Everybody in the nation, and certainly all around the planet, will have experienced the latest worldwide economic downturn in one manner or another, possibly as an individual or as a company owner. It may not have had a direct impact on your own job or your individual earnings, but the knock-on result of companies dropping revenue will have influenced the financial predicament of the great majority of people. It has been a very complex problem with wide reaching ramifications.
The actual downturn now seems to be over, or is at the very least coming to an end, according to most financial authorities. Whilst it may not yet be the time to celebrate having survived the financial crisis, it should be a time to start looking ahead and planning for a future within a stable economy. It is time to seek some recession opportunities.
Companies of almost all sizes, trading in all kinds of markets are no doubt going to have to adjust their operations in light of the recession. This might be after law is introduced to more closely govern and monitor the actions of global monetary organisations. Many companies may also be looking at methods to make themselves far more robust and able to withstand economic instability in the long term.
The Recent Recession
The economic downturn of the early 21st century began in 2007 and slowly propagated around the world over the next couple of years. Several financial analysts credited the cause of the recession to be the crash in the U.S. housing market, which in turn affected the worth of financial products linked into real estate assets. The growth of the housing market until that point had motivated homeowners to refinance their first properties in order to buy second or third properties with a view to a long-term gain.
This drop in value then uncovered the vulnerabilities of such a wide-spread network of credit contracts between global businesses, especially when much of the system was being backed by subprime lenders who were fiscal risks. A basic lack of third-party management of the financial services market had permitted the development of a very complicated web of high-risk credit agreements that relied upon a rising economy.
The subsequent economic fallout saw many individuals lose their jobs and lose their homes, while many large, global companies were forced out of business. Government authorities all over the world had to introduce radical financial packages to support their own banking systems, and even now certain first world nations are struggling to make it through financially. Many believe it to have been the worst financial period since the depression of the 1930s.
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The Impact on Business
It is probably reasonable to say that the economic downturn had an effect on just about every business around the world. Particular business models will have been more able to adapt to the extra financial stress than others but they will have still felt an impact at some portion of their operations. If a key service provider or a main customer goes out of business then that can have a negative effect upon your own enterprise.
Thousands of small and medium sized companies have been pressured out of business as a result of the recent economic downturn. Many of these cases will have been comparatively simple; as the general public begin to reduce their spending these types of companies lose revenue, and since profit margins are often very slim in a competitive market place there was extremely little room to allow for this drop.
Other cases were not so clear cut. There were circumstances where one business in a lengthy supply cycle were unable to survive and the knock-on impact would force every company in that supply chain to the brink of bankruptcy.
Job losses have of course been a pretty delicate subject to the vast majority of us. It is estimated that the present number of unemployed people in the UK is over 2.3 million (nearly 8% of the entire countries’ labourforce), and many of these will have been victims of the global economic crisis.
The End of Recession
It does appear that the downturn is coming to an end though, and that can only be great news for business. Gross domestic product (GDP) experienced a climb in the UK during the fourth quarter of 2009 and total unemployment numbers dropped, both of which are signals of an economic system that is healing.
Industry experts from the International Monetary Fund (IMF) have forecast that the UK financial system may actually get smaller over the duration of 2010 and Mervyn King, the Governor of the Bank of England has spoken of the danger of wide-spread unemployment persisting. When added to the possibility of a new or perhaps hung government coming into power in May 2010, plus the real need to lower a massive fiscal deficit, the foreseeable future is definitely not set in stone.
This kind of uncertainty can be used as an advantage however, and organisations that are ready to take a few risks or that are prepared to modify their operations to cater to a more cautious target audience could be set to make great profits.
I was talking to the owner of a highly respected waste recycling business well-known for making high quality items and he was optimistic for the foreseeable future.
Price Sensitivity
On the outside it may appear that the obvious strategy to use whilst the overall economy is recovering is to raise your very own retail charges again to a point that offers your company some margin of comfort in relation to running costs. As the market grows and people feel more secure in their jobs they will feel secure spending more money, so price increases should be an easy thing for shoppers to take on.
Actually, many companies might find that they have to hold their selling prices as low as feasible because the newly provoked price sensitivity amongst the general public. Most of us will have had to tighten our belts during the last couple of years, and simply because the worst of the economic downturn appears to be over, we are not all ready to begin spending freely just yet. This is a pattern that is difficult to exactly quantify, however firms will need to be aware of how their specific consumer sector feels toward spending.
The term price sensitivity describes how influential the element of price is to consumers any time they are purchasing a particular product. If a relatively large price shift, for example raising the cost of a car by £
1000, doesn’t provoke a large decrease in demand for that item then the item is said to be price insensitive. If a comparatively modest change in price, say raising the price of a car by just £
100, does see a drop in demand then that product is price sensitive.
As a result, the market at large will take great interest in the costs of the things that they are purchasing. Several people will be looking out for discounts for everyday products that they need, and in particular their grocery shopping. Several of these items are essentials however.
Businesses will be in a position to take advantage of this fact by using special offers and price promotions to attract new shoppers into purchasing their own goods. Consumers will be a lot more likely than ever to switch from their favored brand names if the price tag is perfect, and companies that offer the best priced goods are most likely to stand to gain from this. Once these potential customers have become shoppers there is a great chance that they will stay faithful to their new product choice as the market recovers further, which could lead to further spending at the initial price rates.
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Financial Security
People’s understanding of the economic system at large and also how it impacts us all has significantly grown in light of the economic depression. Previous buying decisions may well have been made with respect to the quality of the item and its price, but there is actually a new aspect that shoppers will be thinking about now.
Recession Proofing
Many companies have suffered bankruptcy in the aftermath of recession. This in turn has left countless numbers of buyers in a really bad situation. As individuals seek to reinvest income into personal savings and shareholdings they would like to know that the company they are investing in has some sort of protection against future recessions.
Price Guarantees
One particular very noticeable element of the latest economic downturn in the United Kingdom was the sharp decrease in the interest rate. Once this change had precipitated itself through the high street shops and monetary services institutes several people found that they were either suffering as a result or enjoying a monetary advantage. Either way, it certainly raised the profile of the effect that a changing interest rate could have on every day economic products.
Consumers that are looking to open new savings accounts or private pensions might be concerned that if the recession does indeed drag on for much longer they will not be earning any substantial interest on their investments. In fact, the recession may still take a turn for the worst and interest rates might fall again. In this situation, a savings product that offers a guaranteed rate of return becomes a very appealing choice.
The exact same can be said for customers with credit agreements. If the recession really is genuinely over and the global economy begins to recuperate more swiftly than many anticipate, then it might not be too long before we see a growth in interest rates. This would mean that customers would have to pay much more every month for their mortgages and loans. A company that could offer a guaranteed rate of interest that isn’t connected to the base rate of interest can again entice many new customers.
A similar approach was used by a number of businesses after the rate of Value Added Tax (VAT) increased from 15% to 17.5% in early 2010. They would offer “price freezes” for their goods for a particular period in an effort to keep existing customers and bring new customers in. This price freeze permitted a buffer time for consumers to adjust to the new VAT percentage.
Conclusion
Whether the recession is completely over yet or not, it has served as a firm indication that no business can afford to be complacent with their own position of success. Company owners must constantly seek to consolidate their own situation and improve their own operations wherever possible.
