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What is Buying Power?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 18 November 2016
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Sometimes referred to as purchasing power, buying power is defined as the current value of available cash in relation to the quality and quantity of products that can purchased using those available assets. In terms of investing, buying power normally refers to the value of money that is available for use in the purchase of securities on margin. Essentially, the use of the term "buying power" has to do with the ability of a consumer to use liquid assets to purchase the desired quantity and quality of products that will meet current wants and needs.

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Manufacturers make it a point to analyze the buying power of various sectors of the consumer market in order to design goods and services that are a good match with the average amount of disposable income that consumers in a given economic bracket can be expected to use buying products. A correct understanding of the value of money, as it applies to a specific consumer group, can help a manufacturer to design products that will meet the expectations that a consumer will have for a given god or service, as it relates to a given price structure. This means that the number of units produced and the quality of the materials used to produce the goods may vary. Manufacturers operate with the idea to sell units that meet standard safety and quality levels, can be sold at a profit, and are still acceptable to a consumer who must make purchases within a given level of economic activity.

Buying power will vary from one economic group to another. Generally, manufacturers will provide several quality levels of the same types of products, producing varying numbers of each level of goods, based on the market demand that is based partially on understanding the average buying power of consumers in a given sector of the market. This approach has led to the establishment of various types of retail outlets. Some of the outlets will cater to consumers who possess a lower level of buying power, while others will focus on attracting the smaller but more affluent group of consumers who can afford to spend more for a good or service that is slightly enhanced in some manner. Consumers may choose to exercise buying power in discount stores, upscale department stores, or in specialized boutiques that carry limited editions of highly prized goods.

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lynda831
Post 5

An Australian company called Chemist Warehouse has a lot of buying power because they saturate the marketplace, and thus the manufacturers and suppliers rely on them to stock their medicines.

Since they have so much pulling power from their domination of the market, they request to buy from the suppliers at a low value because of the "buying power" they have. Wish it was that easy, though.

sunshine31
Post 4

@GreenWeaver - I do that with my Christmas wrapping paper and decorations. I stock up the day after Christmas when everyone is returning stuff. I also wanted to add that when the consumer buying power increases in a particular segment of the population you will start to see more products on the market catering to that segment.

The Hispanic buying power has increased to such a degree that you now see many products tailored to the Hispanic market. For example, a fast food chain is carrying café con leche which is a blend of espresso with milk in select markets that traditionally is sold in Cuban and Latin restaurants.

You also see a lot of flan and guava paste

sold in traditional grocery stores that would not have normally seen. I also notice the trend in make up. A lot of companies are offering deeper richer tones in foundation and eye color that cater to Latin and African American women because the African American buying power has also increased in the last few years.
GreenWeaver
Post 3

@Latte31 - I agree that your buying power increases with the use of coupons. It also increases when you time the sales. Retailers offer certain things on sale in a cyclical manner. If you wait until after the season is up you will get a better deal.

For example, if you are looking for bathing suits, the best deals are at the end of the season in September during Labor Day. If you buy a bathing suit then, you could probably get the bathing suit for 75% off the regular price.

latte31
Post 2

I think that the consumer buying power increases with the use of manufacturers and store coupons. I recently saw a program that showed various customers using coupons at the grocery store. Many of these people belonged to coupon clubs and bought various stacks of newspapers in order to receive the Sunday coupons and use it on their purchases.

Most of these people bought over $600 worth of groceries for under $5. It was amazing, but a little stressful to watch.

A lot of these people got into to using coupons out of necessity because of one of the members of their household lost their job. Some of these families developed stock piles of goods in their basement of extra merchandise that looks like a little grocery store. While this is a time consuming hobby you can really get more for your money if you invest in using some coupons.

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