P1 10 marker Mapping Tech Ltd (MT) is a private company owned by Jackie Beasley whose focus is on reducing the ecological impacts of agriculture by helping farmers find alternative farm land. They do this by selling drones with aerial mapping that can identify low-environmental impact areas for farming. After contracting improvements to their mapping software, MT scan, they had cash flow issues. Furthermore, the software had major issues which consumers reported and has damaged MT’s brand reputation. To fix the software, they need capital which they do not currently have. They should use external financing, such as business angels are crowdfunding, to pay for fixing their software.
Mapping Tech has depleted their internal finances which means they need to rely on external financing, which they can get through business angels. A business angel is a successful entrepreneur who invents into companies, usually for equity in return. The advantage of using securing business angels is that MT will get a quick source of finance which they need to address their software concerns. Getting capital quickly is essential to rebuild consumer trust quickly. Another advantage of relying on business angels is that in addition to financial support, MT gets the mentorship. Given how they are rapidly growing, and with the limited information given, Jackie does not have significant prior business experience, the mentorship of a business angel will be essential. They can help Jackie avoid making mistakes (like with their poorly implemented software) which saves the company from future losses (because outsourcing production is essentially a cost center; their failed software does not generate them revenue). Further, the mentorship can help keep MT’s growth sustainable, which is especially important since they are a small business. The primary drawback of getting a business angel as a source of external financing is that Jackie dilutes her equity and therefore decision making power. For example, Jackie was considering selling MT to KC, which is a decision that entirely depends on her. Introducing a business angel complicates this as the investor may not agree to sell the company. Additionally, not being entirely in charge of decisions suggests that Jackie and the business angel may disagree on the best way to conduct business operations. This can lead to conflict and slow decision making, as Jackie must consult with her investor prior to making decisions. As well, it can change MT’s corporate culture, where every employee can talk to Jackie since she knows them, but now any concerns will have to be addressed through the investor as well.
Another source of finance that MT can use is crowdfunding. Crowdfunding is when a company asks for donations on an online platform, and stakeholders interested in the product can invest. Crowdfunding is hosted on online platforms, so has the potential to generate massive cash inflows if MT’s product is unique enough, and if consumers would be interested in purchasing it. The advantage of using crowdfunding is that it does not dilute Jackie’s ownership of MT, so she remains in full control of how to use her finances. As well, by putting their product on an online platform, it acts as a form of BLT promotion where through word of mouth, interested stakeholders learn about their mapping drones. This leads to more interest and therefore more sales of the product, which positively impacts MT’s cash flow position and profitability. The disadvantage of doing so is that consumers may demand to know more about MT’s financials. Given Jackie’s reluctance to share with KC, a potential investor, the problems they’ve been having with software, it seems unlikely with the limited information of the case, that Jackie will be willing to be as transparent as demanded by stakeholders, even though it is her ethical objective. This can lead to a loss in trust. Furthermore, the product is priced expensively, and is meant for industrial applications. Everyday consumers will not purchase this product, which suggests that it wall have limited interest on crowdfunding platforms and therefore generate little revenue.
Overall, to improve their cash flow position to pay for software costs they could use business angels or crowdfunding. both sources of finance have drawbacks, but they do need financing urgently so can consider a combination of both
operations management: creating goods and services that consumers want to purchase. it involve developing managing and improving the production process
costplus pricing refers to pricing a product more than its cost. ensures selling price is greater than production costs. disadvantage: ignores prices paid by competitors. little incentive to reduce cost
penetration pricing: low starting price to gain traction in a new market because your costs are lower than competitors. not sustainable long term → low margins or even losses. if price goes up in external market suddenly it’s BAD
Loss leader pricing: sell a product at a loss and hope other products will perform well to compensate for it
Predatory pricing: sell lower price than competition to reduce their sales. can cause people to doubt quality of lower priced product. is considered anti-competitive in parts of the world so there are laws against it
dynamic pricing: change prices based on demand and availability of product (think plane tickets)