issue for this customer group, as their annual cash flow can reach and even exceed $12 million, it is absolutely essential that the cost effectiveness and production enhancing ability of the ODI contact lens be made very clear and prominent in the sales pitch. Regardless of these characteristics however, it is within this customer group that the majority of Optical Distortion, Inc.’s sales force will be targeted. STP – Segmenting, Targeting, and Positioning

Segmenting Optical Distortion, Inc. operates in the United States within the egg producing chicken industry. In order to effectively market agricultural contact lenses, the company must realize impediments, and take advantage of all opportunities that will project ODI into a favourable position as a market leader, and stave off competition. In order to do so, data has been collected to represent the entire industry within the United States to establish the greatest outlet for ODI’s initial penetration into the market.

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Currently, the egg producing chicken market encompasses 400 million chickens within the United States, embodying nearly 300,000 farms. The relevant data collected suggests the market is comprised of four market segments based upon farm population density. The four segments are farms with bird populations of: upward of 100,000 birds; between 50,000 and 100,000 birds; between 20,000 and 50,000 birds; and less than 20,000 birds. At first glance the data show that each segment contains: 20.6%; 11.4%; 22.5%; and 45.5% respectively, as seen in Exhibit 14. These figures show that farms with less than 20,000 birds hold a near majority of the chicken population within the United States. However, with further analysis of Exhibit 14 the data show that the average population of birds within each farm, separated by segment, is: over 200,000 birds per farm; more than 65,000 birds per farm; less than 30,000 birds per farm; and a meagre 571 birds per farm respectively. Therefore, it will be most beneficial to market the ODI contact lenses to more concentrated farms, placing priority with farms of population densities in upwards of 20,000 birds, which relating back to the analysis of the customer base defines the market segment as the upper half of medium farms and large farms.

Targeting With a realistic understanding of the market segment, as defined by the size of chicken farm and associated number of birds, to which the ODI contact lens will be directed, it is possible to look more directly at the specific target market. As a starting place, the geographic location of the product launch must align with the financial ability of Optical Distortion, Inc. as well as be easily accessible for salespeople and technicians. On that basis, and based on the previous test locations, there are two options for the location of the product launch: California and Oregon. The decision can be quite easily made however for two reasons. One, the area has already been subject to initial testing and is therefore more likely to recognize and accept the product. And two, California has traditionally been an innovator in the area of chicken farming and is therefore more likely to accept a movement away from the traditional practice of debeaking. In more detail, the California market can be broken down numerically as a means of further defining the specific market that the initial product launch of ODI contact lenses will target. From Exhibit 1 and Exhibit 2 it is possible to strategically isolate the target market in which the product launch will occur by considering three factors. First, the total number of chicken farms located in California; second, the respective size of those chicken farms; and third, the number of chickens that are located in those chicken farms. When interpreting each of those factors, the first question to answer is what is the size of farm that should be targeted? The answer to that question, according to inferences made by government surveys and our own segmenting analysis, is at least 10,000 chicken farms, and more realistically, 20,000 chicken farms. The second question then, having determined the size of farm to be 20,000 chickens or more, is how many farms of that size are located in California? The answer, according to Exhibit 1, is 521. The final question is then, within those 521 farms of 20,000 or more chickens, how many chickens are there in total. The answer, according to Exhibit 2 and an expected growth rate in the coming year of 23%, is approximately 50 million chickens. Therefore, the target market for the initial product launch of ODI contact lenses will be in California, to 521 chicken farms, with a total chicken population of approximately 50 million.

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Positioning As a positioning strategy, it is essential that Optical Distortion, Inc. assesses the specific personality characteristics of the targeted customer base. It is evident that the well known and traditional practices of farmers are difficult to sway as they are likely to be hesitant to change and weary of technological advancement. It is therefore necessary to stress easy application and the significant cost savings relative to the traditional practice of debeaking. It should also be established that the product offers a more humane approach to the hardships of chicken farming, and should prove to be a leading product that stresses a two-way relationship between farmers and their chicken populations. Positioning should incorporate the superior quality of the ODI contact lens compared to the bleak and inefficient technique of debeaking and its associated negative impact of chickens. It should be stressed that changing practices compares as a cost structure similarly to that of debeaking, but yet provides significantly more cost savings in the area of productivity. ODI contact lenses offer a more humane, more efficient, and more cost effective alternative to the reduction of chicken attacks and cannibalism than any other leading practice in the egg producing chicken market. By nearly eliminating cannibalism among the flock and drastically reducing the stress associated with traditional practices, the ODI contact lens provides simple technology that will save the customer money, as reflected by increased productivity and increased profit. It is this image of a simple, humane, effective, cost saving, and profitable technological advancement that Optical Distortion, Inc will use as a positioning strategy within the target market. With this approach, and the right sales task force exemplifying and proving these attributes, the ODI contact lens will surely become a market leader in the near future. SWOT – Strengths, Weaknesses, Opportunities, and Threats All organizations are subject to the instance of both internal and external circumstances. Those circumstances may be defined as positive or negative based on their impact on the organization. The process of determining these circumstances is known as SWOT, which defines this process as the organization’s strengths, weaknesses, opportunities, and threats. The following is the SWOT process for Optical Distortion, Inc.

Strengths Internal - Positive 1.

2. 3. 4. 5.

The Product – the use of contact lenses, as opposed to traditional practices, can reduce overall costs by decreasing feed loss due to billing and drooling, procedural recovery time, and mortality rates, while increasing chicken morale and productivity. Product Patent – the ability to prevent direct competition for three years. Contract – an agreement to prevent the manufacture from aiding competition; as they are the sole producer of the required plastic. New Market – the first mover advantage in an untouched market opportunity; competition only with outdated and inhumane processes. Human Capital – internal knowledge of, and relation to, the agriculture industry and business and commercial strategy.

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Weaknesses Internal - Negative 1. 2. 3. 4.

Cash Flow – an instance of limited monetary and current investment resources. Human Capital – with a limited employee base, the sales impact may be limited. Limited Market – the product is only beneficial for 20,000+ chicken farms. Profit Margin – penetrating the market requires a low-cost introduction strategy, but with high expenses and limited cash flow sales must be significant.

Opportunities External - Positive 1. 2. 3. 4.

Competition – no direct competitors exist in the market for agricultural contact lenses. Industry Growth – the number of chicken farms, notably 20,000+ chicken farms, is increasing steadily, creating a larger, concentrated market and increased share. Advertising – the industry contains a variety of publications and trade shows aimed specifically at the target market, creating significant opportunity for product advertising. Customer Need – the instance of cannibalism, reduced production, and other associated issues with current practices, creates a need for a better alternative.

Threats External - Negative 1. 2. 3. 4. 5. 6. 7.

Competition – the traditional practice of debeaking is considered the accepted norm and will prove a challenge in convincing customers to change practices. Competition – the release of a patent gives competitors an ability to reverse engineer the product using its specification, creating future competition. Competition – as the first market mover, it is expected that direct competition will emerge as the product becomes more widely known and accepted. Consumers – the target consumer, the farmer, is often opposed to change, and is often wary of ‘scams’ regarding new agricultural products and practices. Contracts – pre-existing contracts between farmers and debeaking companies or food distributors may reduce the size of the target market. Product Patent – the patented product was released before production was possible, wasting protected time. Environment – the industry itself is expensive by nature.

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Product As the company name might suggest, the ODI contact lens is designed to distort the vision of an egg laying chicken and as a result improve egg laying productivity. The contact lens, much like that used by human beings, is a soft plastic semi-spherical covering that fits directly over the eyeball of a chicken. Unlike the human version however, the ODI contact lens is slightly larger than the chicken’s eye opening and therefore uses the outer eyelid as a retainer to ensure the lens remains in place after its initial fitting. Furthermore, the contact lens is tinted a shade of red which, after the testing of a variety of colours, was found to produce the best result in terms of improving chicken temperament and productivity. The inspiration for the product is derived from the relatively ineffective practice of debeaking. The debeaking process was originally introduced as a method of reducing chicken mortality that was the result of cannibalism brought on by the close proximity of the chickens within each individual cage. By debeaking the chickens, their method of

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attack was eliminated, therefore reducing mortality rates and improving productivity. However, the debeaking process itself brought on other additional issues that in themselves decreased productivity, and as such left room for improvement in industry practice. Enter the ODI contact lens. Through a series of product tests, conducted via Ronald Olson’s chicken farm as well as by external parties, the ODI contact lens was proven to maintain several advantages over the traditional debeaking process. First of all, the fitting of the contact lenses can be completed in a similar time frame to the debeaking process; however the resulting trauma to the chicken is drastically reduced, as is recovery time, meaning the chickens are able to resume production much more quickly. Once fitted, tests have shown that the ODI contact lens is able to reduce the mortality rate in chicken flocks to an average of 4.5%, down from an average of 9% using the debeaking process. Further studies indicate that the use of ODI contact lenses as a replacement of the debeaking process can significantly reduce the amount of wasted feed lost to fussy eating habits, escaping saliva from the beak, and billing – the throwing of feed from a trough caused by the blunt end of a debeaked chicken’s beak.

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Place The decision as to where and how Optical Distortion, Inc. should distribute the ODI contact lens is a relatively simple one. That simplicity can be attributed to two factors; one, the proposed operational structure utilizes the use of a mobile sales task force, which eliminates the need for a traditional ‘brick and mortar’ retail location. Secondly, because of the nature of the product, which is the need to be professionally installed by trained individuals, there is again no need to provide a retail location. With that said, there are several key aspects of the operational structure that relate to the effectiveness of the distribution channel for ODI contact lenses. The first is that there must be an effective communications infrastructure in place, including both telephone and first class mail systems being effectively implemented within the headquarters, regional office, and warehouse to ensure efficient sales call requests and order processing. The second is that the sales task force and associated technical representatives are effectively dispatched and appropriately exemplifying the benefits of the products, while also ensuring customer satisfaction through follow-up service calls. And finally, the installation professionals must also be dispatched effectively and ensuring high quality installation, while showing efficiency and cost effectiveness to the customer. By using this ‘zero level’ distribution channel, that is selling directly to the customer and providing installation, Optical Distortion, Inc. will be able to eliminate both wholesale and retail distribution levels which could easily prove to be less cost effective and diminishing of the high quality sales and service that will be essential for the company’s success. By ensuring that high level of quality and a truly cost effective

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process through this distribution approach, ODI contact lenses will surely become the industry benchmark.

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Promotion For Optical Distortion, Inc. there are essentially six main mediums in which the promotion of the ODI contact lens can take place. Those are trade publications, newspapers, trade shows, fairs and community events, radio, television. There is, however, a certain degree of restraint that must be placed on the availability of these media to the company, based purely from resource availability. Realistically, the maximum feasible amount that can be spent on advertising and promotion is $40,000.00, which is then split between trade shows and fairs and community events, and the other media. In that way, the use of television, at least at the moment, may be entirely out of reach, with the possible exception of small local television stations throughout California; which should be researched and approached if the opportunity for their use is presented. Radio however, is mush more feasible given the allotted resources and should be utilized, but in a directed fashion. Because the target market is comprised of individuals with specific characteristics, it will be essential that market research be conducted to identify the most appropriate radio stations to air commercials for the ODI contact lens – for example on country and western or local news stations. Similarly, the use of local news papers for advertising must also be directed in a similar fashion as to ensure the readers are comprised of the same target market to which the ODI contact lens will be directed. There are as many as eight trade publications, aimed specifically at the target market for ODI contact lenses that must also be utilized for the promotion of the product. Again, it must be determined where these trade publications are distributed, namely regions and specific locations, and therefore decided which of these publications the advertising for the ODI contact lens be placed in. Obviously, advertising the product in a publication that is not distributed in California or nearby locales is a waste of resources, at least for the initial product launch. In the case of trade shows and fairs and community events, those instances where they take place within the target market for ODI contact lenses, that is in California, and are of a large enough scope to encompass medium and large sized farmers’ interest, should be utilized for the personal selling and promotion of Optical Distortion, Inc. and the ODI contact lens. The most important aspect of the promotion of ODI contact lenses, in addition to choosing the appropriate media and locations, is the continuity of each of the advertisements and their alignment with not only the Optical Distortion, Inc brand, but also the positioning strategy that has now been set forth within this marketing plan. It is essential that Optical Distortion, Inc. and the ODI contact lens is portrayed as a simple, humane, effective, cost saving, and profitable technological advancement within the egg producing chicken industry.

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Price Objectives Our role as marketing consultants is very simple and contains three basic topics. First, we must use a set of scenarios to determine the levels of production and price points that will allow Optical Distortion, Inc. to become minimally sustainable; that is a breakeven analysis. Second, we must determine, through an analysis of the three basic pricing structures, the prices at which the ODI contact lenses could be effectively produced, marketed, and sold while allowing the company to remain minimally sustainable. And third, we must determine, conclusively, the appropriate organizational structure and accompany that by a recommendation for the most appropriate final pricing strategy. Issues There are several significant issues impacting our analysis and associated recommendations. First, the current financial position of Optical Distortion, Inc. limits the size of a feasible organizational structure and therefore limits the target market that can be approached during the initial product launch. Second, as a new technology entering the market the ODI contact lens can be priced, hypothetically, at any level given there are no direct competitors to reference that price level to. However, the issue arises in that the currently accepted practice of debeaking must be referenced as a price level, meaning the ODI contact lens must be seen as both competitively priced and future cost saving while also ensuring the feasibility of production and that the company remains sustainable. And third, the issue of market penetration may be significant as the traditional practice of debeaking is engrained in the operations of current chicken farms and to convince the farmers of a change, given they are often opposed to change, will take a very attractive and statistically proven pricing plan. Alternative Scenarios By using a set of alternative scenarios, for this analysis a set of four, it is possible to examine and reflect upon the differing levels of penetration into a market. In doing so we are able to determine the exact cost structures associated with targeting a certain percentage of the farms in the California market. To do so we have chosen the scenarios to reflect the instance of Optical Distortion, Inc. approaching 100%, 75%, 50%, and 25% of the farms in California. By using these percentage based figures we will be able to determine the level of fixed and variable costs associated with approaching that number of farms, as well as the sales requirement and associated market share necessary for the company to remain minimally sustainable, that is to breakeven. For each scenario there will be a set of annual non-adjustable fixed costs, adjustable fixed costs, and variable costs based on the level of production. The nonadjustable fixed costs include a contractual payment to the contact lens manufacturer,

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New World, and the regional office and warehouse expenses for California. The adjustable fixed costs include sales representative salaries, technical representative salaries, publication advertising expense, tradeshow advertising expense, and headquarters expense. The variable cost is a single figure that encompasses within it the cost of manufacturing, cost of injection moulds, and cost of product packaging and shipping, and can be examined in Exhibit 3.

Scenario One Scenario one represents Optical Distortion, Inc. approaching 100% of the chicken farms in California. At 100% of the market, the company will approach 521 farms, with an associated population of 50 million chickens. As seen in Exhibit 4, the total fixed cost while approaching 100% of the market is $1,121,000.00. At that fixed cost, there are a range of price options and associated breakeven or profit generating sales outputs that are found in Exhibit 5. Those options will be analyzed further within the analysis section.

Scenario Two Scenario two represents Optical Distortion, Inc. approaching 75% of the chicken farms in California. At 75% of the market, the company will approach 391 farms, with an associated population of 37.5 million chickens. As seen in Exhibit 6, the total fixed cost while approaching 75% of the market is $871,000.00. At that fixed cost, there are a range of price options and associated breakeven or profit generating sales outputs that are found in Exhibit 7. Those options will be analyzed further within the analysis section.

Scenario Three Scenario three represents Optical Distortion, Inc. approaching 50% of the chicken farms in California. At 50% of the market, the company will approach 261 farms, with an associated population of 25 million chickens. As seen in Exhibit 8, the total fixed cost while approaching 50% of the market is $696,000.00. At that fixed cost, there are a range of price options and associated breakeven or profit generating sales outputs that are found in Exhibit 9. Those options will be analyzed further within the analysis section.

Scenario Four Scenario three represents Optical Distortion, Inc. approaching 25% of the chicken farms in California. At 25% of the market, the company will approach 131 farms, with an associated population of 12.5 million chickens. As seen in Exhibit 10, the total fixed cost while approaching 25% of the market is $481,000.00. At that fixed cost, there are a range of price options and associated breakeven or profit generating sales outputs that are found in Exhibit 11. Those options will be analyzed further within the analysis section. Cost and Profit Pricing As a starting point for the analysis of pricing, the cost and profit pricing systems work internally as company specific strategies that are applied to the products which are being produced and sold. In the case of Optical Distortion, Inc. the instance of defining the price for ODI contact lenses is relatively unlikely as the market to which the product Optical Distortion, Inc. Marketing Plan

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is being proposed, that is to chicken farmers, is highly unlikely to accept the product simply based on an arbitrarily set number that is based only on a cost-plus or profit pricing basis. That said, it will be important to consider the availability of profit when pricing the ODI contact lenses, but that consideration must accompany both the competitive and value based pricing strategies as well. Competitive Pricing The competitive pricing strategy in the context of the initial product launch for ODI contact lenses is an interesting one for two reasons. One, the product must be priced competitively with the existing practice of debeaking as a means of luring the target market away from that tradition. And two, the product must also be priced in such a way as to be representative of the value that is being brought forth over the existing practice by way of introducing an entirely new and innovative product and process. In that way, much the same as with cost and profit pricing, the strategy of competitive pricing must not be considered on its own, but instead in conjunction with cost and profit pricing as well as value based pricing. Value Based Pricing In the case of Optical Distortion, Inc. the implementation of a value based pricing strategy is, in our opinion, the most important of the three different pricing options. This is simply based on, as was stated earlier, the target market in which the ODI contact lens is being launched. Although the product is new and innovative, the market itself is relatively adverse to the entrance of new technology, and more generally to change. Therefore, when pricing the ODI contact lens the first consideration must be the value to the customer that will be obtained by switching from the traditional practice of debeaking to the use of the ODI contact lens. That value is a very important factor in the ability of the company to market and sell the product, and can be numerically represented by cost savings to the customer as seen in Exhibit 12. With a close inspection of the cost savings from switching to the use of the ODI contact lens, there seems to be a clear financial benefit to the customer, in this case approximately $0.27per chicken. With that customer value as a base, with additional input using cost and profit pricing and competitive pricing strategies, we are able to break down the four scenarios, in Exhibit 3 through Exhibit 11, and determine, concretely, an appropriate operational structure and pricing strategy. Operational Structure Using the calculations developed within each of the four scenarios, in Exhibit 3 through Exhibit 11, we are able to determine the appropriate operational structure for the initial product launch of the ODI contact lens. That structure is based upon the current financial position of the company, the desired market penetration within the first year of entry, and the sales outputs necessary to ensure the company remains minimally sustainable, that is they are able to breakeven. Based on these parameters, the most appropriate scenario and associated operational structure is scenario two, seen in

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Exhibit 6,

for several key reasons. First of all, the approach of 75% of the total market size is within the financial ability of the company. This is based on an effective use of five sales representatives and one technical representative which leaves no excess capacity by the technical representative; a feasible headquarters expense that will provide effective company contribution without being overextended; and an advertising budget that both reflects an effective proportion of the publications and geographic areas while also remaining feasible with reference to the budget. In each of the other three scenarios, one, three, and four, there are ineffective uses of resources, namely in the lower population approach scenarios, as well as inflated expenses, namely in the high population approach scenario, that make those operational structures unfeasible and inappropriate for the current position of the company. Therefore, for the initial product launch of ODI contact lenses we recommend the approach of 75% of the market, as seen in scenario two, Exhibit 6, as an operational structure. Pricing Strategy Using scenario two, seen in Exhibit 6, as a basis for the recommendation of a pricing strategy, we are able to conclude upon an appropriate price per pair of ODI contact lenses. As was stated within the analysis section, the basis for the pricing strategy must be the value created for the customer because of the characteristics of the target market. That basis then, according to Exhibit 12, depicts that our customer value is approximately $0.27 per chicken, and therefore per pair of ODI contact lenses. From this we are able to determine that the appropriate price must be less than $0.27. However, to remain sustainable the minimum price per pair, according to internal research must not be less than $0.08 per pair of ODI contact lenses. Furthermore, based on a conservative estimate of approximately 50% market penetration within five years, and therefore approximately 10% penetration per year, we are looking for our price to reflect an introductory market share for the first year of at least 10%. Using these parameters, and the associated calculations found in scenario two, in Exhibit 6, we have determined that a sustainable, competitive, and value based price for the ODI contact lens is $0.15 per pair. At this pricing level the company is able to breakeven at a sales output level of 7,539,820 pairs, at 15% market share, which is more than feasible; the company is able to become profitable at a sales output level of 9,271,122 pairs, at 19% market share, which is also feasible; the company can remain internally sustainable based on its current and projected financial position; and the company will be able to market to the customer a gross cost savings of $0.27 per chicken, with a net cost savings of $0.12 per chicken. Therefore, it is our recommendation that Optical Distortion, Inc. produce and distribute its ODI contact lenses at a price of $0.15 per pair. We strongly believe based on internal research, external research, scenario analysis, and our personal expertise and judgement that our recommended target market, operational structure, and pricing strategy will produce excellent results and a thriving company for Optical Distortion, Inc.

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Recommendations There are several key recommendations to consider for the future of Optical Distortion, Inc. which are encompassed by the categories of resource availability, target market, and promotion. First of all, each and every recommendation made within this marketing plan was impacted in some way by the current financial position of Optical Distortion, Inc. With a limited cash flow currently hindering certain strategic moves, it will be important in the future to reassess certain decisions based on increased operational ability that will come from an increase in resources based on the income of revenue. Secondly, and related to the first point, the current target market for the ODI contact lens is relatively limited, although currently in perfect strategic line with the ability and direction of Optical Distortion, Inc. However, in future years an expansion to a wider target market, specifically the addition of regions outside of California, will certainly be an important strategic move that will provide the company with a much greater opportunity for market capitalization and overall profitability. Finally and again related, the current promotional strategy is based on a very limited resource allocation as well as a very limited scope regarding the target market. In the future, when resources are less scarce and the target market has widened, it will be absolutely necessary for Optical Distortion, Inc. to increase promotional expenditures and expand the scope of these advertisements as it will enable them to connect to the customer on a larger scale, ultimately resulting in greater product interest, market share, and profitability. Additionally, as technological advancements are made in the areas of telephone, facsimile, and computer technologies, it will be imperative that Optical Distortion, Inc. maintain an up to date and efficient communications infrastructure to ensure that their operational structure is efficient and effective, providing the highest quality experience for customers.

Optical Distortion, Inc. Marketing Plan

14

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Exhibits Exhibit 1 – Chicken Farms in California, 1969 and 1955 Year: Farm size / market segment

1969 # of farms in segment

1969 # of farms in market

1969 segment share of market

1975 # of farms in segment

1975 # of farms in market

1975 segment share of market

100 000

87

3,023

2.9%

87

3,023

2.9%

Total Market : 20 000

3,023 2,502 521

3,023 3,023 3,023

100.0% 82.8% 17.2%

3,023 2,502 521

3,023 3,023 3,023

100.0% 82.8% 17.2%

Exhibit 2 – Chicken Populations in California Farms, 1969 and 1955 Year: Farm size / market segment

1969 # of chickens in segment

1969 # of chickens in market

1969 segment share of market

1975 # of chickens in segment

1975 # of chickens in market

1975 segment share of market

100 000

22,952,283

46,203,988

49.7%

28,893,206

58,135,223

49.7%

Total Market : 20 000

46,203,988 6,274,308 39,929,680

46,203,988 46,203,988 46,203,989

100.0% 13.6% 86.4%

58,135,223 7,848,255 50,286,968

58,135,223 58,135,224 58,135,225

100.0% 13.5% 86.5%

Optical Distortion, Inc. Marketing Plan

15

Exhibit 3 – Optical Distortion, Inc. Variable Cost

Variable Cost Optical Distortion, Inc. Variable Costs Manufacturing

$

0.03200

Injection Moulds ($12,000/15,000,000 pair)

0.00080

Plastic Boxes

0.00040

Filling Boxes

0.00056

Shipping

0.00072

Total Variable Cost

Optical Distortion, Inc. Marketing Plan

$

0.03448

16

Exhibit 4 – Optical Distortion, Inc. Scenario One Fixed Costs

Scenario One Optical Distortion, Inc. Annual Fixed Costs

(100% of 50,000,000)

Contractual Payment

$

25,000.00

Regional Office and Warehouse Expense

196,000.00

Headquarters Expense (50,000,000 x $0.01)

500,000.00

Sales Representatives (7 @ $40,000)

280,000.00

Technical Representatives (2 @ $35,000)

70,000.00

Publication Advertising (100,000 x 25%)

25,000.00

Tradeshow Advertising (100,000 x 25%)

25,000.00

Total Annual Fixed Costs

Optical Distortion, Inc. Marketing Plan

$ 1,121,000.00

17

Exhibit 5 – Optical Distortion, Inc. Scenario One Price and Breakeven Analysis

Scenario One Optical Distortion, Inc. Price and Breakeven Analysis Market Population Total Variable Cost Total Fixed Cost Breakeven Profit Level Desired Profit Level

50,000,000 $ 0.03448 $ 1,121,000.00 $ $ 200,000.00

Lens Price

Breakeven Sales

Market Share

Profitable Sales

Market Share

($ per pair)

(# of pair)

(% at b/e sales #)

(# of pair)

(% at profit sales #)

0.08

24,626,538

49

29,020,211

58

0.10

17,109,280

34

20,161,783

40

0.12

13,108,045

26

15,446,679

31

0.15

9,703,947

19

11,435,249

23

0.18

7,703,408

15

9,077,790

18

0.20

6,772,595

14

7,980,909

16

0.22

6,042,475

10

7,120,526

14

0.25

5,201,373

10

6,129,362

12

Price and Breakeven Analysis Formulas

Breakeven Sales Output =

Total Fixed Costs Unit Price - Unit Variable Cost

Profitable Sales Output =

Total Fixed Costs + Desired Profit Unit Price - Unit Variable Cost

Market Share =

Optical Distortion, Inc. Marketing Plan

Sales Output Market Population

18

Exhibit 6 – Optical Distortion, Inc. Scenario Two Fixed Costs

Scenario Two Optical Distortion, Inc. Annual Fixed Costs Contractual Payment

(75% of 50,000,000) $

25,000.00

Regional Office and Warehouse Expense

196,000.00

Headquarters Expense (37,500,000 x $0.01)

375,000.00

Sales Representatives (5 @ $40,000)

200,000.00

Technical Representatives (1 @ $35,000)

35,000.00

Publication Advertising (100,000 x 20%)

20,000.00

Tradeshow Advertising (100,000 x 20%)

20,000.00

Total Annual Fixed Costs

Optical Distortion, Inc. Marketing Plan

$

871,000.00

19

Exhibit 7 – Optical Distortion, Inc. Scenario Two Price and Breakeven Analysis

Scenario Two Optical Distortion, Inc. Price and Breakeven Analysis Market Population Total Variable Cost Total Fixed Cost Breakeven Profit Level Desired Profit Level

$ $ $ $

50,000,000 0.03448 871,000.00 200,000.00

Lens Price

Breakeven Sales

Market Share

Profitable Sales

Market Share

($ per pair)

(# of pair)

(% at b/e sales #)

(# of pair)

(% at profit sales #)

0.08

19,134,446

38

23,528,120

47

0.10

13,293,651

27

16,346,154

33

0.12

10,184,752

20

12,523,386

25

0.15

7,539,820

15

9,271,122

19

0.18

5,985,432

12

7,359,813

15

0.20

5,262,204

11

6,470,517

13

0.22

4,694,912

8

5,772,962

12

0.25

4,041,388

8

4,969,376

10

Price and Breakeven Analysis Formulas

Breakeven Sales Output =

Profitable Sales Output =

Market Share =

Optical Distortion, Inc. Marketing Plan

Total Fixed Costs Unit Price - Unit Variable Cost Total Fixed Costs + Desired Profit Unit Price - Unit Variable Cost Sales Output Market Population

20

Exhibit 8 – Optical Distortion, Inc. Scenario Three Fixed Costs

Scenario Three Optical Distortion, Inc. Annual Fixed Costs Contractual Payment

(50% of 50,000,000) $

25,000.00

Regional Office and Warehouse Expense

196,000.00

Headquarters Expense (25,000,000 x $0.01)

250,000.00

Sales Representatives (4 @ $40,000)

160,000.00

Technical Representatives (1 @ $35,000)

35,000.00

Publication Advertising (100,000 x 15%)

15,000.00

Tradeshow Advertising (100,000 x 15%)

15,000.00

Total Annual Fixed Costs

Optical Distortion, Inc. Marketing Plan

$

696,000.00

21

Exhibit 9 – Optical Distortion, Inc. Scenario Three Price and Breakeven Analysis

Scenario Three Optical Distortion, Inc. Price and Breakeven Analysis Market Population Total Variable Cost Total Fixed Cost Breakeven Profit Level Desired Profit Level

$ $ $ $

50,000,000 0.03448 696,000.00 200,000.00

Lens Price

Breakeven Sales

Market Share

Profitable Sales

Market Share

($ per pair)

(# of pair)

(% at b/e sales #)

(# of pair)

(% at profit sales #)

0.08

15,289,982

31

19,683,656

39

0.10

10,622,711

21

13,675,214

27

0.12

8,138,447

16

10,477,081

21

0.15

6,024,931

12

7,756,233

16

0.18

4,782,848

10

6,157,229

12

0.20

4,204,930

8

5,413,243

11

0.22

3,751,617

6

4,829,668

10

0.25

3,229,399

6

4,157,387

8

Price and Breakeven Analysis Formulas

Breakeven Sales Output =

Profitable Sales Output =

Market Share =

Optical Distortion, Inc. Marketing Plan

Total Fixed Costs Unit Price - Unit Variable Cost Total Fixed Costs + Desired Profit Unit Price - Unit Variable Cost Sales Output Market Population

22

Exhibit 10 – Optical Distortion, Inc. Scenario Four Fixed Costs

Scenario Four Optical Distortion, Inc. Annual Fixed Costs Contractual Payment

(25% of 50,000,000) $

25,000.00

Regional Office and Warehouse Expense

196,000.00

Headquarters Expense (12,500,000 x $0.01)

125,000.00

Sales Representatives (2 @ $40,000)

80,000.00

Technical Representatives (1 @ $35,000)

35,000.00

Publication Advertising (100,000 x 10%)

10,000.00

Tradeshow Advertising (100,000 x 10%)

10,000.00

Total Annual Fixed Costs

Optical Distortion, Inc. Marketing Plan

$

481,000.00

23

Exhibit 11 – Optical Distortion, Inc. Scenario Four Price and Breakeven Analysis

Scenario Four Optical Distortion, Inc. Price and Breakeven Analysis Market Population Total Variable Cost Total Fixed Cost Breakeven Profit Level Desired Profit Level

$ $ $ $

50,000,000 0.03448 481,000.00 200,000.00

Lens Price

Breakeven Sales

Market Share

Profitable Sales

Market Share

($ per pair)

(# of pair)

(% at b/e sales #)

(# of pair)

(% at profit sales #)

0.08

10,566,784

21

14,960,457

30

0.10

7,341,270

15

10,393,773

21

0.12

5,624,415

11

7,963,050

16

0.15

4,163,781

8

5,895,083

12

0.18

3,305,388

7

4,679,769

9

0.20

2,905,993

6

4,114,306

8

0.22

2,592,712

4

3,670,763

7

0.25

2,231,811

4

3,159,800

6

Price and Breakeven Analysis Formulas

Breakeven Sales Output =

Profitable Sales Output =

Market Share =

Optical Distortion, Inc. Marketing Plan

Total Fixed Costs Unit Price - Unit Variable Cost Total Fixed Costs + Desired Profit Unit Price - Unit Variable Cost Sales Output Market Population

24

Exhibit 12 – Optical Distortion, Inc. Scenario Four Price and Breakeven Analysis

Cost Savings and Customer Value Optical Distortion, Inc. Cost Savings and Customer Value (Achieved by switching from Debeaking to the ODI Contact Lens)

Bird Mortality (9% to 4.5% - $2.61 per chicken)

$

0.11745

Bird Trauma (1 egg loss reduced to 0 egg loss)

0.04417

Chicken Feed (78 lbs per day less - $158.00 per ton)

0.11246

Total Variable Cost

$

0.27407

Cost Savings and Customer Value Formulas

Bird Mortality =

Percentage Savings x Cost of Chicken

Bird Trauma =

One Egg x Income per Egg Carton Total Eggs in a Carton

Chicken Feed =

(Feed Cost) x (Chickens) x Savings per Day x Days per Year (Lbs in Ton) (Flock Size)

Cost Savings and Customer Value Statistics Bird Mortality Percentage Savings - 4.5% according to internal and external research Cost of Chicken - $2.61 per chicken according to external research Bird Trauma Reduced Egg Loss - 1 egg savings according to internal research Income per Egg Carton - $0.53 per carton according to external research Chicken Feed Feed Cost - $158.00 per ton/$0.079 per pound according to internal research Flock Size - Savings based on a minimum flock size of 20,000 according to internal research Savings per Day - $78.00 per day, using a 2 inch trough, according to internal research

Optical Distortion, Inc. Marketing Plan

25

Exhibit 13 – United States Chicken Market, 1969

# of farms # of chickens share of total chickens average chicken population per farm

100000

Total

289,494 165,238,279 45.5%

2870 81,547,775 22.5%

631 41,566,445 11.4%

345 74,856,267 20.6%

293,340 363,208,766 100%

571

28,414

65,874

216,975

1238

Exhibit 14 – 100,000+ Flock Size Farms in the United States, 1969

# of farms share of farms >100000 # of chickens share of birds within farms >100000 average chicken population per farm

Optical Distortion, Inc. Marketing Plan

South Atlantic

California

Total U.S.

70 20.3% 12,065,486 16.1% 172,364

87 25.2% 22,952,283 30.7% 263,819

345 100.0% 74,856,267 100.0% 216,975

26