Recession-Proofing For The Future

28 Jul 2010 @ 8:05 AM

Recession-Proofing For The Future

Everybody in the nation, and in fact around the planet, will have experienced the latest worldwide economic downturn in one manner or another, possibly as an individual or as a business operator. It might not have had a direct impact on your own job or your private earnings, but the knock-on impact of businesses dropping income will have influenced the monetary situation of the wide majority of people. It has been a very complicated issue with far reaching implications.

The downturn now appears to be over, or is at the very least on its way to an end, according to most financial experts. Although it might not yet be the moment to celebrate having survived the financial turmoil, it should be a period to start looking forward and planning for a future in a steady economy. It is time to find some recession opportunities.

Businesses of all sizes, trading in all types of marketplaces are no doubt going to have to change their operations in light of the recession. This might be after law is brought in to more closely control and monitor the actions of global monetary organisations. Many companies will also be considering techniques to make themselves more robust and able to endure financial instability in the future.

The Recent Recession

The economic downturn of the early 21st century began in 2007 and gradually propagated around the planet over the next few years. Numerous economic analysts attributed the cause of the economic downturn to be the drop in the U.S. real estate market, which in turn impacted the worth of monetary 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, especially when much of the system was being supported by subprime lenders who were fiscal risks. A general lack of third-party control of the monetary services market had allowed the creation of a highly complicated web of high-risk credit deals that relied upon a rising economy. Once the first debtors began to fall behind on payments, the entire house of cards was quick to come down.

The following economic fallout saw many individuals lose their jobs and also lose their properties, whilst many big, global organisations were forced out of business. Government authorities across the world had to bring in sweeping financial packages to assist 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 toughest financial episode since the depression of the 1930s.

Actually companies that specialize at supplying customer data solutions needed to adjust their own operations so as to make it through the credit crunch.

The Impact on Business

It is probably fair to say that the economic downturn has had an effect on just about every single enterprise around the globe. Certain company models will have been more able to adapt to the added economic pressure than others however they will have nevertheless felt an impact at some portion of their operations. If any key supplier or a main client goes out of business then that will have a detrimental effect upon your own business.

Many 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 relatively simple; as the general public begin to decrease their spending these types of companies lose revenue, and since margins are often extremely slim in a competitive market place there was very little room to allow for this decrease. 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 survive and the knock-on impact would force every business inside of that supply chain to the brink of bankruptcy.

Job losses have naturally been a very delicate subject to the broad majority of us. It’s estimated that the current number of jobless individuals in the UK is over 2.3 million (nearly 8% of the entire countries’ workforce), and many of these will have been victims of the global economic crisis. These kinds of job losses lead to a larger drop in general spending, which results in a further decrease in income for business.

The End of Recession

It does seem that the recession is on its way to an end though, and that can only be good news for business. Gross domestic product (GDP) experienced a climb in the UK during the fourth quarter of 2009 and overall unemployment figures fell, both of which are signals of an economic system that is healing. This is not a view embraced by everyone though.

Experts from the International Monetary Fund (IMF) have forecast that the UK economy may actually get smaller over the duration of 2010 and Mervyn King, the Governor of the Bank of England has spoken of the risk of wide-spread joblessness continuing.

This kind of uncertainty may be used as an advantage though, and organisations that are prepared to take a few risks or that are willing to modify their own operations to cater to a more cautious target audience might be set to make great profits.

I was speaking to the manager of a highly reputed Xbox hard drive business renowned for creating good quality items and he was upbeat for the future.

Price Sensitivity

On the outside it may seem that the obvious technique to use whilst the overall economy is recuperating is to raise your own retail prices again to a level that offers your company some extra margin of comfort with regards to operating costs. As the economy grows and consumers feel more secure in their jobs they will really feel comfortable spending extra money, so price increases should be an easy thing for consumers to take. This will not necessarily be the case.

Actually, many companies might find that they have to keep their selling prices as low as feasible due to the recently triggered price sensitivity amongst the general public. Most of us have had to tighten our belts over the last few years, and just because the worst of the economic downturn seems to be over, we are not all prepared to start spending freely again. This is a pattern that is tough to exactly quantify, however companies will need to be mindful of how their specific customer community feels toward spending.

The term price sensitivity represents how important the factor of price is to customers when they are purchasing a particular product. If a fairly large price shift, for example increasing the price of a car by £1000, does not provoke a significant decrease in demand for that product then the item is said to be price insensitive. If a comparatively small change in price, say increasing the price of a car by only £100, does see a drop in demand then that product is price sensitive. This same principle can also be applied to shoppers themselves, and following a period of recession people are much more likely to be price sensitive.

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

Companies will be able to take advantage of this fact by utilising special discounts and price campaigns to attract new shoppers into buying their own goods. Consumers will be a lot more likely than ever to switch from their favored brand names if the price is perfect, and companies that offer the best priced items are likely to stand to profit from this. After these prospects have turned into clients there is a great chance that they will remain faithful to their new product or service choice as the economy rebounds further, which could lead to additional spending at the initial price rates.

A particular business has found that their website was an excellent means to interact with consumers during the economic downturn.

Financial Security

People’s understanding of the economic system at large and how it influences us all has greatly increased in light of the economic downturn. Prior buying decisions may well have been made in accordance to the properties of the product and its price, but there is a new aspect that shoppers will be thinking about now. Financial security.

Recession Proofing

Several firms have endured bankruptcy in the aftermath of recession. This in turn has left thousands of buyers in a very bad situation. As people look to reinvest income into savings and shareholdings they would prefer to know that the corporation they are investing in has some kind of defense against future recessions.

Price Guarantees

One particular very noticeable element of the recent recession in the United Kingdom was the sharp decrease in the interest rate. Once this change had precipitated itself through the high street shops and fiscal services organisations many people discovered that they were either suffering as a consequence or enjoying a monetary benefit.

Customers that are seeking to open up new savings accounts or private pensions may well be worried that if the recession does in fact carry on for much longer they will not be earning any significant interest on their investments. In reality, the recession may still take a turn for the worst and interest rates might fall again. In this situation, a savings product that provides a confirmed rate of return turns into a really attractive choice. This technique could be used to attract several new savings customers.

The exact same could be said for customers with credit agreements. If the recession is genuinely over and the worldwide economy starts to recover more quickly than many anticipate, then it may not be too long before we see an increase in interest rates. This would mean that consumers would need to pay much more each month for their mortgages and loans. A business that could offer a guaranteed rate of interest that is not linked to the base rate of interest might again entice many new customers.

A similar approach was used by a number of companies when the rate of Value Added Tax (VAT) increased from 15% to 17.5% in early 2010. These companies would offer “price freezes” on their goods for a particular period in an effort to retain current clients and draw new clients in.

Conclusion

Whether the economic downturn is entirely over yet or not, this has served as a firm reminder that no company can be complacent with its own position of success. Business owners must constantly seek to consolidate their situation and boost their own operations where possible. The companies that manage to endure the downturn in the economy will have learnt important lessons.

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