Business Opportunities During Recession
Everyone in the country, and indeed around the world, will have experienced the latest worldwide recession in one way or another, possibly as an individual or as a business owner. It may not have had an immediate effect on your own career or your personal income, but the knock-on effect of companies losing income will have affected the monetary predicament of the wide majority of folks. It was a very complicated issue with wide reaching ramifications.
The actual recession now seems to be over, or is at least coming to an end, according to many financial authorities. Although it might not yet be the occasion to celebrate having made it through the economic meltdown, it should be a period to begin looking ahead and planning for a future within a stable economy. It is time to look for some recession opportunities.
Companies of almost all sizes, trading in all sorts of markets are no doubt going to need to change their operations in light of the economic depression. This might be after law is introduced to more closely govern and monitor the actions of worldwide monetary organisations. Many firms may also be looking at ways to make themselves much more robust and able to endure economic instability in the future. Either way, there will probably be changes for several companies, and where there is change there is potential.
The Recent Recession
The economic downturn of the early 21st century started in 2007 and progressively spread around the planet over the next few years. Several economic analysts credited the cause of the recession to be the crash in the U.S. housing market, which in turn impacted the value of monetary products tied into real estate assets.
This drop in value then exposed the vulnerabilities of such a wide-spread network of credit contracts between international companies, particularly when much of the system was being supported by subprime lenders who were financial risks. A general lack of third-party control of the financial services market had allowed the creation of a very complex web of high-risk credit agreements that depended upon a thriving economy.
The following financial fallout saw several people lose their jobs and lose their homes, while many large, global organisations were forced out of business. Government authorities throughout the world had to introduce sweeping financial programs to help their own banking systems, and even now certain first world nations are fighting to make it through financially. Many consider it to have been the most severe financial period 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 impact on just about every enterprise around the globe. Certain company models will have been more able to adjust to the additional economic pressure than others but they will have nevertheless experienced an impact at some portion of their operations. If any key service provider or a key customer goes out of business then this will have a detrimental impact upon your own business.
Thousands of small and medium sized businesses have been pressured out of business as a result of the recent economic downturn. Many of these situations 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 slim in a competitive market place there was extremely little room to allow for this fall.
Other cases were not so clear cut. There were scenarios where one company in a long supply chain were unable to make it through and the knock-on effect would push every company in that supply chain to the brink of bankruptcy.
Job losses have of course been a pretty delicate subject to the wide majority of us. It’s believed that the current number of jobless people 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 global financial crisis.
The End of Recession
It does appear that the downturn is on its way to an end though, and that can only be great news for business. Gross domestic product (GDP) saw a climb in the UK throughout the final quarter of 2009 and overall unemployment numbers dropped, both of which are indicators of an economic system that is healing. This isn’t a perspective embraced by everybody however.
Experts from the International Monetary Fund (IMF) have forecast that the UK financial system may actually shrink over the course of 2010 and Mervyn King, the Governor of the Bank of England has warned of the threat of wide-spread joblessness persisting.
This uncertainty can be used as an advantage however, and businesses that are ready to take a few risks or who are prepared to adjust their operations to cater for a more wary target audience might be set to make excellent profits.
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Price Sensitivity
On the surface it might appear that the obvious strategy to use while the economy is recovering is to raise your own sales charges again to a point that affords your company some extra margin of comfort regarding running expenses. As the economy grows and consumers feel more secure in their jobs they will really feel comfortable spending more cash, so price raises should be an easy thing for consumers to take.
In fact, many firms might find that they need to keep their selling prices as small as possible because the recently provoked price sensitivity amongst the general public. Many of us will have had to tighten our belts over the last couple of years, and just because the hardest of the economic downturn appears to be over, we aren’t all ready to start spending freely again.
The term price sensitivity represents how important the factor of price is to shoppers any time they are purchasing a particular product. If a relatively large price change, for example raising the cost of a car by £
1000, does not see a significant drop in demand for that product then the product is said to be price insensitive. If a relatively 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. This same principle can also be applied to consumers themselves, and following a phase of recession people are more inclined to be price sensitive.
As a result, the market place at large will take great interest in the prices of the items that they are buying. Many people may be watching out for discounts for everyday products that they need, and in particular their grocery shopping. Many of these things are necessities however.
Firms will be in a position to take advantage of this fact by utilising special offers and price campaigns to attract new shoppers into purchasing their own products. Shoppers will be a lot more likely than ever to move from their preferred brands if the price is right, and businesses which offer the best priced goods are likely to stand to profit from this. Once these potential customers have become clients there is a good chance that they will stay faithful to their new product choice as the market recovers further, which could lead to further spending at the initial prices.
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Financial Security
People’s awareness of the economic system at large as well as how it impacts us all has greatly increased in light of the recession. Prior purchasing choices may well have been made according to the properties of the item and its value, but there is a fresh factor that consumers will be considering now. Financial security.
Recession Proofing
Many firms have endured bankruptcy in the aftermath of economic collapse. This has in turn has put thousands of customers in a very poor predicament. As individuals seek to reinvest income into savings and shareholdings they would like to know that the business they are investing in has some kind of safeguard against future recessions.
Price Guarantees
One very visible feature of the recent economic downturn in the United Kingdom was the steep drop in the interest rate. Once this change had precipitated itself through the high street retailers and fiscal services organisations many people found that they were either suffering as a consequence or enjoying a financial advantage. Either way, it certainly elevated the profile of the effect that a changing interest rate can have on everyday economic products.
Customers who are seeking to open new savings accounts or private pensions may be worried that if the recession does indeed drag on for much longer they won’t be generating any considerable interest on their investments. Actually, the recession might still take a turn for the worst and interest rates might fall again. In this scenario, a savings product that offers a guaranteed rate of return turns into a really attractive choice. This method might be used to bring in several new savings shoppers.
The exact same could be said for consumers with credit agreements. If the recession really is truly over and the global market begins to recuperate much more quickly than many anticipate, then it might not be long before we see an increase in interest rates. This would mean that customers would have to pay more each month for their mortgages and loans.
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 goods for a particular time period in an effort to retain existing clients and draw new customers in.
Conclusion
Whether the economic downturn is totally over yet or not, this has functioned as a timely indication that no business can afford to become complacent with its own position of survival. Company owners should always look to consolidate their position and boost their operations wherever possible.