The four types of economic utility are form, time, place, and possession, whereby utility refers to the usefulness or value that consumers experience from a product. The economic utilities help assess consumer purchase decisions and pinpoint the drivers behind those decisions.
Companies strive to increase the utility or perceived value of their products and services to enhance customer satisfaction, increase sales, and drive earnings. The concept of economic utility falls under the area of study known as behavioral economics. It is designed to assist companies in operating a business and marketing the company in a way that is likely to attract the maximum amount of customers and sales revenues.
Form utility refers to how well a product or service meets the customer's needs. For example, a company might design a product to target a specific client needs or wants. Form utility is the incorporation of customer needs and wants into the features and benefits of the products being offered by the company.
Companies invest time and money into product research to pinpoint exactly what products or services consumers desire. From there, company executives strategize on the development of the product with the goal of meeting or exceeding those needs to create form utility.
Form utility might 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.
Time utility exists when a company maximizes the availability of a product so that customers can buy it during the times that are the most convenient or desirable for them. Companies analyze how to create or maximize their products' time utility and adjust their production process, logistical planning of manufacturing, and delivery.
Creating time utility includes considering the hours and days of the week a company might choose to make its services available. For example, a store might open on the weekends if customers typically shop for that product at that time. Time utility might also include 24-hour availability for a product or the company's customer service department through a phone number or website chat function.
Place utility refers primarily to making goods or services physically available or accessible to potential customers. Examples of place utility range from a retail store's location to how easy a company's website or services are to find on the internet. Companies that have effective search engine optimization or SEO strategies can improve their place utility. SEO is the process of increasing a website's availability to internet users through their searches on the web.
Increasing convenience for customers can be a key element in attracting business. A company that offers easy access to technical assistance offers an added value in comparison to a similar company that does not offer a similar service. Making a product available in a wide variety of stores and locations is considered an added value since its more convenient. For example, Apple Inc. (AAPL) sells iPhones and laptops through its retail stores, but also offers its products through other electronics retailers, including Best Buy Co. Inc. (BBY).
Possession utility is the amount of usefulness or perceived value from owning a product. For example, owning a car or truck might be considered to have a high possession utility. Also, increasing the ease of ownership boosts the possession utility or the perceived value of a product. For example, offering favorable financing terms toward ownership of a car, appliance, or home would likely create possession utility for those products and lead to increased sales.