The Four Types of Economic Utility

The more precisely a good or service is targeted towards customer needs and desires, the higher its perceived added value (i.e., form utility) will be. In other words, form utility is obtained by transforming customer needs into products or services. Form utility can be defines as a process that increases the value of a product to the consumer by making changes and altering its physical appearance.

  • More generally, it may be either fixed or stochastic but not known (either with certainty or in expectation) until it either arrives or is released.
  • As there is increase in the unit of a particular commodity, the Marginal Utility goes on diminishing and Total Utility goes on increasing.
  • Simply because from that moment they have possession of the car and are free to do whatever they want to do with it.
  • Place utility refers to the ability of consumers to get what they want, where they want it.
  • In modern time utility has been called as ‘expected satisfaction.’ Expected satisfaction may be less or equal to or more than the real satisfaction.
  • As a result, utility in marketing is often broken down into different types, each of which can help inform better ad building and effective sales outcomes.

Information utility is a new addition to this list, but in a world where competition for even basic goods now happens on a global scale, information can make the difference between successful sales and failed conversion efforts. Information utility speaks to any data that helps consumers make buying decisions. This includes product details on ecommerce pages, targeted marketing campaigns, and well-trained call center and in-store agents capable of answering customer questions. It measures a product or service’s perceived value based on a consumer’s ability to obtain and use it as soon as the need or want arises. The third utility has to do with place, which refers to a centralized location where consumers can easily access the products and services they need. Possession utility is the amount of usefulness or perceived value a consumer derives from owning a specific product and being able to use it as soon as possible.

logistics & SCM

More generally, it may be either fixed or stochastic but not known (either with certainty or in expectation) until it either arrives or is released. There is a close relationship between Total Utility and Marginal Utility. As there is increase in the unit of a particular commodity, the Marginal Utility goes on diminishing and Total Utility goes on increasing. Total Utility goes on increasing up to that extent till the Marginal Utility becomes Zero.

Depending upon the everyday needs, holiday season or weather conditions, consumer demand will vary. Ensuring that the goods are delivered to the consumers at the right time forms the time utility. When done well, utility marketing can create stronger bonds between customers and companies, and drive increased brand loyalty over time. It’s a slow-burn process rather than a quick-spend process and one that serves a different purpose — connecting customers with brands based on value, not volume. That’s why it’s important for companies to increase the ease of ownership, which boosts the product’s possession utility or perceived value.

Utility of the sixth bread is zero and that of the seventh bread is negative and negative rectangle has been shown below OX line. It is the net addition to total utility made by the utility of the additional or extra units of the commodity in its total stock. It has been said—as the last unit in the given total stock of a commodity. This utility is created by transporting goods from one place to another.

In other words it can be said that we will derive “negative utility”. This utility is created by changing the form or shape of the materials. For example—A cabinet turned out from steel furniture made of wood and so on.

Time Utility – Meaning, Importance & Example

Place utility has a lot to do with distribution channels and the physical locations at which goods or services are sold. Going back to our example from above, let’s assume Super Cars is an American company. If its cars are sold exclusively within the US, buying a Super Car is not very attractive for Europeans. However, if the company decides to open dealerships across Europe and sell Super Cars overseas, the availability (i.e., place utility) of its cars for European customers increases.

A constant function represents an action’s utility that is not related to the action’s completion time—for example, the action’s constant relative importance. This allows both time-dependent and time-independent actions to be scheduled coherently. (4) When Marginal Utility becomes 0, total utility does not increase. Total Utility is the sum total of the Marginal Utilities derived from all the units consumed.

With a small grim smile of satisfaction, he went back to the utility room and looked at the power switches. Quickonomics provides free access to education on economic topics to everyone around the world. Our mission is to empower people to make better decisions for their personal success and the benefit of society. Although wholesalers can be eliminated, the functions they perform cannot.

Form utility is generally part of the production or operation process but it can be happened with right logistics activities. In the case of Super Cars, one way to increase time utility would be to reduce delivery times. Customers often have to wait several weeks or even months for a new car. Thus, if Super Cars manages to reduce delivery times by even just a few days, its cars become more attractive to potential customers. The primary objective for scheduling actions having TUFs is maximal utility accrual (UA). The accrued utility is an application-specific polynomial sum of the schedule’s completed actions’ utilities.

What are the Different types of utilities created by intermediaries?

Consider lenders who offer favorable financing terms toward owning a car, appliance, or home. They would likely create possession utility for these products, leading to an increase in sales and, therefore, revenue. Creating time utility includes considering the hours and days of the week a company might choose to make its services available.

A warehouse may be defined as a place used for the storage or accumulation of goods. By storing the goods throughout the year and releasing them as and when they are needed, warehousing creates time utility. The algorithmic technique creates a schedule based on one or more application-specific objectives (i.e., optimality criteria).

This type of utility occurs when a company provides goods and services when consumers demand or need them. Companies analyze how to create or maximize the time utility of their products and adjust their production process, logistical planning of manufacturing, and delivery. So when demand increases, the company should respond by producing and delivering more of the product to the market.


The company can increase its sales while adding value to these new consumers. Form utility may include offering consumers lower prices, more convenience, or a wider selection of products. The goal of these efforts is to increase and maximize the perceived value of the products.


In economics, production refers to the creation of utilities in several ways. A consumer who is fond of apples may find a high utility in apples in comparison to the consumer who has no liking for apples. Similarly a strictly vegetarian person has no utility for mutton or chicken. In economics utility is the capacity of a commodity to satisfy human wants. Nurture and grow your business with customer relationship management software. Outline your company’s marketing strategy in one simple, coherent plan.

The method involves taking a product and making it ready to meet the needs of the end consumer for consumption. To do this, companies analyze their target markets and survey potential customers to find out what they need. This information can then be used to align product features with actual customer needs. Thus, form utility can be created through things such as high-quality materials, ergonomic design, or a wide selection of options to chose from. Companies strive to increase the utility or perceived value of their products and services to enhance customer satisfaction, increase sales, and drive earnings.

Thus, TUFs provide a rich generalization of traditional action completion time constraints in real-time computing. Utility and satisfaction, both are though inter-related but they have not been considered as the same in a strict sense. In this way utility is measured in terms of money and it is relative. A useful commodity may not here utility of goods depend upon the intensity of wants.


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