From Economics to Marketing = Understanding Utility
If you have previously studied economics, then the chances are you have seen the word “utility”, as it is a core economic concept.
In simple terms, utility is the economic terminology for the range of value and benefits received by consumer from the acquisition and consumption of a product.
From a marketing perspective, economic utility is the perceived value that a consumer obtains from a product or service. This level of perceived value will drive the consumer’s level of satisfaction with the purchase.
As we know, value and satisfaction are critical success factors in marketing. And as a result, delivering utility (that is, perceived value) should result in higher levels of consumer satisfaction, which in turn can lead to increased demand, enhance customer loyalty and most importantly, improved profits – which is the ultimate goal of marketing for most organizations.
In marketing, we can use the terms customer value and utility on a interchangeable basis. This is because the word “value” has now become more common in business usage because it is much clearer to what it means and is used in everyday conversation.
Therefore, in Marketing: Customer Value = Economic Utility – which in turn drives customer satisfaction and long-term profitability.
Quick Overview Video or Keep Reading the Article Below…
What are the Main Types of Utility in Marketing?
When a firm or brand strives to create and distribute a product that delivers utility for the end consumer, there are five types of different utilities that may be generated, these are:
- Form utility
- Task utility
- Time utility
- Place utility, and
- Possession utility
Let’s discuss each in turn…
What is Form Utility?
This means that the firm adds value by designing a product in a particular way. In other words, when a product is designed to meet the defined needs or preferences of a target market, this is referred to as form utility.
Form utility is more common with physical goods, as they have a physical and tangible form.
A good way of thinking about it is what “form does the product take?” Often with physical products, the product’s design, look, style, features are important elements in the consumer’s overall perception of value.
What are Some Examples of Form Utility in Marketing?
- A retailer (either online or physical) that enables customers to tailor their choice of materials, colors, and overall style of their home furniture to meet their tastes and preferences
- A designer label that produces beautifully crafted and elegant and stylish looking handbags
- A pre-prepared food item that can be tailored by adding or swapping out ingredients when cooking at home
- Supermarket food brands that offer serving options that in the precise dietary needs, such as vegan or gluten-free
- A company that makes cosmetics that come in many different shades and formulas to suit different skin tones and types
- A car manufacturer that offers multiple options when purchasing the car and even possibilities of some personalization
As you can see, in each of these cases the consumer is primarily interested in a precise and tailored product solution (that is, the form of the product) OR they gain satisfaction from the style and look of the products (that is, the overall design of the product is where they gain satisfaction).
Where Form Utility Fits Into Marketing
As the term “form utility” is an economics term, the easiest way to think about the word form is to replace it with “product design” utility.
What is Task Utility?
Firstly, it is important to note that in economics, “task utility” is NOT usually considered to be one of the main types of consumer utility. However, because we are looking at utility from a marketing perspective, it is important that we also consider task utility.
You will note that task utility is often included in marketing textbooks as an additional approach to utility. The reason that we have an expanded view is that we are considering overall customer value in marketing, rather than taking a more precise economic perspective.
With that in mind, you should also note that task utility is usually more associated with a service firm. This is where where the organization provides value through performing a task (designing and delivering a service) for a consumer.
As quick initial examples – a laundry service, childcare service, legal advice, and so on – all provide some form of service or undertake a task for the consumer.
What are Some Examples of Task Utility in Marketing?
- A child care services for young children that also prepares them for progressing to kindergarten by teaching them to read
- A mobile banking app that makes budgeting, paying bills, and keeping track of investments easier and is easy to use
- GPS systems that updates drivers in real time with information about traffic and helps them find the fastest route
Where Task Utility Fits Into Marketing
As indicated above, task utility is primarily associated with service firms. Obviously, service firms provide a service – that is they undertake a task for the consumer. For example when we go to a restaurant, some people go because they do not feel like cooking and want someone else to do that task for them.
From a marketing perspective, task utility relates to “product mix” (as a service is also classified as a product in marketing), as well as providing additional value through tailoring of the product/service.
As well it is related to improving the overall “process mix” – which in current day marketing is referred to as the user or customer experience – which is becoming a very critical aspect of marketing and competitive differentiation.
What is Time Utility?
There are two elements of time utility in marketing, namely time when the product is available for purchase, and how long the purchase will take.
Therefore, utility refers to either:
- adding value to the consumer by having the product available when the consumer needs it, and/or
- simplifying and streamlining the purchase of a product to reduce purchase time = convenience.
A simple example here of product availability would be a convenience store that is open 24/7, which provides a time advantage (consumer benefit) over a regular supermarket with normal trading hours.
As we live in an internet-based world, many people have got use to 24/7 convenience and expect that businesses are able to accommodate their needs. For example, many people will do online shopping at night after they finish their work and chores for the day. They simply expect this ability to interact with businesses at the times that suit them.
To help facilitate this time “value requirement, you’ve probably noticed that many online businesses have chatbots to answer questions, as well as frequently asked questions to review, as well as the ability to take purchase orders at any time.
In some regards, we’re shifting to a “on-demand” economy. You may have seen that some fast food retailers and even supermarkets operate on a 24/7 basis. These always are providing time utility.
What are Some Examples of Time Utility in Marketing?
- A bank who is able to process and approve a loan application within 10 minutes
- A fitness center that is open 24/7, seven days per week
- Businesses that provide a purchase subscription system – where they automatically deliver their products on a regular basis, such as a weekly food hamper delivery
- The local supermarket who can process and deliver online orders within three hours
- A tax accountant that is open extended hours during tax season
- Disneyland that operates up to midnight in peak holiday season
- Netflix and other online streaming services that offer on-demand entertainment
Where Time Utility Fits Into Marketing
Convenience, speed, and simplification are always that a company can compete. By saving the consumers time we are reducing their acquisition cost. While we generally think about cost as price, the time it takes to acquire the product is also important to a consumer.
For example, on occasion you may have gone to a fast food restaurant seeking a quick meal, but when you got there you saw there was a long queue. In this case, there is a good chance that you walked out and went somewhere else because you were not willing to spend the time.
From a marketing perspective, time utility is a combination of the “process mix” in our extended 7Ps marketing mix, as well as the sought after benefit of convenience.
What is Place Utility?
Similar to time utility above, place utility refers to having the product available at a location that is suitable for the consumer. For example, home delivered food, mobile services, stores with lots of locations, and so on – all provide the consumer with value through the ease of availability.
You should know that there is some overlap with time and place utility. For example, with home delivered food – this provides the benefit of speed and convenience (time utility), as well as place utility (being directly delivered to you).
When a good or service is made available to customers at a location that is easy to get to and is situated in a convenient setting, place utility is established. This includes the procedures of distribution and logistics, which aim to bring products and services to locations where they may be easily accessed by customers. Expanding their distribution networks and strategically positioning retail establishments are two ways in which merchants can boost the utility of a place.
What are Some Examples of Place Utility in Marketing?
- Banks that provide a choice of banking options, such as branches, mobile staff, ATMs, apps, and online banking – giving the consumer a choice of how/where to bank with them
- Fast-food brands like Starbucks and Subway that have 1,000s stores throughout the world
- McDonald’s that offer the choice of in-store, drive through, delivery ordering – combined with lots of conveniently-based locations
- Uber that makes it easy for you to hire a car for a trip no matter where you are – they come to you
- Online retailers that offer customers a choice of home delivery or click and collect at a central location
- Coca-Cola and other soft drink and snack brands that provide vending machines in high-traffic locations and where there are no easily accessible
Where Place Utility Fits Into Marketing
As you can see from the list of examples above, by providing place utility (value) marketers are making it easy for a consumer to access the product.
This enhanced level of availability provides the brand with a competitive advantage, and should increase sales because their product is easier and more convenient to obtain and can be tailored to the customer’s preferences.
In terms of marketing, place utility is part of our “place mix” in marketing. As you will note, our place mix usually includes logistics, channels, along with a focus on availability.
And there is also an overlap with the strategic pathway of “market development”, which is where businesses expand their operations often by geographic means and open more stores or outlets in new locations.
Possession utility means that the product is relatively easy and simple to acquire.
For example, an expensive piece of furniture might be made more easily available through a low interest financing deal. Or a bank may simplify the steps needed to obtain a loan. In both cases, the firm is looking to make it easier for the consumer to possess (own) the product.
What are Some Examples of Possession Utility in Marketing?
- Online firms, such as software providers, who provide an initial free trial of their product
- Subscription websites that give the option of paying monthly or annual payments – with the monthly payment making it more affordable to “possess” (utilize) the service
- Retailers that use finance offerings that enable consumers to purchase high-priced products with a small initial payment
- Likewise, products that can be acquired through a leasing plan – such as a car – where the cost of the product is paid off over several years
- Companies who offer a “risk-free” purchase by providing a money back guarantee offer on returns
- Expensive smart phones that are sold using two-year contracts and a paid off over time
Where Possession Utility Fits Into Marketing
Obviously, a key goal of marketing is to “make a sale” – and pass the possession of the product from the business to the customer. Virtually everything we do as marketers is trying to generate a sale to a target market consumer.
One way we can do this is through simplifying the consumer’s ability to own (that is, take possession) of the product as soon as possible.
Therefore, in marketing terms, possession utility is related to our “price mix” (through price points, payment plans and money back guarantees), as well as our “product mix” (our augmented product, where we can provide structured finance deals), and even our “promotional mix” with special offers and free trials.
Utility – It’s All About Customer Value
As you can see, these forms of economic utilities in marketing are designed to increase the level of value and convenience to consumers.
What you should note is value extends beyond just the product (form utility). In the above list of utilities, value also extends to task (service), the convenience of time, the convenience of location and access, and the convenience of and easy purchase and an easy process.
Although it is an economic term primarily, we can swap out the word utility for customer value – this makes much more sense from a marketing perspective. We are trying to provide overall value in different ways.
By thinking through the five forms of utility (value) we can compete and differentiate more effectively. By relying primarily on the product (form utility) we may be forced into heads-to head competition – which is never good.
By thinking more broadly about customer value – and looking at time and convenience, place and availability, ease of possession, and differentiating the task/service – we are more likely to develop a stronger competitive position and be considered quite differentiated in the marketplace – leading to increase customers and customer loyalty.
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