Business And Recession

Everybody in the country, and indeed around the world, will certainly have experienced the recent worldwide recession in one way or another, either as an individual or as a business operator. It might not have had a direct effect on your own position or your individual earnings, but the knock-on result of businesses dropping income will have affected the monetary predicament of the great majority of people. It has been a very complex problem with wide reaching implications.

The actual downturn now appears to be over, or is at the least coming to an end, according to most economic experts. Whilst it may not yet be the time to celebrate having survived the economic crisis, it should be a period to begin looking ahead and planning for a future within a steady economy. It is time to find some recession opportunities.

Firms of almost all sizes, trading in all types of marketplaces are no doubt going to need to adjust their operations in view of the economic depression. This might be after legislation is brought in to more closely govern and monitor the actions of international economic organisations. Many businesses will also be considering techniques to make themselves much more robust and able to withstand financial instability in the long term.

The Recent Recession

The economic downturn of the early 21st century began in 2007 and steadily propagated around the planet over the subsequent couple of years. Numerous financial analysts credited the cause of the economic downturn to be the crash in the U.S. property market, which in turn affected the value of monetary products tied 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 properties with a view to a long-term gain.

This drop in value then uncovered the vulnerabilities of such a wide-spread system of credit agreements between global companies, especially when much of the system was being backed by subprime lenders who were fiscal liabilities. A basic lack of third-party management of the financial services market had allowed the creation of a highly complex web of high-risk credit deals that relied upon a rising economy.

The subsequent financial fallout saw several individuals lose their jobs as well as lose their properties, while many large, international companies were forced out of business. Government authorities across the world had to bring in radical financial programs to support their own banking systems, and still now certain first world nations are struggling to survive financially.

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The Impact on Business

It’s probably fair to state that the economic downturn had an impact on just about every single enterprise around the world. Certain business models will have been more able to adjust to the added financial stress than others however they will have still experienced an impact at some part of their operation. If any key service provider or a major customer goes out of business then this can have a negative impact upon your own enterprise.

Many thousands of small and medium sized businesses have been pressured out of business because of the recent recession. Many of these situations will have been fairly basic; as the general public begin to reduce their spending these types of companies lose income, and since profit margins are often very slim in a competitive market place there was very little space to accommodate this drop. It’s a straightforward case of supply and demand not meeting in the middle.

Other cases were not so clear cut. There were scenarios where one company in a lengthy supply cycle were unable to make it through and the knock-on impact would push every company within that supply chain to the brink of bankruptcy.

Job losses have obviously been a very sensitive subject to the broad majority of us. It is estimated that the current number of jobless individuals 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 financial crisis. These types of job losses head to a larger decrease in general spending, which leads to a further fall in earnings for business.

The End of Recession
It does appear that the recession is coming to an end however, and that 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 signs of an economy that is recovering.

Experts from 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 spoken of the danger of wide-spread unemployment continuing. When added to the possibility of a new or perhaps hung government coming into power in May 2010, plus the real need to decrease a massive financial deficit, the foreseeable future is definitely not set in stone.

This kind of uncertainty can be used as an advantage though, and businesses that are ready to take a few risks or that are willing to modify their own operations to cater to a more cautious audience might be set to make good profits.

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Price Sensitivity

On the surface it might seem that the clear strategy to use whilst the overall economy is recuperating is to increase your own retail prices again to a level that affords your business some extra margin of comfort with regards to operating costs. As the economy grows and consumers feel safer in their careers they will feel secure spending more money, so price raises ought to be an easy thing for consumers to take on. This will not always be the case.

In fact, several firms might find that they have to keep their prices as low as feasible because the recently provoked price sensitivity amongst the general public. Most of us will have had to tighten our belts over the last couple of years, and just because the hardest of the recession appears to be over, we are not all prepared to start spending freely again. This is a pattern that is tough to exactly quantify, but companies will need to be mindful of how their particular customer community feels toward spending.

The term price sensitivity represents how important the element of price is to consumers any time they are purchasing a particular item. If a relatively large price change, for example increasing the cost of a car by £1000, does not provoke a big drop in demand for that item then the product 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 fall in demand then that product is price sensitive.

As a result, the market at large will have great interest in the prices of the items that they are purchasing. Several people may be watching out for discounts for everyday items that they require, and particularly their grocery shopping. Many of these products are essentials however. When it comes to purchasing expensive products, like televisions, cars and holidays, the cost of the purchase is likely to be an more important decision maker.

Companies will be in a position to take advantage of this by utilising special discounts and price campaigns to lure new customers into buying their own products. Buyers will be a lot more likely than ever to switch from their preferred brand names if the price tag is perfect, and businesses which offer the best priced goods are likely to stand to profit from this. Once these prospective customers have become customers there is a great chance that they will stay faithful to their new product choice as the economy rebounds further, which could lead to additional spending at the original price rates.

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Financial Security

People’s knowledge of the economy at large along with how it affects us all has greatly grown in light of the recession. Previous purchasing decisions may well have been made in accordance to the properties of the product and its price, but there is a new factor that buyers will be thinking about now. Financial security.

Recession Proofing

Many companies have suffered bankruptcy in the aftermath of recession. This has in turn has left countless numbers of buyers in a really poor situation. As individuals look to reinvest money into financial savings and shareholdings they will prefer to know that the corporation they are investing in has some sort of protection against future recessions. This might merely be a case of running the business with as little debt as possible, but anything that can be utilised to assure clients may be a great selling point for a firm.

Price Guarantees

One very visible element of the recent economic downturn in the Uk was the steep drop in the interest rate. Once this change had worked itself throughout the high street retailers and financial services organisations several people discovered that they were either suffering as a result or reaping a financial benefit. Either way, it undoubtedly elevated the profile of the effect that a changing interest rate can have on everyday financial products.

Shoppers that are looking to open new savings accounts or private pensions may well be worried that if the economic downturn does indeed carry on for much longer they will not be generating any considerable interest on their investments. In reality, the recession might still take a turn for the worst and interest rates might fall again. In this situation, a savings product that provides a guaranteed rate of return becomes a really attractive option.

The same can be said for customers with credit agreements. If the recession really is truly over and the worldwide economy starts to recover much more quickly than many anticipate, then it may not be too long before we see a rise in interest rates. That would mean that customers would have to pay much more every month for their mortgages and loans. A company which can offer a guaranteed rate of interest that isn’t connected to the base rate of interest might again entice many new customers.

A similar approach was used by a number of firms when the rate of Value Added Tax (VAT) increased from 15% to 17.5% in early 2010. They would offer “price freezes” on their products for a certain time period in an effort to retain their existing consumers and draw new clients in. This price freeze permitted a buffer time for people to adjust to the new VAT rate.

Conclusion

Whether the recession is completely over yet or not, it has served as a firm reminder that no company can be complacent with their own position of success. Company owners must constantly look to consolidate their own position and improve their own operations where possible. The businesses which manage to endure the economic downturn will have learnt important lessons.