Everyone in the nation, and indeed all around the planet, will have experienced the recent worldwide economic downturn in one way or another, either as an individual or as a business operator. It might not have had an immediate effect upon your own career or your private earnings, but the knock-on effect of companies losing income will have influenced the monetary predicament of the vast majority of people. It was a really complex issue with far reaching implications.
The downturn now seems to be over, or is at least coming to an end, according to most financial experts. Although it may not yet be the occasion to celebrate having made it through the financial meltdown, it should be a period to start looking forward and planning for a future within a steady economy. It is time to seek out some recession opportunities.
Firms of all sizes, trading in all sorts of marketplaces are no doubt going to need to alter their operations in light of the economic downturn. This may be after law is brought in to more closely govern and keep an eye on the actions of international economic companies. Many businesses may also be looking at methods to make themselves much more robust and able to withstand financial instability in the long term. Either way, there will be changes for many companies, and where there is change there is opportunity.
The Recent Recession
The recession of the early 21st century started in 2007 and gradually spread around the world over the next few years. Many financial analysts attributed the cause of the economic downturn to be the drop in the U.S. housing market, which in turn affected the value of financial products linked into real estate resources. The growth of the housing market up to that stage had motivated homeowners to refinance their primary homes in order to obtain second or third homes with a view to a long-term profit.
This fall in value then uncovered the vulnerabilities of such a wide-spread network of credit contracts between international corporations, especially when much of the system was being backed by subprime lenders who were financial risks. A general lack of third-party control of the financial services sector had allowed the creation of a highly complex web of high-risk credit deals which depended upon a rising economy.
The following financial fallout saw several individuals lose their jobs as well as lose their homes, while many big, international companies were forced out of business. Government authorities across the world had to introduce major financial programs to assist their own banking systems, and still now certain first world countries are fighting to survive financially. Many believe it to have been the worst economic episode since the depression of the 1930s.
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The Impact on Business
It is probably reasonable to say that the recession had an effect on just about every single business around the globe. Particular business models will have been more able to adjust to the added economic stress than others but they will have still experienced an impact at some part of their operation.
Many thousands of small and medium sized companies have been pressured out of business because of the recent economic downturn. Many of these cases will have been relatively basic; as the general public begin to reduce their spending these types of companies lose revenue, and since margins are often incredibly slender in a competitive market place there was very little space to accommodate this decrease.
Some other cases were not so clear cut. There were circumstances where one business in a long supply cycle were unable to survive and the knock-on effect would force every business within that supply chain to the brink of bankruptcy. The companies which were able to survive have had to make very difficult judgements to ensure they can outlast the recession.
Job losses have of course been a very delicate subject to the wide majority of us. It is estimated that the present number of jobless people in the UK is over 2.3 million (almost 8% of the entire countries’ workforce), and many of these will have been victims of the global economic crisis.
The End of Recession
It does appear that the recession is coming to an end though, and this can only be great news for business. Gross domestic product (GDP) experienced a rise in the UK throughout the final quarter of 2009 and total unemployment figures fell, both of which are signs of an economic system that is healing.
Industry experts at the International Monetary Fund (IMF) have forecast that the UK economy will actually reduce in size over the duration of 2010 and Mervyn King, the Governor of the Bank of England has spoken of the danger of wide-spread joblessness continuing.
This kind of uncertainty may be utilised as an advantage though, and companies that are prepared to take a few risks or who are willing to modify their operations to cater to a more cautious audience might be set to make good profits.
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Price Sensitivity
On the outside it might appear that the clear strategy to use while the overall economy is recuperating is to raise your own sales charges again to a level that offers your company some margin of comfort in relation to running costs. As the economy grows and people feel safer in their careers they will feel comfortable spending more cash, so price increases ought to be an easy thing for consumers to take.
Actually, many businesses might find that they need to keep their selling prices as low as possible due to the recently triggered price sensitivity amongst the general public. Many 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 aren’t all prepared to start spending freely just yet. This is a pattern that is tough to precisely quantify, but businesses will have to be mindful of how their particular customer community feels toward spending.
The phrase price sensitivity describes how influential the factor of price is to customers any time they are buying a particular product. If a relatively large price shift, for example increasing the price of a car by £1000, does not provoke a significant 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 only £100, does see a drop in demand then that product is price sensitive.
As a result, the market place at large will have great interest in the prices of the things that they are purchasing. Several people may be looking out for bargains for everyday products that they need, and in particular their grocery shopping. Many of these things are necessities however. When it comes to buying expensive products, like televisions, cars and holidays, the price of the purchase is likely to be an much more crucial decision maker.
Firms will be in a position to take advantage of this fact by utilising special offers and price campaigns to lure new customers into buying their goods. Shoppers will be a lot more likely than ever to change from their preferred brand names if the price tag is right, and companies which offer the best priced items are likely to stand to profit from this. After these potential customers have become customers there is a great chance that they will remain loyal to their new product or service choice as the economy recovers further, which could lead to additional spending at the initial prices.
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Financial Security
People’s knowledge of the economy at large as well as how it impacts us all has greatly increased in light of the recession. Previous purchasing decisions may well have been made with respect to the quality of the product and its price, but there is actually a new aspect that consumers will be thinking about now. Financial security.
Recession Proofing
Several companies have endured bankruptcy in the aftermath of recession. This in turn has put countless numbers of shoppers in a really poor predicament. As individuals look to reinvest money into savings and shareholdings they would prefer to see that the company they are investing in has some sort of safeguard against future recessions. This could simply be a case of running the company with as little debt as possible, but anything at all that may be used to assure clients could be a fantastic selling point for a company.
Price Guarantees
One very noticeable element of the recent recession in the United Kingdom was the steep decrease in the interest rate. Once this change had worked itself throughout the high street stores and fiscal services organisations many people found that they were either struggling as a result or enjoying a monetary advantage. Either way, it undoubtedly raised the profile of the effect that a fluctuating interest rate could have on every day economic products.
Customers who are looking to open new savings accounts or private pensions might be concerned that if the economic downturn does indeed carry on for much more time they won’t be generating any significant 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 offers a guaranteed rate of return will become a really appealing choice. This method can be used to bring in several new savings customers.
The same can be said for consumers with credit agreements. If the recession is genuinely over and the global economy starts to recover more swiftly than many anticipate, then it might not be too long before we see a growth in interest rates. That would mean that customers would have to pay more every month for their mortgages and loans. A company which could offer a secured rate of interest that isn’t connected to the base rate of interest could again entice several new customers.
A similar approach was utilised by a number of companies when 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 particular period in an attempt to keep their current consumers and bring new customers in. This kind of price freeze allowed a buffer period for people to adapt to the new VAT percentage.
Conclusion
Whether the economic downturn is totally over yet or not, this has served as a firm reminder that no company can become complacent with their own situation of survival. Business managers should always seek to consolidate their own position and boost their operations wherever possible. The companies which are able to make it through the economic downturn will have learnt important lessons.
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