The simple logic is that the bigger the buying power of your customers, the bigger the annual revenue. It doesn't matter if your customers are buying with cash, credit, or a loan. As long as they have the power to make the payment or even pay away a debt, you're in the business. That way, everybody wins-your business blooms, and the customer gets what they want.
According to Statista, that seems to be happening. Even with constant inflation, the quarterly consumer spending in the United States seems to stagnate at around $12.50 trillion.
Unfortunately, it's not always like that. In fact, it is more likely that you face constant monthly challenges-from lack of buyers to figuring out how to pay all your taxes. Additionally, there isn't some magic button that will magically increase the purchasing ability of your customers no matter how good your services may be. But, there are ways to help your customer.
Before we go into possible steps, let's explore what factors influence customer's buying power.
Factors That Influence Purchasing Power
Multiple factors influence the buying power of your customers. Although many are outside your control, it's crucial to be aware of them. Ignoring can quickly put you in a stressful position where you blame yourself for the shortage of accounts instead of external forces. Here we will go through the key ones.
Inflation & Deflation
Inflation is when the pricing of goods increases in an economy due to multiple reasons such as price increase in materials necessary to produce goods, tax, or even a surge in demand. Similarly, deflation is when price levels decrease.
Because cost levels increase during inflation, general buying power decreases, and deflation is the opposite. The important thing is not to look at both as either good or bad. Both are ever occurring events that require adjustments.
Although indirectly, we can also look at buying power as the currency's value depending on goods one can buy with one currency unit. As an example and according to Visual Capitalist, $1 in 2020 would buy you one McDonalds coffee, while in 1933, you could've purchased ten beer bottles for $1.
Naturally, that doesn't mean the purchasing power was more significant in 1933, as we need to consider other factors such as employment and income.
Employment and Income
How much someone can buy or loan depends on their actual income, meaning the income adjusted for inflation. This ties directly to employment since the bigger the general employment, the more money people earn and can afford more.
Although employment doesn't impact other factors, it puts money in people's wallets, increasing their buying ability.
Credit, Interest Rate & Margin
Customers will usually seek financial assistance from banks or other organizations when unable to afford a product they need. This can go from helping with the mortgage payment to getting a loan to purchase a car or medical services. As a result, the presence of credit in the hands of consumers and firms has an almost identical influence on overall purchasing power.
The interest charges imposed by these lenders also have an impact on a borrower's purchasing power. When interest rates rise, it's a more considerable risk to borrow money from lenders to acquire high-ticket items such as a car or an apartment. Accumulating debts can have the opposite effect on the financial prowess of an individual.
Supply and Demand
Supply and demand state how much something is sold vs. how much consumers are willing to buy it. When companies begin to produce more goods than people currently purchase, supply increases.
This frequently leads to price reductions for customers, allowing businesses to sell unsold inventory and recoup the cost of production. Lower prices imply more purchasing power for consumers. Increased demand has the reverse impact.
There aren't enough goods or services available to match consumer demand; as a result, product and service pricing go up - fewer purchasing options.
How to Increase Buying Power
There are multiple ways to make it easier for customers to purchase your product or service. Here we will go through some easy steps that you can take. Depending on what kind of business you're running, you'll need to adjust. It's not the same if you're running a general goods store or a private clinic looking to get more patients.
Discounts & Promotions
Discounts are the most common tactic for businesses to incentivize consumers, whether in a brick-and-mortar store or online. Offering the right discount at the right can easily turn the tides even for buyers with lower monthly income and fewer resources.
Additionally, customers can take advantage of discounts whether they pay in cash or with a credit card. Discounts may seem like an obvious and basic tactic. But check your competition? Are they offering discounts? If they aren't, then your strategy to bring in buying customers just became easier.
Offer Credit Payment
Consumer financing is especially adequate for businesses that offer pricier services such as home improvement or healthcare. In many cases, customers are interested in the service but can’t leverage costs with their financial situation.
Due to their monthly income and savings, individuals find themselves in sort of financial limbo. They are willing to buy but lack the resources to pay. But if you can offer multiple payment options, they can easily reconsider their position.
You can turn an insecure buyer into a long-term customer by providing loans and acceptable credit terms that won't create substantial debt. Since not many companies can afford to offer loans, you can research and find a 3rd party lender.
Better Customer Experience
Everybody knows that a successful company needs strong customer support, right? So why do 54% of U.S. consumers think that customer experience needs improvement?
Better customer experience equals better buyer retention. Although that doesn't impact the buying capabilities directly, it does affect the buying willingness. Consumers can often afford a service through a cash payment or a loan, but they won't due to poor customer experience.
The buyer/seller relationship is like a dance where both sides need to make the exchange successful. Naturally, some buyers can end up costing you more than what you get.
Although the customer is always right, sometimes you need to know when to move from a stubborn customer to a new opportunity.
An Ongoing Process
Figuring out what parts of your company need optimization is an everlasting process. There isn't a one-size-fits-all solution that will ensure you never have to worry about it again.
Fortunately, practical steps such as implementing consumer financing in your business strategy can increase your account number. The more buying options you have, the more likely it becomes for someone to buy.
If you want to explore further and develop your business strategy, feel free to get in touch.