Everyone in the country, and without a doubt all around the world, will certainly have experienced the latest global economic downturn in one manner or another, possibly as a person or as a business owner. It may not have had a direct impact on your own position or your private earnings, but the knock-on impact of companies losing revenue will have influenced the economic circumstance of the great majority of folks. It has been a really complex issue with far reaching ramifications.
The actual downturn now seems to be over, or is at least coming to an end, according to many economic authorities. Whilst it may not yet be the occasion to celebrate having made it through the economic meltdown, it should be a time to begin looking ahead and planning for a future within a steady economy. It is time to seek out some recession opportunities.
Companies of almost all sizes, trading in all types of markets are no doubt going to have to adjust their operations in view of the economic depression. This may be after legislation is brought in to more closely control and keep an eye on the action of worldwide financial companies. Many businesses may also be considering methods to make themselves much more robust and have the ability to withstand economic instability in the long term.
The Recent Recession
The economic downturn of the early 21st century started in 2007 and steadily spread around the planet over the following couple of years. Numerous financial analysts attributed the cause of the recession to be the crash in the U.S. real estate market, which in turn impacted the worth of financial products tied into real estate assets.
This fall in value then exposed the vulnerabilities of such a widespread system of credit agreements between international corporations, particularly when much of the system was being backed by subprime lenders who were financial risks. A basic lack of third-party control of the financial services sector had permitted the creation of a highly complex web of high-risk credit agreements that depended upon a growing economy. Once the first debtors started to default on payments, the entire house of cards was quick to fall.
The following economic fallout saw several individuals lose their jobs and also lose their properties, whilst many large, global companies were forced out of business. Government authorities across the world had to introduce sweeping financial programs to assist their own banking systems, and even now certain first world countries are struggling to make it through financially. Many consider it to have been the toughest financial episode since the depression of the 1930s.
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The Impact on Business
It is probably fair to say that the economic downturn had an impact on just about every business around the world. Particular business models will have been more able to adjust to the additional economic stress than others however they will have still felt an impact at some section of their operation.
Thousands of small and medium sized companies have been pressured out of business as a result of the recent economic collapse. Several of these cases will have been comparatively simple; as the general public start to reduce their spending these businesses lose income, and since profit margins are often extremely slender in a competitive market place there was very little space to accommodate this decline. It’s a straightforward case of supply and demand not meeting in the middle.
Some other cases were not so clean cut. There were circumstances where one business in a long supply chain were unable to survive and the knock-on impact would force every business in that supply chain to the brink of bankruptcy.
Job losses have naturally been a very sensitive subject to the vast majority of us. It is estimated that the present number of jobless individuals in the UK is over 2.3 million (almost 8% of the total countries’ workforce), and many of these will have been victims of the international economic crisis. These job losses head to a larger drop in general spending, which leads to a further drop in revenue for business.
The End of Recession
It does appear that the recession is coming to an end though, and that can only be great news for business. Gross domestic product (GDP) saw a climb in the UK during the fourth quarter of 2009 and overall unemployment figures fell, both of which are indicators of an economic system that is healing.
Experts from the International Monetary Fund (IMF) have predicted that the UK economy will actually get smaller over the course of 2010 and Mervyn King, the Governor of the Bank of England has spoken of the threat of wide-spread unemployment persisting. When added to the possibility of a new or perhaps hung government coming into power in May 2010, in addition to the real need to decrease an enormous financial deficit, the future is certainly not set in stone.
This uncertainty can be utilised as an advantage however, and companies which are ready to take a few risks or that are prepared to adjust their operations to cater for a more cautious target audience could be set to make excellent profits.
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Price Sensitivity
On the outside it may appear that the obvious strategy to use while the economy is recovering is to increase your own retail charges again to a level that offers your business some margin of comfort regarding operating costs. As the market grows and people feel more secure in their jobs they will feel relaxed spending more cash, so price raises should be an easy thing for consumers to take. This may not necessarily be the situation.
In fact, several firms may find that they have to hold their selling prices as small as possible because the newly provoked price sensitivity among the general public. Most of us have had to tighten our belts during the last few years, and just because the worst of the economic downturn appears to be over, we are not all ready to begin spending freely again. This is a pattern that is hard to precisely quantify, but businesses will want to be mindful of how their particular consumer community feels toward spending.
The term price sensitivity represents how important the factor of price is to shoppers any time they are purchasing a particular product. If a fairly large price shift, for example raising the cost of a car by £1000, does not see a significant decrease in demand for that item then the item is said to be price insensitive. If a fairly modest change in price, say raising the price of a car by just £100, does see a fall in demand then that item is price sensitive.
As a result, the market at large will take great interest in the prices of the items that they are buying. Several people may be watching out for discounts for everyday items that they require, and in particular their grocery shopping. Several of these products are essentials however. When it comes to buying luxury items, like televisions, cars and holidays, the price of the purchase is likely to be an more crucial decision maker.
Companies will be able to take advantage of this by using special offers and price promotions to entice new shoppers into buying their own goods. Shoppers will be more likely than ever to change from their favored manufacturers if the price tag is perfect, and businesses that offer the best priced items are most likely to stand to gain from this.
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Financial Security
People’s awareness of the economic system at large and also how it influences us all has significantly increased in light of the recession. Prior purchasing choices may well have been made in accordance to the quality of the product and its value, but there is a new factor that shoppers will be thinking about now. Financial security.
Recession Proofing
Many companies have suffered bankruptcy in the aftermath of recession. This has in turn has left thousands of customers in a very poor predicament. As people look to reinvest income into financial savings and shareholdings they will prefer to know that the corporation they are investing in has some sort of protection against potential recessions. This may merely be a case of operating the company with as little debt as possible, but anything that can be used to assure clients may be a great selling point for a firm.
Price Guarantees
One very noticeable element of the recent recession in the Uk was the steep drop in the interest rate. After this change had worked itself through the high street shops and fiscal services organisations several people discovered that they were either struggling as a consequence or enjoying a monetary benefit.
Customers who are looking to open new savings accounts or private pensions may well be worried that if the recession does in fact carry on for much longer they won’t be earning any considerable interest on their investments. In fact, the tough economy may even now take a turn for the worst and interest rates could drop again. In this scenario, a savings product that provides a confirmed rate of return becomes a really appealing option. This method might be used to bring in several new savings customers.
The exact same can be said for customers with credit agreements. If the recession is truly over and the worldwide economy begins to recuperate more quickly than many anticipate, then it might not be long before we see a rise in interest rates. That would signify that consumers would need to pay more every month for their mortgages and loans. A company which could offer a secured rate of interest that is not connected to the base rate of interest can again attract many new customers.
A similar approach was utilised by a number of companies after the rate of Value Added Tax (VAT) increased from 15% to 17.5% in early 2010. These companies would offer “price freezes” for their goods for a specific period in an effort to keep current consumers and draw new customers in.
Conclusion
Whether the recession is absolutely over yet or not, it has served as a firm reminder that no company can become complacent in their own position of survival. Business owners must always look to consolidate their situation and improve their own operations wherever possible. The businesses which manage to survive the economic downturn will have learned important lessons.