What Is Buying Power?

In order to understand buying power one must be clear with the concept of want, need and demand. An individual might need food, water, clothing and shelter. He will also have other physiological and psychological needs. He might want a particular type of food or a particular brand of clothing. This want of his is converted into demand only when his want is backed by buying power.

Buying power is defined as an entity's ability to back his/her want with the financial power to acquire a product or service. This is basically the ability to pay the price that is demanded by the supplier. It is often the case that marketers make the mistake of judging demand without taking into consideration the buying power. In an underdeveloped market there might be a raging demand for nutritious breakfast cereals but how many people in that market have the ability to pay for top of the line cereals.