What is Utility?

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

Features of Utility

Following are some of the characteristics of utility:

• It is always essential to understand that the terms utility & useful are not the same. A good which has the power to satisfy refers to utility. But a good which is useful can also be harmful. Hence utility does not mean usefulness.
• The term utility is the capacity of the product to satisfy the customers. On the other hand, satisfaction is experienced by the customers only after utility. Hence utility can be treated as the cause & satisfaction is the result of that utility. Hence utility is experienced by the customers even before consuming the product & satisfaction is experienced only after consuming the product.
• It is not essential that a particular product must give pleasure also to the consumers when being used. For example, a person who is ill when injected by the doctor would relieve him from his ailment but it will not give him any pleasure but rather would give pain to the customer.
• The concept of utility can only be abstract which means that it cannot be seen or touched. For example, the argument made by an advocate in the court can only be abstract because his argument cannot be seen or touched. Similar is the case with utility.
• The utility is also considered to be relative in nature. This is because a commodity would be of different utility for different people at different times & at different locations. For example, the usage of raincoats will be more during the rainy season & similarly usage of fan would be ore during the summer season than during winter season.
• The utility can also be considered as a psychological concept. Because utility may vary from person to person even for a single product. Hence utility is considered to be a subjective concept.

What is Form Utility?

The term form utility is defined as the ability of the product to meet the needs of the customers. For example a particular might be designed in such a way in order to satisfy the needs of the customers.

To ensure success in this, companies invest huge amount of time & money in order to find the desire of the customers. From there, suitable strategies are designed to develop a product which can match the desire of the customers.

Different people experience different types of utilities for the same product. Apart from this there is also commercial utility which plays an important role in influencing the demand for a product.

Types of Utilities

Apart from form utility, following are other types of utilities:

• Place utility: In the case of place utility, goods are made easily available to the customers. Hence customers can buy any type of product without putting in too much effort. Factors like place where the shop is located & medium of distribution. Making the product available digitally can also influence form utility. This is because the majority of the goods are sold online these days.
• Time Utility: Under time utility, goods & services are made readily available to the customers when they require it. The product must also be made available fastly. Also, time utility increases when the products are very less or is scarce. The supply chain management of the company plays an important role in controlling the time utility. Hence organizations ensure that they have a sound supply chain management team to make products available 24/7 & also deliver the products on the same day.
• Possession utility: This type of utility explains the satisfaction & benefit received from a particular product. The more useful the product is, the more is the possession utility. The after-sales service of a product will always influence the possession utility. Higher the after-sales service more will be the possession utility derived by the customers.

Measures of Utility

Cardinal utility: This is a metric which is used in measuring utility in terms of numbers. Satisfaction of the consumers can also be expressed in numerical terms.

Ordinal utility is something which cannot be expressed in monetary terms.

Following are some of the key terms used in marketing:

• Utility maximizes: Under this concept, it refers to someone who aims to achieve the maximum or highest satisfaction from a particular product.
• Under consumer theory, buyers decide on how their income can be allocated towards their consumption.
• The marginal utility can be defined as a change in the total utility when an additional unit of a product is being consumed.
• On the basis of the law of diminishing marginal utility, when extra units of a good are consumed, the happiness or enjoyment from each & every additional unit would reduce when there is an increase in consumption.
• Marginal utility per dollar spent can be defined as a “bang per buck” which a consumer gets when consuming a particular quantity of a good at a particular price.
• The term utility in economics can be defined as an imaginary measurement unit that represents the amount of utility provided by the product.
• The term total utility can be defined as the total happiness or satisfaction that is derived by the consumers at a particular consumption level.

Context and Application

This topic is significant in the professional exams for both undergraduate and graduate courses, especially for

• BBA
• MBA