A Business Encyclopedia

Economic Factors Influencing Consumer Behavior

Definition: The Economic Factors are the factors that talk about the level of sales in the market and the financial position of the consumer, i.e. how much an individual spends on the purchase of goods and services that contribute to the overall sales of the company.

The following are the main economic factors that greatly influence the consumer buying behavior:

Economic Factors

  1. Personal Income: The personal income of an individual influences his buying behavior as it determines the level to which the amount is spent on the purchase of goods and services. The consumer has two types of personal incomes disposable income and discretionary income.

    The disposable personal income is the income left in hand after all the taxes, and other necessary payments have been made. The more the disposable personal income in hand the more is the expenditure on various items and vice-versa.

    The discretionary personal income is the income left after meeting all the basic necessities of life and is used for the purchase of the shopping goods, luxuries, durable goods, etc. An increase in the discretionary income results in more expenditure on the shopping goods through which the standard of living of an individual gets improved.

  2. Family Income: The family income refers to the aggregate of the sum of the income of all the family members. The total family income also influences the buying behaviors of its members. The income remaining after meeting all the basic necessities of life can be used for the purchase of shopping goods, luxury items, durable goods, etc.
  3. Income Expectations: An Individual’s expectation with respect to his income level in the future influences his buying behavior today. Such as, if a person expects his income to increase in the future, then he will spend more money on the purchase of the luxury goods, durables and shopping goods. And on the contrary, if he expects his income to fall in the future his expenditure on such items also reduces.
  4. Consumer Credit: The credit facility available to the consumer also influences his buying behavior. If the credit terms are liberal, and EMI scheme is also available, then the customers are likely to spend more on the luxury items, durable goods, and shopping goods. This credit is offered by the seller either directly or indirectly through the banks and other financial institutions.
  5. Liquid Assets: The liquid assets with the consumer also influences his buying behavior. The liquid assets are the assets that are readily convertible into the cash. If the customer has more liquid assets, then he is likely to spend more on the luxury items and the shopping goods. On the other hand, if the liquid assets are few then the expenditure on luxury items also reduces.
  6. Savings: The amount of savings out of the personal income also influences the consumer buying behavior. Such as, if the customer decides to save more for a particular period, then his expenditure on the other items will be less and in case the savings are less the expenditure on other items increases.

Note: Apart from these factors other economic conditions such as inflation, recession, business cycles, etc. also influences the consumer buying behavior.

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