Diminishing Marginal Utility; How It Affects Us As Consumers And Manufacturers Of Products

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Marginal utility refers to the change in satisfaction derived by a customer from a purchased product as its use or consumption increases.

Law of Diminishing Marginal Utility


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I'd call it probably one of the laws of nature, more like; you consume several units of a product and at some point, you'll definitely have your fill. At that point that strong desire that was at the very beginning waxes towards a finite end. Utility has both qualitative and quantitative measure. And derived satisfaction differs from one individual to another.


"The Diminishing" in the law of Diminishing Marginal Utility - What It Truly Means!


Let's say you took your girlfriend out on a date and bought a very delicious meal from a very nice restaurant. A fraction of the qualitative aspect of your utility might have been met right on spot. You know, having a meal in a clean environment that also smells so nice, and perhaps, you got a very cheerful and interesting customer service representative attending to your menu, and let's not forget that just maybe their price is also very affordable. I know that might be an instant turn on for you and your girlfriend as it is for me. Then what you ordered on your menu was brought before your table, and you already can perceive this strong sweet aroma, the chicken crisp is just as you have ordered, and you have a fine bottle of beer to step it down. It will all come to an end. As fanciful as all of my imagination above must have sounded, it comes to an end eventually. You'll notice that as you consume more unit of your most savored dish with your girlfriend, utility (satisfaction) diminishes though at a different pace for both of you. Your girlfriend's satisfaction might even peak before yours, and vice-versa. And at that very state of decline, you realized you've had your fill, and the craving stops suddenly.


Total and Partial Expiration; How It Affects Customers and Businesses


Utility (satisfaction) happens when a product meets your expectation or exceed them. And while this a very beautiful feeling, it does have its expiry; some total and some at intervals.

1. Total Expiration: Logically this happens for most products under consumption. As satisfaction are being met and diminishes from time to time. And at some point, the need to reach for a higher level of satisfaction always emerge.

For customer: The quest to meet this seemingly strong desire most times lay off a customer from continued consumption of a particular product and to seek their satisfaction elsewhere. I guess, what I am trying to say is, customers will "do anything" or "go anywhere" or "try out new things", just so they get value for their money. Let's say a customer buys a phone, and after a good number of years, of constant depreciation in value, when the "once-upon-a-time" preference has become valueless, and at that point, the customer knows to go for that same old product (if the brand is still his preference by the way) or go for some new product that perhaps is more sustainable and efficient than the old one.

For businesses (service provider): The reason why improved and continuous innovation should be a top priority for your business is; without it, some other company are going to come up with more practicable, sustainable and efficient ways of managing and meeting the expectations of your customers, then your company dies. That's why starting a profitable business is hard, but its maintenance is even harder. Therefore, businesses needs to meet up with the increasing desire of customers for a more satisfying product, else causes a shift of customers to another product or the brand of another manufacturer.

2. Partial Expiration (At Intervals): This happens mostly with products that gets customers easily addicted. Breaking away from the use of a product is not always easy, most especially once a customer is addicted to a product. Their addiction brings them under a delusion that a particular product is the most satisfying ever and they just don't want to quit. Here, satisfaction peaks and diminishes only when customers have had their fill, just like any other product. However, unlike most products, the utility derived from this particular addiction is continuous, though at intervals.

For customer: What this means for the customers in this category is; they are deprived of choice, partially or completely. For those with partial deprivation, they can still opt for products with similar disposition if they so desire. However, those with complete deprivation barely sees a flaw in the product, and it will take a great deal of effort to shift that kind of mindset for customers in this category to make logical decision on their preference for a product.

For businesses (service provider): Some of the businesses in this line of production don't actually care about a good brand image, all they do is for profit. For example, cocaine production companies and so on. Businesses in this category don't often have to worry about customer's shift, the addictive element in their product takes care of most of their customer concern, and they keep profiting off the delusion and illogical decision of their customers.


Exploring the Relationship between; Law of Demand & Supply, and the Law of Diminishing Marginal Utility.


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Law of marginal utility relates to the law of demand which states that as price decreases, demand for a product (consumption) increases which is only logical by the way. And likewise, if the price for a particular product increases than expected, then consumers are most probably going to buy less or not at all. Therefore, the more the availability of a product, the lesser the value becomes.


Managing Customer Expectations; Evolve or Fold?



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Businesses are constantly pushing out some review mechanism to their customer so as to get their feedback on how they see their product, note their pleasure and displeasure about the product, get their views on what improvements they'd like to see on that particular product, and at the same time, use the information gathered to manage their expectations. It's a must that businesses seek innovative and a more efficient way of managing their product line, especially when the market is not a monopoly.

Research has shown that there are so many great businesses that have folded because of their insensitivity to the shift in the expectation of their customers. Here's the logic; a shift in expectations of customers mean a shift in taste for available products. When that happens, the customers most probably have the image of what the ideal product should look like in their mind, and it is so real. Any product offering aside from what they desperately wanted is an instant turn off for them. This somehow, gives some clue as to why some startup businesses with their foundation rooted in disruptive innovation and technologies were able to displace products from a very old manufacturer or even thriving competitors in a particular product market.


My Take!


Most times, when there's a shift in taste, there's also a shift in market segment (moving from manufacturer A to manufacturer B), and over the years, manufacturers are beginning to nurture their wit and play the game of chess with their customers to ensure they don't completely lose out. They sought to find a common ground where they can also key into the wins (create a win-win scenario), so they create diverse product brands with features meant to meet the expectations of different customer segments and on top of that, maintain a close and healthy relationship with their customer to be able to address and manage their concerns more effectively and efficiently.

#projecthope



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