Everybody in the country, and certainly all around the world, will certainly have experienced the recent worldwide economic downturn in one way or another, possibly as an individual or as a company owner. It may not have had an immediate effect upon your own career or your personal income, but the knock-on result of businesses dropping income will have affected the monetary circumstance of the vast majority of folks. It was a really complicated issue with wide reaching ramifications.
The actual recession now appears to be over, or is at the least coming to an end, according to most economic authorities. Although it may not yet be the time to celebrate having made it through the financial meltdown, it should be a time to start looking forward and planning for a future in a stable economic climate. It is time to look for some recession opportunities.
Companies of all sizes, buying and selling in all kinds of marketplaces are no doubt going to need to alter their operations in light of the recession. This might be after legislation is brought in to more closely govern and keep an eye on the action of international economic companies. Many businesses will also be looking at ways 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. Many economic analysts attributed the cause of the economic downturn to be the crash in the U.S. housing market, which in turn affected the worth of financial products linked into real estate resources. The growth of the property market until that point had encouraged homeowners to refinance their primary homes in order to obtain 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 international companies, particularly when much of the system was being backed by subprime lenders who were financial liabilities. A general lack of third-party management of the monetary services sector had permitted the creation of a highly complex web of high-risk credit deals which relied upon a growing economy. Once the first debtors began to fall behind on payments, the entire house of cards ended up being quick to come down.
The following financial fallout saw several individuals lose their jobs and lose their homes, while many big, global organisations were forced out of business. Government authorities all over the world had to introduce sweeping financial packages to assist their own banking systems, and even now certain first world countries are fighting to survive financially.
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The Impact on Business
It’s probably fair to say that the economic downturn had an effect on just about every enterprise around the globe. Certain company models will have been more able to adapt to the added financial strain than others but they will have still experienced an impact at some part of their operation. If any key supplier or a major customer goes out of business then this can have a detrimental impact upon your own enterprise.
Many thousands of small and medium sized companies have been pressured out of business as a result of the recent economic downturn. Several of these cases will have been relatively simple; as the general public start to decrease their spending these companies lose revenue, and since profit margins are often very slender in a competitive market place there was extremely little space to accommodate this decline.
Some other cases were not so clear cut. There were situations where one company in a long supply cycle had been unable to survive and the knock-on impact would push every company within that supply chain to the brink of bankruptcy.
Job losses have of course been a very sensitive subject to the wide majority of us. It is estimated that the present number of jobless individuals in the UK is over 2.3 million (nearly 8% of the total countries’ labourforce), and many of these will probably have been victims of the international financial crisis. These kinds of job losses lead to a greater decrease in general spending, which triggers a further decrease in income for business.
The End of Recession
It does appear that the recession is on its way to an end though, and this can only be good news for business. Gross domestic product (GDP) saw a rise in the UK during the final quarter of 2009 and total unemployment numbers fell, both of which are indicators of an economy that is healing.
Experts at the International Monetary Fund (IMF) have forecast that the UK economy may actually shrink over the course 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, as well as the need to lower a massive fiscal deficit, the foreseeable future is certainly not set in stone.
This uncertainty can be utilised as an advantage however, and businesses which are prepared to take a few risks or who are prepared to modify their operations to cater to a more cautious audience could be set to make excellent profits.
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Price Sensitivity
On the surface it might seem that the obvious technique to use whilst the overall economy is recuperating is to raise your own sales charges again to a point that offers your company some margin of comfort regarding running expenses. As the market grows and consumers feel more secure in their jobs they will really feel comfortable spending more money, so price increases should be an easy thing for consumers to take. This may not always be the case.
Actually, many companies may find that they need to keep 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 few years, and simply because the worst of the economic downturn appears to be over, we aren’t all ready to start spending freely again.
The phrase price sensitivity describes how important the factor of price is to customers any time they are purchasing a particular product. If a fairly large price shift, for example raising the cost of a car by £1000, doesn’t provoke a large drop in demand for that product 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 product is price sensitive. The same theory can also be applied to shoppers themselves, and after a period of recession people are much more likely to be price sensitive.
As a result, the marketplace at large will have great interest in the prices of the items that they are buying. Several people will be watching out for discounts for everyday products that they require, and particularly their grocery shopping. Many of these items are necessities however. When it comes to purchasing luxury products, like televisions, cars and holidays, the cost of the purchase is likely to be an more crucial decision maker.
Companies will be able to take advantage of this by using special discounts and price promotions to attract new consumers into buying their goods. Buyers will be a lot more likely than ever to move from their favored brands if the price tag is right, and firms that offer the best priced goods are likely to stand to gain from this.
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Financial Security
People’s knowledge of the economy at large and also how it affects us all has significantly grown in light of the recession. Previous purchasing choices may well have been made according to the quality of the item and its value, but there is a new factor that consumers will be considering now.
Recession Proofing
Several firms have endured bankruptcy in the aftermath of recession. This in turn has left countless numbers of buyers in a very poor situation. As individuals seek to reinvest money into financial savings and shareholdings they would prefer to know that the company they are investing in has some type of safeguard against future recessions. This may simply be a case of running the company with as little debt as possible, but anything that can be utilised to assure clients could be a great selling point for a business.
Price Guarantees
One very visible element of the latest economic downturn in the United Kingdom was the sharp decrease in the interest rate. Once this change had precipitated itself throughout the high street shops and financial services institutes many people discovered that they were either suffering as a result or enjoying a monetary benefit.
Consumers that are seeking to open up new savings accounts or private pensions may be concerned that if the economic downturn does indeed carry on for much longer they won’t be generating any substantial interest on their investments. Actually, the tough economy may still take a turn for the worst and interest rates could drop again. In this situation, a savings product that offers a secured rate of return will become a really appealing choice.
The exact same can be said for consumers with credit agreements. If the recession is truly over and the global economy begins to recover more swiftly than many expect, then it may not be too long before we see an increase in interest rates. That would signify that customers would need to pay much more each month for their mortgages and loans.
A similar technique was made use of by a number of companies when the rate of Value Added Tax (VAT) increased from 15% to 17.5% in early 2010. They would offer “price freezes” for their products for a certain period in an effort to keep existing customers and draw new customers in. This price freeze permitted a buffer time for people to adapt to the new VAT percentage.
Conclusion
Whether the recession is totally over yet or not, it has served as a timely reminder that no company can be complacent in its own situation of survival. Company managers must always look to consolidate their own position and improve their operations wherever possible. The companies which are able to endure the downturn in the economy will have learned important lessons.
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