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How The Recession Has Affected All Of Us
By Dog Lover | October 7, 2010
Everybody in the country, and certainly around the planet, will have suffered the recent global economic downturn in one way or another, possibly as a person or as a business owner. It may not have had a direct impact on your own job or your individual income, but the knock-on impact of companies dropping revenue will have influenced the financial situation of the great majority of folks. It has been a really complicated issue with wide reaching ramifications.
The downturn now seems to be over, or is at least coming to an end, according to many financial authorities. Whilst it might not yet be the moment to celebrate having made it through the economic crisis, it should be a period to start looking ahead and preparing for a future within a stable economy. It is time to find some recession opportunities.
Businesses of almost all sizes, trading in all kinds of marketplaces are no doubt going to need to alter their operations in light of the economic depression. This may be after legislation is introduced to more closely control and keep an eye on the action of global monetary organisations. Many firms will also be looking at ways to make themselves far more robust and have the ability to endure economic instability in the long term.
The Recent Recession
The economic downturn of the early 21st century began in 2007 and steadily propagated around the world over the subsequent few years. Several economic analysts credited the cause of the recession to be the drop in the U.S. real estate market, which in turn affected the value of monetary products linked into real estate resources. The growth of the housing market up to that stage had motivated homeowners to refinance their first homes in order to buy second or third houses with a view to a long-term profit.
This fall in value then exposed the vulnerabilities of such a widespread network of credit agreements between international companies, particularly when much of the system was being backed by subprime lenders who were financial risks. A basic lack of third-party control of the financial services market had permitted the development of a very complex web of high-risk credit deals that relied upon a rising economy.
The subsequent financial fallout saw many individuals lose their jobs and also lose their properties, whilst many big, global organisations were forced out of business. Governments across the world had to bring in major financial packages to assist their own banking systems, and still now certain first world countries are struggling to survive financially.
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The Impact on Business
It’s probably fair to state that the economic downturn has had an effect on just about every single enterprise around the world. Certain company models will have been more able to adapt to the extra financial stress than others however they will have nevertheless felt an impact at some portion of their operation.
Many thousands of small and medium sized businesses have been pressured out of business due to the recent economic collapse. Many of these cases will have been fairly simple; as the general public start to reduce their spending these types of businesses lose revenue, and since margins are often very slim in a competitive market place there was extremely little room to accommodate this decline. It’s a simple 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 long supply chain were unable to make it through and the knock-on effect would push every company inside that supply chain to the edge of bankruptcy. The organisations which were able to pull through have had to make incredibly hard choices to be sure they can survive the economic collapse.
Job losses have obviously been a very sensitive subject to the wide majority of us. It is estimated that the present number of unemployed individuals in the UK is over 2.3 million (nearly 8% of the entire countries’ labourforce), and many of these will have been victims of the global financial crisis. These kinds of job losses head to a greater decrease in general spending, which triggers a further fall in revenue for business.
The End of Recession
It does appear that the recession is coming to an end however, and this can only be good news for business. Gross domestic product (GDP) experienced a rise in the UK during the final quarter of 2009 and total unemployment figures dropped, both of which are signs of an economy that is healing.
Industry 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 threat of wide-spread unemployment continuing.
This uncertainty may be utilised as an advantage however, and businesses that are ready to take a few risks or that are willing 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 seem that the obvious technique to use whilst the overall economy is recovering is to increase your own retail prices again to a point that affords your business some extra margin of comfort regarding operating expenses. As the economy grows and consumers feel more secure in their careers they will really feel secure spending extra cash, so price increases should be an easy thing for shoppers to take.
In fact, many companies might find that they need to keep their selling prices as low as feasible due to the recently triggered price sensitivity amongst the general public. Many 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 aren’t all ready to begin spending freely just yet.
The term price sensitivity describes how important the factor of price is to consumers when they are purchasing a specific product. If a fairly large price shift, for example increasing the price of a car by £1000, does not provoke a significant drop in demand for that product then the product is said to be price insensitive. If a relatively modest change in price, say increasing the price of a car by only £100, does see a decline in demand then that product is price sensitive. This exact same principle can likewise be applied to shoppers themselves, and following a phase of recession people are more inclined to be price sensitive.
As a result, the market place at large will have great interest in the costs of the items that they are buying. Several people may be watching out for deals for everyday products that they need, and particularly their grocery shopping. Several of these items are essentials however. When it comes to buying expensive products, such as televisions, cars and holidays, the cost of the purchase is likely to be an even more important decision maker.
Businesses will be able to take advantage of this fact by using special offers and price campaigns to attract new shoppers into purchasing their products. Shoppers will be a lot more likely than ever to switch from their favored brand names if the price tag is perfect, and businesses which offer the best priced items are most likely to stand to gain from this.
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Financial Security
People’s awareness of the economic system at large as well as how it affects us all has significantly increased in light of the economic depression. Prior buying decisions may well have been made in accordance to the quality of the product and its price, but there is actually a new factor that buyers will be considering now.
Recession Proofing
Many firms have suffered bankruptcy in the aftermath of recession. This has in turn has left countless numbers of shoppers in a really poor situation. As people seek to reinvest money into financial savings and shareholdings they will like to know that the company they are investing in has some type of safeguard against potential recessions. This might merely be a case of managing the business with as little debt as possible, but anything that could be used to assure customers might be a great selling point for a business.
Price Guarantees
One particular very noticeable element of the recent recession in the United Kingdom was the steep decrease in the interest rate. Once this change had precipitated itself through the high street retailers and financial services institutes many people discovered that they were either suffering as a result or enjoying a monetary benefit.
Shoppers who are looking to open up new savings accounts or private pensions might be worried that if the economic downturn does in fact drag on for much longer they will not be generating any substantial interest on their investments. In fact, the recession may even now take a turn for the worst and interest rates could fall again. In this scenario, a savings product that provides a secured rate of return becomes a really appealing choice.
The same could be said for customers with credit agreements. If the recession is truly over and the worldwide market begins to recuperate much more quickly than many expect, then it may not be too long before we see an increase in interest rates. This would signify that consumers would need to pay more each month for their mortgages and loans. A company that could offer a secured rate of interest that isn’t connected to the base rate of interest could again entice many new customers.
A similar approach was used 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” on their products for a particular period in an effort to keep their current clients and bring new customers in.
Conclusion
Whether the recession is totally over yet or not, it has served as a firm indication that no company can become complacent in its own situation of survival. Business owners must always look to consolidate their own position and improve their operations wherever possible. The businesses which manage to endure the economic downturn will have learnt important lessons.
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