Optical Distortion, Inc.

Optical Distortion, Inc.

Optical Distortion, Inc. (ODI)

ODI should price its lenses at $0.28 cents per pair. ODI should engage in price skimming by entering the market with a relatively high price and reducing that price when its patent runs out in three years. ODI should pursue price skimming over penetration pricing because pricing high will maximize short-term contribution allowing ODI to invest in R&D and scale operations. Investing in R&D will be critical for ODI to protect itself from low-cost entrants when their patent expires. Additionally, ODI's pricing strategy does not face significant short-term threat of retaliation from known competition. The patent protection prevents competitors from entering the market and exploiting the opportunity at lower price levels. Furthermore, the debeaking services companies (the largest source of competition in the short-term) are limited in their ability to reduce prices due to the minimum wage.

The optimal price for ODI to enter the market depends on the value potential customers place on the product. Currently, chicken farms using debeaking techniques to minimize cannibalization have profit margins of ~5.7%. ODI's lenses represent an improvement over debeaking because they significantly reduce cannabilization and improve feeding efficiency. Based on these improvements, ODI can charge up to $0.36 per lens pair without reducing the average profit margin of 5.7%. Moreover, other factors tend to increase the value customers will place on the lenses. For instance, actual value to customers will be even greater because the lenses enable farms to put more chickens in each cage thus reducing space requirements, cage costs, and the number of troughs needed. Moreover, farmers will save money by eliminating repeat debeaking (though this is only a benefit to the extent lenses do not require repeat installations). Farms might even be able to increase their revenues if consumers