Business And Recession
Everyone in the nation, and indeed around the world, will certainly have experienced the recent global economic downturn in one way or another, possibly as a person or as a business operator. It might not have had a direct impact on your own career or your personal earnings, but the knock-on effect of companies losing revenue will have affected the financial predicament of the wide majority of folks. It has been a very complicated issue with far reaching ramifications.
The recession now appears to be over, or is at the very least coming to an end, according to many financial experts. Although it might not yet be the time to celebrate having made it through the economic turmoil, it should be a period to begin looking forward and planning for a future in a steady economic climate. It is time to look for some recession opportunities.
Companies of almost all sizes, trading in all kinds of marketplaces are no doubt going to need to change their operations in view of the recession. This may well be after law is brought in to more closely control and keep an eye on the action of global economic companies. Many firms may also be considering techniques to make themselves much more robust and have the ability to withstand financial instability in the future.
The Recent Recession
The recession of the early 21st century began in 2007 and steadily spread around the world over the next couple of years. Numerous economic analysts credited the cause of the recession to be the crash in the U.S. property market, which in turn affected the value of monetary products linked into real estate assets.
This drop in value then uncovered the vulnerabilities of such a wide-spread system of credit contracts between global businesses, especially when much of the system was being supported by subprime lenders who were financial liabilities. A general lack of third-party management of the financial services market had permitted the development of a highly complicated web of high-risk credit agreements which relied upon a growing economy. Once the first debtors started to fall behind on payments, the entire house of cards was quick to fall.
The subsequent economic fallout saw many individuals lose their jobs and lose their properties, whilst many large, international organisations were forced out of business. Government authorities all over the world had to bring in radical financial packages to support their own banking systems, and even now certain first world nations are fighting to make it through financially. Many believe it to have been the worst financial episode since the depression of the 1930s.
Actually companies that specialise at offering glass recycling needed to change their own functions in order to make it through the credit crunch.
The Impact on Business
It’s probably reasonable to say that the recession had an effect on just about every single business around the globe. Certain company models will have been more able to adapt to the extra financial stress than others but they will have nevertheless experienced an impact at some part of their operation. If a key supplier or a key customer goes out of business then this can have a bad effect upon your own company.
Many thousands of small and medium sized companies have been forced out of business because of the recent recession. Many of these cases will have been fairly simple; as the general public begin to decrease their spending these types of businesses lose income, and since profit margins are often incredibly slender in a competitive market place there was extremely little room to allow for this drop. It is a straightforward case of supply and demand not meeting in the middle.
Other cases were not so clear cut. There were situations where one business in a long supply chain had been unable to make it through and the knock-on effect would force every company inside of 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 is estimated that the present number of jobless individuals in the UK is over 2.3 million (nearly 8% of the entire countries’ labourforce), and many of these will probably have been victims of the international financial crisis. These kinds of job losses lead to a larger decrease in typical spending, which results in a further fall in income for business.
The End of Recession
It does appear that the recession is coming to an end though, and that can only be good news for business. Gross domestic product (GDP) saw a climb in the UK during the fourth quarter of 2009 and overall unemployment numbers dropped, both of which are signals of an economic system that is healing. This is not a perspective shared by everyone though.
Experts at the International Monetary Fund (IMF) have predicted 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 warned of the danger of wide-spread unemployment continuing. When added to the prospect of a new or even hung government on its way into power in May 2010, in addition to the need to decrease a significant financial deficit, the future is certainly not set in stone.
This kind of uncertainty may be used as an advantage however, and companies which are ready to take a few risks or who are prepared to adjust their operations to cater for a more cautious audience might be set to make excellent profits.
I was talking to the owner of a highly reputed waste recycling corporation renowned for making top quality items and he was optimistic for the future.
Price Sensitivity
On the surface it might appear that the obvious technique to use whilst the economy is recovering is to increase your own retail prices again to a level that offers your business some extra margin of comfort with regards to operating expenses. As the market grows and consumers feel safer in their careers they will feel relaxed spending extra cash, so price increases should be an easy thing for shoppers to take.
In fact, many businesses might find that they need to hold their prices as small as feasible due to the newly provoked price sensitivity among the general public. Most of us will have had to tighten our belts during the last couple of years, and simply because the hardest of the recession appears to be over, we aren’t all prepared to start spending freely again.
The phrase price sensitivity describes how influential the factor of price is to shoppers when they are buying a particular product. If a fairly large price shift, for example raising the price of a car by £
1000, does not see a big decrease in demand for that item then the item is said to be price insensitive. If a relatively modest change in price, say raising the price of a car by only £
100, does see a fall in demand then that product is price sensitive. The exact same principle can also be applied to shoppers themselves, and following a period of recession people are more likely to be 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 deals for everyday products that they require, and in particular their grocery shopping. Several of these products are essentials however.
Companies will be able to take advantage of this fact by utilising special offers and price promotions to lure new shoppers into purchasing their items. Shoppers will be more likely than ever to switch from their favored manufacturers if the price is right, and firms which offer the best priced products are most likely to stand to gain from this. After these prospects have turned into shoppers there is a good chance that they will stay loyal to their new product or service choice as the economy recovers further, which could lead to further spending at the initial prices.
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Financial Security
People’s awareness of the economy at large and how it impacts us all has significantly grown in light of the economic depression. Previous purchasing choices may well have been made in accordance to the properties of the item and its value, but there is a new aspect that consumers will be thinking about now. Financial security.
Recession Proofing
Several companies have suffered bankruptcy in the aftermath of economic collapse. This has in turn has put thousands of shoppers in a really bad situation. As people look to reinvest income into financial savings and shareholdings they will prefer to know that the company they are investing in has some kind of safeguard against future recessions. This might simply be a case of operating the company with as little debt as feasible, but anything that may be used to reassure clients could be a fantastic selling point for a firm.
Price Guarantees
One very visible element of the recent recession in the United Kingdom was the steep drop in the interest rate. Once this change had precipitated itself through the high street shops and fiscal services organisations many people found that they were either struggling as a consequence or enjoying a financial benefit. Either way, it certainly elevated the profile of the impact that a fluctuating interest rate can have on every day financial products.
Consumers who are looking to open new savings accounts or private pensions may be worried that if the economic downturn does in fact carry on for much longer they won’t be earning any significant interest on their investments. In reality, the recession may still take a turn for the worst and interest rates might drop again. In this situation, a savings product that provides a secured rate of return will become a very appealing choice. This technique can be used to appeal to many new savings shoppers.
The exact same can be said for customers with credit agreements. If the recession really is truly over and the global economy starts to recover much more quickly than many expect, then it may not be too long before we see an increase in interest rates. That would signify that consumers would need to pay more each month for their mortgages and loans. A business that could offer a secured rate of interest that isn’t linked to the base rate of interest could again attract several new clients.
A similar technique was made use of by a number of companies after 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 specific period in an effort to retain their current consumers and bring new clients in.
Conclusion
Whether the economic downturn is totally over yet or not, this has served as a timely reminder that no company can be complacent with their own position of success. Company managers should always seek to consolidate their own position and boost their own operations where possible. The companies that manage to make it through the economic downturn will have learnt valuable lessons.
