By: Akshat Agarwal

The concepts of taste and satisfaction are familiar to all of us. It is very difficult to express these concepts in concrete terms. For example, say, one has just eaten an ice-cream and a chocolate. It is now very difficult for that person to say out of these two commodities which has satisfied him more. Similarly it is very difficult to say that how much the consumer likes one over the other. It is evident that we need more quantitative measures of satisfaction. Due to these reasons, the economists developed the concept of utility.   

MEANING OF UTILITY:

Utility refers to satisfaction generated by the usage of a commodity.

HOW TO MEASURE UTILITY?

According to classical economists, utility can be measured in the same way as weight or height is measured. Economists assume that utility can be measured in cardinal terms. By using cardinal measure of utility there is no standard unit of measuring utility. So economists derived an imaginary measure of utility which is expressed in terms of psychological units.

MARGINAL UTILITY:

Marginal Utility is the additional utility derived from the consumption of one more unit of the given commodity.

The law of diminishing marginal utility states that as we consume more and more units of a commodity, the utility derived from each successive unit goes on decreasing. This means that after a certain period of time due to repeated use of the same commodity, the utility of the consumer will come to an end. This is a challenging situation if looked from the standpoint of a businessman selling that particular commodity. So following are some ways by which a businessman can delay that stage when utility becomes zero and increase utility of the consumer.

PRICE ALTERING:

When prices come down there is an increase in the demand of a commodity. It has to be remembered that demand is connected to utility. If a commodity has no utility then there will be no demand for it. So an increase in demand generally indicates towards an increase in utility.

To push demand up, a businessman may lower the price of a commodity, thereby increasing the utility of it and increasing the sales of it. Say, for example, a customer came to a shop to purchase 2 T-shirts, each costing Rs. 100. So the customer wanted to spend Rs. 200. Now the shopkeeper gives him an offer of purchasing 2 additional T-shirts at Rs. 50 each. Thus, now the customer can buy 4 T-shirts by spending Rs. 300.

Here, by price altering the businessman increased the demand of the customer and also influenced the utility levels of the customer. However, this may not necessarily be the case, in case of all types of commodities. If the commodity concerned here, would have been a perishable commodity, then even when offered a low price for an additional amount of it, the customer would have refrained from purchasing it.

CUSTOMER HANDLING:

Say, there are two shops side by side. In one of the shops the salesman is lazy and sleepy. So he does not treat the customers nicely. But in the second shop, the salesman treats the customers very politely. The question that arises in this context is that from which shop the customers will prefer to buy commodities. The answer is obviously, the second shop. So nicely treating the customers will help the second shop to combat the problems arising from diminishing marginal utility. 

PEOPLE DON’T LIKE TO BE SOLD, THEY LIKE TO BE HELPED:

People don’t like to be sold. This means that the sales personnel have to understand the problem of the customer. He/ she have to take care of the need of the customer. Just selling the goods will not help the purpose. The problems of the customer will have to be solved. In the process, the product has to be sold so that a good impression is created in the mind of the customer. This will ensure repeated visits of the customer in future also. 

INNOVATION AND TECHNOLOGY:

It is important to bring a change in the product from time to time and that change should be in the form of innovation. In this case, technology can be used to bring about these innovations. Here an example of a food business can be cited. Suppose a customer comes to a food selling shop and consumes five pieces of a confectionery item. With every additional piece of consumption his marginal utility is going down. And after a certain point of time his marginal utility becomes zero. In such a case, if he is served with another vertical of the product or an innovated version of the product. Then probably he will start to enjoy having that commodity and his marginal utility will start going higher again.

CROSS SELLING:

Cross selling is the model of the business in which the businessman sells his/ her commodity with other commodities. For example, there are popular eatery brands that operate around the world. They sell burgers at twenty five rupees in India. At a certain point of time, it was seen that consumers’ marginal utility was affecting their business. They redesigned the way their products were presented in front of the customers. Burgers, which are mainly eaten as a snack in this country, were now presented in front of customers with French Fries and aerated drinks. Thus, a snack was converted into a meal. As a result, sales increased once again. This was a great example of cross selling tackling marginal utility.

FUTURE:

The prices of most commodities are not constant. They fluctuate from to time. Examples of such goods include gold, silver, real estate etc. Say, there may be a situation in near future where the supply of such a commodity is going to get decreased. That is surely going to impact the demand for that commodity. In this case, demand is expected to go down. Under the circumstances, the consumer would prefer to purchase the commodity right now. This is because in near future when the supply of the commodity would go down, its price will increase and demand will decrease. Thus, utility value of a commodity also depends on what is going to happen in future.     

BRANDING & ADVERTISING:

Branding and advertising plays an important role. As branding and advertising influence demand, thus it will not be wrong to say that they also influence utility.

Thus, from what has been stated above it is clear that marginal utility will continue to come down and that is inevitable. But some measures can be taken by the entrepreneur to delay that phase.

AUTHOR’S PROFILE:

The author is an eleventh standard commerce student from Salt Lake City, Kolkata. He wants to be an entrepreneur after completion of his bachelor’s degree in commerce.