Unit 2 - Economic Essentials
Learning Target 4: I can determine economic utilities created by business activities
The ability of a good or service to satisfy consumer needs and wants is called creating economic utility. Economic utility is often times referred to as value. Value is a very complex term as it is subjective to the customer involved as each one has different needs and wants as well as expectations. Value becomes even more complicated when you look at services. Value (utility) can be derived from 5 major areas, these are form, time, place, information and possession utility. We will be looking at creating value specifically from the business activity area of operating for this lesson.
Form utility is changing raw materials or assembling parts to make them more useful to the customer. An example of this is phone companies using a high tech glass on their mobile phones so the screens will not break as easily. Sometimes what you don’t add to a product can also create form utility such as organic foods.
Time utility is having a product available at time of year or convenient time of day. Why do back to school sales start right after the 4th of July? Why does your favorite coffee shop open at 5 AM? The reason is these business are creating value utilizing time utility. In a sense they are attempting to the right product available for you when you need the product if not slightly before.
Where a good or service can be purchased is called place utility. In the “old days” the only place you could buy a product was from the actual store. Then came along catalogues where you called in your order over the phone. Now we have virtual catalogues in our pockets called phones. The place utility created by technology has allowed businesses to offer their products to more and more customers without having to build new brick and mortar stores. This has created value for the customer buy making almost every product available at their fingertips.
How a business communicates with their consumers is called information utility. This value can be created by what you put on your product packaging, how you hand customer comments on social media, how to videos on your website, how your employees correspond to the customer at the checkout counter, etc…
Possession utility is exchange of product for monetary value. If we go way back in time there was a time where there was only one way to purchase a product and that was using the currency of area you lived. If you wanted eggs, you have to have 3 coins to purchase it. After a while came an invention of a new passion utility called checks. You did not have to have any money to pay for a good you could in a sense write note for the amount of money needed to purchase those eggs to be taken out of your bank account. The next great possession utility was credit and debit cards which allowed you to purchase those eggs without having to take the time to write out the check. Now we have the ability to purchase our eggs using just our phone. With the invention of new technologies it has created value in the terms of possession utility for the customer.
At the end of the day businesses need to have the right product, at the right price, at the right place, at the right time and communicate it effectively. If a business can accomplish this, they will be adding value to its customers buy creating and capitalizing on economic utilities.