What is (Customer) Utility? Meaning

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Shyam Paliwal
Student (MBA), India

What is (Customer) Utility? Meaning

Suppose you have eaten a pizza and a burger. Which one satisfied you the most?
Probably we can express our fondness toward one item but we are not able to express the likeness towards one item over another.

  • According to Prof. Waugh: “Utility is the power of a commodity to satisfy human wants.”
  • According to Prof. Fraser: “On the whole, in recent years the wider definition is preferred and utility is identified, with desires rather than with satisfyingness.”
  • According to Prof. Hobson: “Utility is the ability of a good to satisfy a want”.
When we consume a commodity or commoditized product, our satisfaction level can be either actual or expected after the consumption.
It can be different in terms of person, place, time and commodity. Or from person-to-person, from place-to-place and from time-to-time.
So, utility means the satisfaction of the want or desire of humans for a particular object or item.

There is a little difference between a need, want or desire.
For example, a need is hunger and a want is the different way to remove the hunger for example by a pizza or a burger. The focus of utility is on wants because it opens several doors to satisfy the desire. That's why marketing and businesses focus on wants.

There are two perspectives one from product and other from the customer. From a product perspective it is the power of satisfying consumer wants. From a consumer point of view it is a psychological means, the pleasure he or she will get from the consumption of the commodity or product or services.

Like we also measure height or weight in certain units, in a similar way we can measure utility as well. It has its unit, although it is not a standard unit of measurement. It is an imaginary unit derived by economists known as‘Util'.

As consumers consider the price before buying a product, his desire will be the benefits or value he or she drives or seek from the commodity. Economists including Marshall, suggested the measurement of utility in monetary terms. Why monetary? Because it gave an easy way of comparison to the consumer between price and the utility. The consumers' behaviors made a company or marketer add value to the product, and allowed economists to understand consumers and individuals.

Suppose a pizza is worth $10 and burger worth $5 and we are assuming 1 Util to be equal to $1. Now, pizza will yield utility of 10 Util (as 1 Util = $1) and the burger will give a utility of 5 Util. This utility of $10 from the pizza or $5 from the burger is termed as the value of utility in monetary terms.

  1. CARDINAL UTILITY – Satisfaction or value or benefits derived from the consumption of commodity by the consumers (measurement unit is: Util).
  2. ORDINAL UTILITY – When a consumer has lots of products and he ranks them according to the benefits he received from those products or arranges them in preferences (measurement is: Ranking).
  3. MARGINAL UTILITY - When a consumer consumes or receives additional services or products, he gets some additional satisfaction. This extra unit is like additional profit for him, as the meaning is clear from the word margin “some additional or extra” value or benefits after consumption. This is also known as “Marginal Satiety".
  4. TOTAL UTILITY - As the name suggests it is the total or Sum of all the utility received by the consumer. Or the total satisfaction after consumption or investing the money in a certain commodity. Alternately called “Full Satiety.”
    See the following formula: TUn = Ua + Ub + Uc or TU = ƩMU
    In other words, it is the sum of all marginal utilities consumed by the individual consumer. The relationship between TU and MU can be seen in the figure
In everything we see the utility, in other words, we measure things in utility. This small word is very big for a marketer or a manager.
Utility is also important for an economist. Because we as a human think or measure in terms of utility. This can be direct or indirect. Both depend upon the condition or place, time and money and it has its own unit of measurement. Both economists, a companies and consumers - all of them focus on one thing the consumer satisfaction because if a consumer is not satisfied then there is no utility of that product. That is why some products do not survive in the market.

For example, when a customer considers the purchase of a product, he seeks some utility (value or benefits) in the product. When he sees that then he will make a decision of buying it. If he does not see or perceives it, then he will not consider it valuable and he will not invest money in purchasing it.
According to the University of Delaware there are four types of utility: Product, place, time and possession. This can help a business to think about and create customer satisfaction.
Suppose I visited a mall. After visiting it I feel hungry. I think about ordering a pizza (Product) or a commodity that satisfies my need for hunger. Now if I do not find any pizza outlet in the mall I will consider the mall useless as there is no pizza outlet in the mall (Place) at the moment (Time) when I feel hungry.
If I was able to purchase a pizza in the mall, at the time of having it I have the ownership (Possession) of it, whether I eat it not and decide to throw it away. I still have the ownership to reap the full benefits of it, it's totally up to the customer because he or she has the possession on the product.

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