* NEED AND IMPORTANCE OF PURCHASING POWER OF A CUSTOMER DUE TO DISCOUNT

Let us understand first the purchasing power of a customer

Purchasing power of a customer is a function of the budget of the customer and price level of the goods and services he wants to purchase.

Discount GIVEN on any goods and services reduces the price of the goods and services and thus increases the purchasing power of the customer

The PHENOMENON explains that as the price of the goods and services is getting reduced, consequently the purchasing power of the customer is also increasing.

E.g.: WHEN DISCOUNT IS NOT GIVEN

Mr Ram has Rs.2000 in his pocket. He is desired to buy Good 'X' worth Rs.500 and Good 'Y' worth Rs.400

Now if he wants to purchase 2 good X and 3 good Y

then it's quite not possible to purchase intended quantity considering his budget

as he can purchase maximum of 2 good X = 2xRs.500 = 1000

and maximum 2 good Y = 2xRs.400 = 800

Total expenditure = 1000+800 = 1800

now to purchase ONE more of good Y, he needs Rs.400 where he is left with only Rs.200 (RS2000 - Rs1800)

WHEN DISCOUNT IS GIVEN

Taking the same above example, if supplier of Mr.Ram provides discount of Rs. 70 on Good Y

then price of good Y would be = 300 - 70 = 210

So, now he can buy

2 Good X = 2xRs.500 = Rs.1000

3 Good Y = 3xRs.210 = Rs.630

Total expenditure = 1000+630 = Rs1630

Money left with Mr.Ram = Rs.370 (2000-1630)

Hence, we conclude that discount given by Supplier of Mr.Ram increases the purchasing power of Mr Ram in the form of reduced prices.

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