Buying power refers to the capacity of consumers to purchase goods and services, usually categorized according to industry. If a group of consumers has high buying power, they are likely making large incomes in relation to the current market price of the goods and services available. In contrast, a group of consumers with low buying power is generally less able to afford goods and services at current market prices.
Consumer buying power is an important consideration for any business that intends to target a certain demographic group. Businesses want to set competitive prices that earn them enough profit, but yet are not too exorbitantly high that the majority of the target group would be unable to pay for them. Additionally, businesses also tend to look towards the buying power of the current market when they establish their inventory and prices. In many ways, considering the buying power of consumers is about finding the perfect balance between the amount of stock and its price. There should be enough inventory to meet the current market demand at a profitable price point, but not too much inventory that there are leftovers, as leftover stock is prone to incurring additional costs from storage and transportation. If a business was unable to sell most of its stock, the cost of storing leftover inventory could easily add up to be more than the profit gained from goods sold.
It is worth noting that some economists separate buying power from purchasing power. Some definitions of buying power refer to the total sum of money a consumer would have to spend, save or invest, while purchasing power refers to that amount of money relative to the price of market goods. Purchasing power is directly affected by the price fluctuations in the market, particularly during inflation. A consumer’s buying power will always increase as their salary increases, but they
Advertisements first made it into people’s homes when televisions became popular. In the generation of the baby boomers, almost every house in the United States had at least one television, easily connecting advertisers to consumers that were eager to buy more. Television shows may not be as popular today, but the rise of the Internet has given advertisers a completely new playing field: digital marketing.
Our smartphones and computers are the new televisions of today. It is estimated that there are 275.66 million smartphone users in just the United States today – comprising over 83 percent of the population! Those of us living in urban cities typically spend a large portion of our day staring at a screen. Social media has become the in-thing for sharing moments, pictures, thoughts and even meeting strangers from across the world. With so much accumulated screen time, it is no wonder that digital marketing has become a very appealing medium.
Part of the appeal of digital marketing is its ability to provide information on each advertisement campaign. Companies are now able to see who they have reached out to. From the moment a user views an advertisement and clicks on it, to the moment they make a purchase, advertisers are able to record all that information. However, digital marketing also empowers consumers to make smarter choices when buying a product, particularly by searching for the best value. Instead of being restricted to a state- or country-specific market, consumers are now able to purchase from virtually anywhere in the world, which may offer lower prices than their local market.
Stereotypes regarding the buying power of different races are common. In America, people may often see the white consumer as an affluent spender, while black consumers may be believed to have lower buying power, even if this is not true. Unfortunately, black people most often report instances of discrimination when they are shopping, as per a number of Gallup polls. The 2018 poll indicated that 59 percent of black people say that they are treated less fairly than white people in physical stores and at shopping malls. Interestingly, this number has been increasing through the years even as black people are becoming wealthier and gaining more buying power.
Black people constitute roughly 15 percent of the United States’ population. While many of them may have had humble beginnings, they are now on par with white people financially, and even outpacing them in recent years. For instance, the buying power of black people was at $1.4 trillion in 2019 – higher than the gross domestic product of Mexico. Black buying power is expected to jump to $1.8 trillion by 2024. This is a huge growth rate compared to white buying power. From 2000 to 2018, black buying power increased by 114 percent, while white buying power increased by only 89 percent. Americans are getting richer, but black people at a faster rate than white people.
The population of black Americans is also younger than the general American population, with a median age of 32 years and 38 years respectively. This means that the buying power of black Americans is slated to see further large increases, as a smaller percentage of the demographic group has reached their peak earning years. In some years’ time, the younger population will begin to rise up the ranks, replacing the older population and thus creating a wider disparity.
Black people are not the only demographic group to have experienced a surge in buying power. While the US market has seen a growth of 100 percent from 2000 to 2018 and 30 percent from 2010 to 2018, the largest percentage gains have been in minority markets – African Americans, Asian Americans, Multicultural Americans and Native Americans. Native Americans make up only 1.3 percent of the population, but have seen a 185 percent increase in their buying power from 2000 to 2018, ending up at $115 billion. Asian Americans have had an even greater increase of 267 percent to $1 trillion, making them the fastest-growing minority market in the United States. The Hispanics of the nation command an impressive buying power of $1.5 trillion, more than the gross domestic product of Australia.
Of course, while we note these trends of increases in buying power, we should also keep in mind that the value of the American dollar itself has seen a large increase.
When the US dollar was first established at the start of the 20th century, there was only $7 billion in circulation. A dollar could buy a pair of leather shoes – a price most of us will regard as extremely cheap. Throughout the periods of inflation, the value of items increased, resulting in today’s money supply of $13,291 billion. Today, a pair of shoes costs many times what it used to at the turn of the 20th century. Accordingly, our incomes have also increased in proportion. In the years to come
, we may perhaps look back on these times and wonder how a dollar could buy the things we have today.
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