Critical Thinking and the Concept of Utility

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The concept of utility takes an important place in the economic theory. In context of marketing, the theory of utility is used in practice in order to facilitate the sales of the company and to adjust the business plan with the market demand and customers preferences. The concept of utility plays a vital role in the small firms functioning as well.

“Utility is the use or satisfaction a person gets from a product” (What is marketing?, n.d., p.14). Taking into account that the search and satisfaction of customers needs are the fundaments in the profitability and overall effectiveness of the business, the efforts should be made by the firm to find the market segment in which it can provide utility to the customers. In this respect, it would be logical to quote John Mackey, co-founder and CEO of Whole Foods Market, who says

“For us, our most important stakeholder is not our stockholders, it is our customers. We’re in the business to serve the needs and desires of our core customer base” (Boone, 2012, p. 39).

The theory usually defines the four types of utility: form, time, place, and possession. However, the task utility is sometimes marked out by marketers. It assumes providing some service to the customer.

In order to define which types of utility are relevant to the small firms, we need to consider the market structure in which they mostly operate. Boone (2012) states that the “traditional economic analysis views competition as a battle among companies in the same industry (direct competition) or among substitutable goods (indirect competition)” (p.65-66).

The majority of small businesses function under the conditions of monopolistic competition defined as the market structure with the numerous competitors selling differentiated products (Monopolistic competition, n.d.). In order to survive, the firms must differentiate their product to make it stands out on the market by emphasizing the benefits it can provide to customers.

There are four types of utility relevant to small businesses: form, time, possession, and task. The place utility may also add value to the small firms’ products but its role is substantially lesser in comparison with the other four and it rarely contributes to the good or service differentiation of the small businesses.

Form Utility assumes that “a product must be processed into a form that the customer wants or needs” (What is marketing?, n.d., p.14). For example, bakeries, delicatessens, or cafes benefit consumers by selling them products ready for use; they turn the separate ingredients into the integral product. The customization of good is one of the features of the form utility (Winsor et al., 2004). That is why the form utility prevails in the monopolistic competition.

Possession utility establishes legal ownership of a product which is supported by the receipt (What is marketing?, n.d., p.15). For instance, a lot of small businesses operating in e-commerce provide the customers with the opportunity to use the debit electronic payment systems such as PayPal. The use of the system simplifies the process of payment, thus creating benefit to the customer.

“Time Utility could be described as being in the right place at the right time when a customer is ready to purchase a product” (What is marketing?, n.d., p.16). Undoubtedly, the debit electronic payment systems also represent the bright examples of the method of saving time while making a transaction. Besides, a lot of small businesses place their retail outlets nearby the potential customers’ residence. In such a way, they save the free time of customers who do not have to spend hours to get to the bakery, for instance.

Finally, the task utility adds value by providing customers with special services. For example, the customers go to hairdressing or the beauty salon because they do not possess certain skills.

In summary, the understanding of the customers needs plays an important role in the survival of the small firms. It is the factor that motivates them to add value to their products by using form, possession, task, and time utilities.

References

Boone, L. E. (2012). Contemporary marketing, 16^th edition. Stamford, USA: Cengage Learning.

Monopolistic competition. (n.d.). Web.

Winsor, R. D., Sheth, J. N. & Manolis, Ch. (2004). Differentiating goods and services retailing using form and possession utilities. Journal of Business Research, 57, 249-255.

What is marketing? (n.d.). Web.

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Critical Thinking and the Concept of Utility

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