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.
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.
