The significance of buying power

In modern society, buying power comes from money income. This is true even in non-capitalistic countries. Exchange in modern society is on the basis of money, and people must receive money before they can spend it on goods and services. Here, again, the student of marketing must be wary of averages, since there are many families earning more than the average for the country, and many families earning less. Furthermore, there are wide variations in income by regions, by states, and within states and regions.
As a general rule, the higher the per household income, the higher the per household retail sales. But there is no direct correlation between the two, because people spend money for many things (rent, mortgage payments, insurance, and services) which are not purchased in retail stores.
The use of credit-buying is another reason why there is no necessary correlation between income and retail sales. Credit is the ability of consumers to buy on time. This is an enormous plus item in an expanding standard of living. It has been a potent force in expanding markets and in providing people with more things for them to enjoy.
We have now considered people and money as two of the basic requirements for consumer markets. The third requirement is the need or want for a particular type of product. In considering the third requirement, we must first recognize the fact that there are two classes of consumer expenditures: (1) essential expenditures and (2) optional or discretionary expenditures.
Spending by lower-income families is chiefly for essential goods and services. Discretionary spending does not become much of a factor until family income reaches an amount which is more than sufficient to provide for essentials.
It is in discretionary buying power that marketing people are particularly interested because it is in this area that selling ability, promotion and advertising are essential to the successful selling of products which are something more than bare necessities, and which compete with other products that depend upon discretionary buying power for their sale.