Everybody in the nation, and without a doubt all around the planet, will certainly have suffered the recent global economic downturn in one manner or another, possibly as an individual or as a business owner. It might not have had an immediate impact upon your own career or your individual earnings, but the knock-on effect of businesses dropping revenue will have influenced the financial predicament of the wide majority of people. It was a very complicated issue with wide reaching ramifications.
The downturn now appears to be over, or is at the very least on its way to an end, according to most economic experts. Whilst it might not yet be the time to celebrate having survived the economic turmoil, it should be a time to start looking ahead and planning for a future in a steady economy. It is time to look for some recession opportunities.
Businesses of almost all sizes, buying and selling in all types of marketplaces are no doubt going to need to alter their operations in light of the recession. This might be after law is introduced to more closely govern and monitor the actions of global financial organisations. Many businesses may also be looking at techniques to make themselves more robust and able to endure financial instability in the long term.
The Recent Recession
The recession of the early 21st century began in 2007 and slowly spread around the planet over the next few years. Several financial analysts attributed the cause of the economic downturn to be the drop in the U.S. property market, which in turn affected the value of financial products linked into real estate resources.
This fall in value then exposed the vulnerabilities of such a widespread system of credit agreements between global corporations, particularly when much of the system was being backed by subprime lenders who were financial risks. A general lack of third-party control of the monetary services market had permitted the creation of a highly complex web of high-risk credit deals which depended upon a growing economy. Once the first debtors began to fall behind on payments, the entire house of cards ended up being quick to fall.
The following financial fallout saw several individuals lose their jobs and lose their homes, whilst many large, international organisations were forced out of business. Governments across the world had to bring in sweeping financial programs to support their own banking systems, and still now certain first world countries are struggling to survive financially. Many believe it to have been the worst financial episode since the depression of the 1930s.
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The Impact on Business
It’s probably fair to say that the economic downturn had an impact on just about every enterprise around the world. Certain company models will have been more able to adjust to the added financial stress than others however they will have nevertheless felt an impact at some part of their operations. If any key supplier or a main customer goes out of business then that can have a detrimental impact upon your own company.
Thousands of small and medium sized businesses have been pressured out of business as a result of the recent recession. Several of these cases will have been relatively basic; as the general public begin to reduce their spending these types of businesses lose revenue, and since profit margins are often extremely slender in a competitive market place there was extremely little space to allow for this decline. It is a simple case of supply and demand not meeting in the middle.
Some other cases were not so clear cut. There were situations where one company in a long supply chain were unable to survive and the knock-on effect would push every company inside that supply chain to the edge of bankruptcy.
Job losses have of course been a pretty sensitive subject to the vast majority of us. It’s believed that the present number of unemployed people in the UK is over 2.3 million (almost 8% of the entire countries’ labourforce), and many of these will have been victims of the international financial crisis. These job losses head to a greater drop in general spending, which triggers a further fall in income for business.
The End of Recession
It does seem that the downturn is coming to an end however, and this can only be great news for business. Gross domestic product (GDP) saw a rise in the UK during the fourth quarter of 2009 and total unemployment figures dropped, both of which are signals of an economy that is healing. This isn’t a perspective embraced by everybody though.
Experts from the International Monetary Fund (IMF) have forecast that the UK financial system may actually reduce in size over the duration of 2010 and Mervyn King, the Governor of the Bank of England has warned of the threat of wide-spread unemployment continuing. When added to the possibility of a new or even hung government on its way into power in May 2010, in addition to the need to reduce a significant fiscal deficit, the future is definitely not set in stone.
This uncertainty may be utilised as an advantage though, and businesses which are prepared to take a few risks or who are prepared to alter their own operations to cater to a more wary target audience could be set to make good profits.
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Price Sensitivity
On the outside it might appear that the clear strategy to use whilst the overall economy is recovering is to increase your very own sales prices again to a point that affords your company some extra margin of comfort regarding operating costs. As the market grows and consumers feel safer in their careers they will feel relaxed spending extra cash, so price raises ought to be an easy thing for shoppers to take. This will not always be the situation.
Actually, many businesses might find that they need to hold their selling prices as small as feasible due to the recently triggered price sensitivity among the general public. Most of us will have had to tighten our belts during the last few years, and simply because the hardest of the recession appears to be over, we are not all prepared to begin spending freely just yet.
This is a pattern that is difficult to precisely quantify, but firms will need to be aware of how their specific consumer sector feels toward spending.
The term price sensitivity represents how influential the element of price is to consumers any time they are purchasing a specific item. If a fairly large price change, for example raising the cost of a car by £1000, doesn’t see a big decrease in demand for that item then the item is said to be price insensitive. If a comparatively small 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 prices of the items that they are purchasing. Many people will be watching out for discounts for everyday items that they require, and in particular their grocery shopping. Many of these things are necessities however. When it comes to purchasing luxury items, for example televisions, cars and holidays, the cost of the purchase is likely to be an much more important decision maker.
Firms will be in a position to take advantage of this fact by utilising special discounts and price promotions to entice new consumers into purchasing their own items. Buyers will be a lot more likely than ever to switch from their favored brand names if the price is right, and companies which offer the best priced goods are most likely to stand to gain from this. Once these potential customers have become clients there is a great chance that they will remain loyal to their new product or service choice as the market recovers further, which could lead to additional spending at the initial price rates.
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Financial Security
People’s understanding of the economic system at large as well as how it affects us all has significantly increased in light of the recession. Previous purchasing choices may well have been made according to the quality of the item and its price, but there is a new factor that consumers will be considering now. Financial security.
Recession Proofing
Many businesses have suffered bankruptcy in the aftermath of recession. This has in turn has put thousands of buyers in a really poor situation. As people look to reinvest money into financial savings and shareholdings they will prefer to see that the company they are investing in has some type of protection against future recessions. This might merely be a case of running the business with as little debt as feasible, but anything at all that can be used to reassure customers might be a fantastic selling point for a business.
Price Guarantees
One particular very visible feature of the latest recession in the United Kingdom was the sharp drop in the interest rate. Once this change had worked itself through the high street retailers and monetary services organisations many people discovered that they were either suffering as a consequence or reaping a financial benefit.
Consumers who are looking to open new savings accounts or private pensions may well be concerned that if the economic downturn does indeed carry on for much longer they will not be earning any substantial interest on their investments. In reality, the recession may still take a turn for the worst and interest rates could drop again. In this situation, a savings product that provides a secured rate of return becomes a very appealing option.
The same could be said for customers with credit agreements. If the recession really is genuinely over and the worldwide economy starts to recuperate much more quickly than many expect, then it may not be long before we see a rise in interest rates. That would mean that consumers would need to pay much more each month for their mortgages and loans. A business that can offer a secured rate of interest that is not connected to the base rate of interest can again entice many new clients.
A similar approach was used 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” on their goods for a specific time period in an effort to keep their current clients and bring new clients in.
Conclusion
Whether the economic downturn is entirely over yet or not, it has served as a firm reminder that no business can become complacent with their own situation of survival. Company managers should constantly seek to consolidate their position and improve their operations wherever possible. The businesses which manage to endure the economic downturn will have learnt important lessons.