No matter what specific niche your retail brand occupies, consumer purchasing power can make or break your business. This power comes from a variety of issues affecting the overall economy and personal finance. It affects businesses that rely on the ability of customers to buy goods and services and their confidence to make impulse decisions or splurge on wants instead of only needs.
You want your brand to thrive even in times with higher living expenses and levels of inflation. Understanding these things that impact purchasing power can help. When you examine key determinants and their implications, you gain valuable insights into the overall financial landscape and how your business can adapt to it.
What is purchasing power?
Purchasing or buying power refers to an individual’s ability to buy goods and services they need and want with their current income. It also focuses on the general value of the national currency. In other words, how much can you get for your dollar? Many things determine this, but some of them are largely outside a consumer’s or retail business’s control. The average worker cannot affect inflation vs. demand or what the government decides to do with interest rates. No matter what the specific cause, retailers can focus on things they can control instead.
First, understand what things impact purchasing power for today’s consumers. Then, create effective strategies to improve access to products and likelihood of purchases so you can succeed now and into the future.
Five things that impact how much consumers will buy
These five influences on current and future purchasing power should play a key role in your overall retail strategy. When you fully understand them and collect sufficient data from your own targeted consumer audience, you will have the knowledge necessary to make smart decisions that support increased revenue even during difficult times.
1. Income levels affect buying power
The real income that people bring home must take care of things like bills, child care, and retirement funding before they can think of luxury purchases. Higher income levels generally create greater purchasing power, but this may differ considerably in diverse areas. For example, people who live in very high cost of living areas may have impressive real wages, but won’t have much left over for excessive shopping.
People or households with lower income levels restrict want-based expenditures and focus on needs alone in many cases. This is especially true during times of higher annual inflation. Retail buying dwindles when families are faced with lower overall income.
2. The inflation rate matters when it comes to shopping
Not only do wages after inflation buy less, but the cost of products affects things like impulse purchases or emotion-fueled decisions. Although not specifically associated with purchasing power as a statistical metric, these do affect retail success. High inflation equals higher living expenses, which means less available money for shopping.
Consumers cut back on discretionary spending, prioritize essential purchases, and seek out less expensive alternatives to products they want. For retail brands, especially those in high-end fashion, jewelry, and home furnishing sectors, the effects of inflation can severely cut into your bottom line.
3. Credit availability boosts individual purchasing power
Consumer purchasing power is not always tied to wages directly. If a consumer has access to credit with reasonable interest rates, they are more likely to make purchases with less careful discrimination. Their buying power coincides with credit availability. This has a ripple effect across markets. For example, better rates on an easier-to-get mortgage frees up more money for buying new furniture or other items.
If more people can get credit cards with higher limits, they are more likely to spend money without careful consideration. While intense upselling and hard-sell tactics do not make for a satisfied consumer base, these are indications that their purchasing power remains strong.
4. How much does it cost to maintain a standard of living?
Income levels, the cost of inflation, and other factors on this list all contribute to an individual's answer to this question. It’s the foundation of the whole idea of purchasing power. Single people and whole households want to maintain the same standard of living even if their money supply decreases or living expenses increase. This concerns everything from housing, food, healthcare, transportation, utilities, and things like their children’s extracurricular activities and their own social responsibilities.
This potential issue also creates opportunities for savvy retailers to market more effectively. If you sell products or services closely related to a certain standard of living, it becomes easier to convince buyers that they cannot skip these purchases. Promote value for the individual to keep sales high.
5. Large-scale economic activity and future projections
Collective buying power for a population provides key insights into the activities and decision-making process of individual consumers. When the economy is robust and inflation comes down, everyone buys more retail products. Fear and comfort levels affect those who keep an eye on global financial markets and the general trends closer to home. By watching and anticipating these economic shifts, businesses can prepare better for their potential impacts.
Retail strategies help your brand adapt to troubled times
In times of financial challenges and reduced buyer power, effective retail strategies help brands stay in the black. Instead of promoting things based on trends or high-expense seasonal holidays, it might be the perfect time to focus on value propositions above all else. When you clearly communicate the unique benefits of a product or service directly to the people who want and need them, you make the purchases much easier decisions. Consider discount promotions, loyalty programs, and more personalized recommendations.
No matter what type of goods you sell, leveraging data and analytics helps you understand shifting shopper behaviors and attitudes. Keep a close eye on the five things that influence purchasing power, but always ask for feedback from your target audience, too.
While a single retail brand can’t track every single individual, local, national, and global economic factor that goes into consumer purchasing power, collecting data from your target audience with a platform like Clientbook can help. The more you know, the more trends you can track, and the more smart decisions you can make about everything from product price points to personalized marketing plans.
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