Price Sensitivity After A Period Of Recession
February 5th, 2012Everyone in the country, and certainly around the planet, will certainly have suffered the latest global economic downturn in one way or another, possibly as an individual or as a business owner. It may not have had an immediate impact upon your own position or your personal earnings, but the knock-on result of businesses dropping revenue will have influenced the economic predicament of the vast majority of folks. It was a really complex issue with far reaching ramifications.
The actual recession now appears to be over, or is at the least coming to an end, according to most financial authorities. Whilst it may not yet be the moment to celebrate having made it through the economic meltdown, it should be a period to start looking forward and preparing for a future within a stable economic climate. It is time to look for some recession opportunities.
Businesses of almost all sizes, trading in all kinds of marketplaces are no doubt going to have to change their operations in view of the economic downturn. This may be after law is introduced to more closely control and monitor the action of worldwide financial organisations. Many businesses may also be looking at ways to make themselves more robust and have the ability to endure economic instability in the future.
The Recent Recession
The economic downturn of the early 21st century began in 2007 and slowly propagated around the world over the subsequent couple of years. Several economic analysts credited the cause of the economic downturn to be the drop in the U.S. housing market, which in turn affected the value of monetary products linked into real estate resources. The expansion of the housing market until that point had encouraged 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 widespread system of credit agreements between global businesses, particularly when much of the system was being backed by subprime lenders who were financial liabilities. A basic lack of third-party management of the financial services market had permitted the development of a highly complicated web of high-risk credit deals that relied upon a growing economy. Once the first debtors started to default on payments, the entire house of cards was quick to fall.
The following economic fallout saw several people lose their jobs and also lose their properties, whilst many big, global companies were forced out of business. Governments throughout the world had to introduce radical financial programs to support their own banking systems, and even now certain first world countries are fighting to make it through financially. Many consider it to have been the toughest economic period since the depression of the 1930s.
For a business which largely offer chartered planning consultants products, the full impact of the economic depression may not be clear for an additional year or so.
The Impact on Business
It’s probably fair to say that the economic downturn had an effect on just about every single business around the world. Particular company models will have been more able to adjust to the additional financial pressure than others however they will have still experienced an impact at some part of their operation. If any key supplier or a major client goes out of business then this can have a negative impact upon your own business.
Many thousands of small and medium sized companies have been pressured out of business as a result of the recent recession. Several 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 profit margins are often extremely slim in a competitive market place there was very little space to accommodate this decline. It is a simple case of supply and demand not meeting in the middle.
Some other cases were not so clean cut. There were situations where one company in a long supply chain had been unable to survive and the knock-on impact would push every business within that supply chain to the brink of bankruptcy. The businesses that were able to pull through have had to make very hard judgements to ensure they can outlast the economic downturn.
Job losses have obviously been a very delicate subject to the vast majority of us. It is believed that the present 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 financial crisis.
The End of Recession
It does seem that the downturn is coming to an end though, and this can only be great news for business. Gross domestic product (GDP) saw a rise in the UK during the final quarter of 2009 and overall unemployment figures fell, both of which are signals of an economic system that is healing.
Experts at the International Monetary Fund (IMF) have forecast that the UK financial system will actually shrink over the duration of 2010 and Mervyn King, the Governor of the Bank of England has warned of the risk of wide-spread joblessness continuing.
This uncertainty can be utilised as an advantage however, and companies that are prepared to take a few risks or who are willing to adjust their own operations to cater to a more wary audience could be set to make great profits.
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Price Sensitivity
On the outside it might appear that the clear technique to use while the overall economy is recuperating is to increase your own sales prices again to a level that offers your company some extra margin of comfort in relation to running costs. As the market grows and people feel safer in their careers they will really feel relaxed spending more money, so price increases should be an easy thing for shoppers to take.
In fact, many companies may find that they need to keep their prices as small as possible due to the recently provoked price sensitivity amongst the general public. Most of us have had to tighten our belts during the last couple of years, and simply because the worst of the recession seems to be over, we aren’t all prepared to begin spending freely just yet.
This is a trend that is tough to exactly quantify, however firms will want to be mindful of how their particular consumer sector feels toward spending.
The term price sensitivity describes how important the element of price is to shoppers when they are buying a particular product. If a relatively large price change, for example raising the cost of a car by £1000, doesn’t provoke a large decrease in demand for that product then the product is said to be price insensitive. If a comparatively modest change in price, say increasing the price of a car by only £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 products that they require, and particularly their grocery shopping. Several of these products are necessities however.
Companies will be in a position to take advantage of this by utilising special discounts and price campaigns to attract new customers into purchasing their items. Shoppers will be a lot more likely than ever to move from their preferred manufacturers if the price tag is right, and firms which offer the best priced products are likely to stand to gain from this.
A particular company has found that their particular website was a great method to engage with their customers through the tough economy.
Financial Security
People’s knowledge of the economic system at large along with how it impacts us all has significantly increased in light of the recession. Previous purchasing decisions may well have been made with respect to the properties of the item and its value, but there is a fresh aspect that shoppers will be considering now. Financial security.
Recession Proofing
Several firms have endured bankruptcy in the aftermath of recession. This has in turn has left countless numbers of buyers in a really poor predicament. As people seek to reinvest income into financial savings and shareholdings they will like to know that the corporation they are investing in has some type of safeguard against future recessions.
Price Guarantees
One particular very noticeable feature of the recent recession in the United Kingdom was the steep drop in the interest rate. After this change had worked itself through the high street shops and monetary services organisations several people found that they were either struggling as a result or reaping a financial benefit.
Shoppers that are looking to open up new savings accounts or private pensions may well be concerned that if the economic downturn does in fact drag on for much longer they will not be generating any considerable interest on their investments. In fact, the recession might still take a turn for the worst and interest rates might drop again. In this scenario, a savings product that provides a confirmed rate of return will become a very appealing choice.
The exact same can be said for customers with credit agreements. If the recession is genuinely over and the international market starts to recover much more quickly than many expect, then it might not be too long before we see a rise in interest rates. This would mean that customers would have to pay more each month for their mortgages and loans. A provider that can offer a secured rate of interest that is not linked to the base rate of interest might again entice several new customers.
A similar technique was used by a number of firms after the rate of Value Added Tax (VAT) increased from 15% to 17.5% in early 2010. They would offer “price freezes” for their items for a specific time period in an attempt to retain existing consumers and bring new clients in. This kind of price freeze permitted a buffer period for people to adapt to the new VAT rate.
Conclusion
Whether the economic downturn is completely over yet or not, this has served as a timely indication that no business can afford to be complacent with its own position of success. Company owners must always seek to consolidate their situation and improve their operations where possible. The businesses that are able to make it through the economic downturn will have learned important lessons.































