Optical Distortions, Inc
Autor: Thomas Van Moerkercke • May 2, 2017 • Case Study • 567 Words (3 Pages) • 696 Views
Case: Optical Distortions, Inc
- How do you think about this product idea?
First there are many positive aspects of this idea. On the economic side, the idea is very interesting as it reduces mortality due to cannibalism, it reduces the feed costs and the egg production loss for the farmer. It is more efficient that debeaking to reduce cannibalism (mortality goes from 9% to 4, 5%) and it reduces also trauma. Moreover, the market potential is very impressive and there is no competition on this segment so the company can expect an important market penetration.
Nevertheless even if it seems to be a good alternative to cannibalism, the idea have some drawbacks. First for the good of the hens because the lens will interfere the happiness of hens and will have an impact on its health (leading to cataract) so I think many animal protectors will react badly to this product. Moreover, to deal with cannibalism, there are other solution than the lens. The farmer can for example reduce the number of hens in any cage and give them more adequate food.
- What is the price to charge for the product?
My first idea was to calculate the benefit of the farmer if he decides to replace debeaking by the lens.
In terms of feeding, I calculating the feed saving (see excel sheet) and I found it to be $0,20/hen. Then I calculated the saving related to the mortality reduction ($0,108) and the egg production ($0,099). Adding these 3 results, the farmer saving using this product is $0, 41/hen. Given that, we have a cap price of our product. Indeed, the farmer is unfamiliar with this new technology so he is not no ready to pay the highest price. The farmer also has to save money from this new technology.
To give a price of the product, I then decided to do a breakeven analysis. Let’s assume that our market segment is the farms with over 20 000 hens in California. It represents 39 929 680 birds. The company can expect a 50% penetration in the 5 next week, our market segment is about 20 000 000 birds. With this target in mind, I calculated the fixed costs knowing that the headquarter expense would be 184000$ under this assumption. I found a total fixed cost to be $955000. Then I calculated the breakeven for different price of the product, as followed:
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