Purchasing Power

How do consumers decide what to buy? And how much money do they have to spend for what they want to buy?

Marketers have long tried to figure it out, and you’re probably no exception in finding out that there haven’t been any good answers. So you rely on things like household income data to measure the potential spending power of your prospects and customers. And, for a long time, that kind of “potential” was all that was available.

But today it is no longer enough if you are serious about targeting the right consumer, with the right product, at the right time.

Compounding the challenge is the reality of consumer “schizophrenia.” Historically, consumers were more “class consistent” than they are today. Affluent consumers always bought premium, middle class bought value, and lower income bought on price. We marketers relied on that for a long time.

Those “truisms” are, quite simply, no longer true. Millionaires shop at Wal-Mart. And many people—perhaps more than ever—are living well beyond their means. The result is that you have to figure out not only who has spending power but also what they’re willing to spend it on.

Henry Ford famously decided to pay his workers more than he had to do keep them. One result of this was that the workers made enough money to be able to buy Ford’s cars, and this made Ford more succesfull. Another result, which is considered irrelevant in some business circles, is that Ford employees were able to live middle-class lives. This helped not only Ford, but the country.

 

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