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Optical Distortion Notes I. How much is a pair of ODI lens worth to the chicken farmer?

The value for the farmer is value of substitution in use, in other words substitution of the existin method !debeakin ". #o the value of a pair is

Incremental benefit over debeaking $ switching cos ts

#o let us consider the benefits to the farmer per bird per %ear. The sources of benefits are &. 'educed chicken mortalit%. (ortalit% reduced from )* to +.,* The present cost of a survivin bird -includin dead birds. is 3ess the new cost with the lens is 0 1.+45-&$4.4+,. / 0 1.2& / $ 0 1.,& 666666666 10 cents

1. 7eed savin s 8ssume that the feed depth is reduced b% 9 feet. #ome of %ou mi ht have assumed that the feed depth is reduced b% & foot.
&,251 :#avin s for 9 feet per da%; < &514,444 :savin s per chicken; < &,=51444 :savin s5lb; < >2, da%s

This ives us feed savin s of 11.25 cents. >. #avin s on e production increase relative to debeakin

This could be because of less trauma. ?ased on an one e per chicken per annum. &e < &5&1 4.,> production to be 4.5 cents.

This ives us a savin s on e

Thus the total calculable economic benefit to the chicken farmer in use over debeakin / 25.75 cents +. Other benefits@ #ome other benefits %ou mi ht have thou ht about@

3abor cost of insertin lenses versus that of debeakin . This can be seen as a wash -1145hr debeakin vs. 11,5hr. lenses.. Increased e production amon lower peckin order birds 3ess dead birds / less trauma for survivors / more e production.

#e mentation In eo raphic terms Aalifornia is the lar est market. 7ollowed b% 7lorida B Ceor ia B Aarolinas. The issue is that ODI is a start up with capital of onl% 0 144D. This mi ht call for a more focused rather than a broad roll out. In terms of farm siEe it is lo ical to do to lar e farms and then medium firms. 3ar er farms are i. better use of sales force, ii. savin s are reater for lar er farms iii. lar er farms are more like a ribusinesses and can be more easil% educated of the economic benefits iv. lar er farms can be !reference accounts" Fricin Folic% Gariable costs@ The variable costs are >.1 cents for manufacturin . The box costs which are variable are 4.&H cents. 7inall%, the inIection moulds cost 0&1,444 for &, mn. pieces and can be thou ht of as variable at 4.4= cents. #o the total variable costs are >.+, cents. 7ixed costs@ One could consider hi h versus low options New world pa%ments 'e . Office and warehouse #alesrep J +4 k Tech repsJ >,k 8d F' Trade shows HK expense Hi 1, &)2 =reps / >14 1reps / H4 14 14 &=+ 3o 1, &)2 , reps / 144 & rep / >, , &4 &44 -for 14 mn pairs.

#o all the above calls for a pricin strate % that is bounded b% a price ceilin -of approx 12 cents. and a price floor of the direct variable costs B overheads. This leads to the discussion of the factors determinin the actual price which we had in the class and as summariEed in the picture below.

Price Ceiling (Demand Factors, Consumer Reservation Prices)

Competition Risk Preemption Market Penetration

Final Pricing Decision

Corporate objectives Li uidit! "kimming

Price Floor (Cost Factors, Direct Variable Costs)

Fricin Folic% Aonsiderations &. Fenetration versus skimmin considerations. 1. 'isk faced b% farmers. Lhat is the first reaction that man% farmers would have? (i ht not take the product seriousl%. This means that ODI must desi n schemes to credibl% demonstrate the value of its innovation to the farmers -test marketin pro rams..