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Recession Opportunities

Filed under: Uncategorized — emitaliablog
Posted on November 23, 2010 @ 2:15 pm
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Everybody in the nation, and in fact all around the world, will certainly have suffered the latest worldwide economic downturn in one way or another, possibly as an individual or as a business operator. It may not have had a direct effect on your own job or your individual earnings, but the knock-on result of companies losing income will have affected the economic situation of the great majority of folks. It has been a really complex issue with far reaching ramifications.

The downturn now seems to be over, or is at the very least coming to an end, according to many financial experts. Whilst it might not yet be the occasion to celebrate having survived the economic crisis, it should be a period to begin looking ahead and planning for a future in a stable economic climate. It is time to find some recession opportunities.

Firms of almost all sizes, trading in all kinds of marketplaces are no doubt going to need to change their operations in light of the recession. This may well be after law is brought in to more closely control and monitor the action of global economic organisations. Many firms may also be considering methods to make themselves more robust and have the ability to withstand financial instability in the future.

The Recent Recession

The economic downturn of the early 21st century started in 2007 and gradually propagated around the planet over the next couple of years. Numerous financial analysts attributed the cause of the recession to be the drop in the U.S. real estate market, which in turn affected the value of financial products tied into real estate assets.

This fall in value then uncovered the vulnerabilities of such a wide-spread system of credit contracts between international businesses, particularly when much of the system was being supported by subprime lenders who were fiscal risks. A general lack of third-party management of the monetary services market had permitted the development of a highly complicated web of high-risk credit deals which relied upon a thriving economy. Once the first debtors began to fall behind on payments, the entire house of cards ended up being quick to come down.

The subsequent economic fallout saw many individuals lose their jobs and also lose their homes, while many large, international organisations were forced out of business. Governments all over the world had to bring in sweeping financial packages to support their own banking systems, and even now certain first world countries are fighting to survive financially.

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The Impact on Business

It is probably fair to say that the recession had an impact on just about every single business around the world. Particular business models will have been more able to adapt to the added financial pressure than others but they will have nevertheless felt an impact at some part of their operations. If a key service provider or a main customer goes out of business then that will have a detrimental impact upon your own company.

Thousands of small and medium sized businesses have been forced out of business because of the recent recession. Many of these cases will have been comparatively basic; as the general public begin to decrease their spending these businesses lose revenue, and since profit margins are often very slender in a competitive market place there was extremely little room to allow for this drop. It’s a simple case of supply and demand not meeting in the middle.

Some other cases were not so clean cut. There were circumstances where one business in a lengthy supply chain were unable to survive and the knock-on effect would push every company within that supply chain to the brink of bankruptcy.

Job losses have of course been a very sensitive subject to the vast majority of us. It is estimated that the current 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 financial crisis. These types of job losses lead to a larger decrease in general spending, which leads to a further drop in income for business.

The End of Recession

It does appear that the downturn is on its way to an end though, and this can only be great news for business. Gross domestic product (GDP) experienced a rise in the UK during the fourth quarter of 2009 and total unemployment numbers dropped, both of which are signs of an economy that is recovering. This isn’t a perspective embraced by everyone however.

Industry experts at the International Monetary Fund (IMF) have forecast that the UK economy will actually get smaller over the course of 2010 and Mervyn King, the Governor of the Bank of England has warned of the risk of wide-spread joblessness persisting.

This uncertainty can be used as an advantage though, and businesses that are ready to take a few risks or who are prepared to adjust their own operations to cater for a more cautious target audience might be set to make great profits.

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Price Sensitivity

On the outside it may appear that the clear technique to use whilst the overall economy is recovering is to increase your own sales prices again to a point that offers your company some margin of comfort regarding running expenses. As the economy grows and consumers feel more secure in their jobs they will feel relaxed spending extra money, so price increases ought to be an easy thing for shoppers to take.

In fact, many companies may find that they have to hold their prices as small as feasible due to the newly provoked price sensitivity amongst the general public. Most of us will have had to tighten our belts during the last few years, and just because the worst of the recession seems to be over, we are not all prepared to begin spending freely again. This is a trend that is hard to exactly quantify, however businesses will have to be aware of how their specific customer community feels toward spending.

The term price sensitivity describes how important the factor of price is to shoppers any time they are purchasing a particular product. If a fairly large price shift, for example increasing the price of a car by £1000, doesn’t see a significant drop in demand for that item then the item is said to be price insensitive. If a fairly small change in price, say increasing the price of a car by just £100, does see a decline in demand then that item is price sensitive.

As a result, the market at large will take great interest in the costs of the items that they are buying. Many people will be watching out for deals for everyday items that they require, and in particular their grocery shopping. Many of these items are necessities however.

Companies will be in a position to take advantage of this fact by using special discounts and price promotions to attract new shoppers into buying their goods. Consumers will be a lot more likely than ever to switch from their preferred brand names if the price is right, and companies that offer the best priced goods are most likely to stand to profit from this. Once these prospective customers have become clients there is a good chance that they will stay loyal to their new product or service choice as the market rebounds further, which could lead to additional spending at the initial price rates.

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Financial Security

People’s knowledge of the economic system at large along with how it influences us all has greatly grown in light of the economic depression. Prior buying choices may well have been made in accordance to the properties of the item and its value, but there is actually a fresh aspect that shoppers will be considering now.

Recession Proofing

Many firms have suffered bankruptcy in the aftermath of recession. This has in turn has put thousands of buyers in a really bad situation. As individuals look to reinvest income into personal savings and shareholdings they would prefer to see that the company they are investing in has some form of protection against future recessions. This might merely be a case of operating the company with as little debt as feasible, but anything that may be used to assure customers might be a fantastic selling point for a firm.

Price Guarantees

One particular very noticeable element of the latest economic downturn in the United Kingdom was the sharp drop in the interest rate. Once this change had precipitated itself throughout the high street stores and financial services institutes several people found that they were either struggling as a consequence or enjoying a financial benefit.

Consumers who are looking to open up new savings accounts or private pensions may well be concerned that if the recession does indeed carry on for much longer they will not be earning any considerable interest on their investments. In fact, the recession might even now take a turn for the worst and interest rates might fall again. In this situation, a savings product that offers a secured rate of return becomes a very appealing choice.

The same can be said for customers with credit agreements. If the recession is genuinely over and the global economy begins to recuperate more swiftly than many anticipate, then it may not be too long before we see a growth in interest rates. That would mean that customers would have to pay more each month for their mortgages and loans.

A similar approach 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. These companies would offer “price freezes” for their goods for a certain time period in an attempt to keep their current customers and draw new clients in. This price freeze granted a buffer period for individuals to adjust to the new VAT percentage.

Conclusion

Whether the economic downturn is completely over yet or not, it has functioned as a timely reminder that no business can become complacent in their own situation of success. Company managers should always seek to consolidate their position and improve their own operations where possible.

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