Investing News

What Are the 4 Types of Economic Utility?

Reviewed by Caitlin ClarkeFact checked by Kimberly OvercastReviewed by Caitlin ClarkeFact checked by Kimberly Overcast

Economic utility is the total amount of satisfaction someone experiences when they consume a particular product or service. It helps measure how much fulfillment someone requires to satisfy a particular need or want.

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 an area of study known as behavioral economics which is designed to assist companies in operating a business and marketing the company to attract the maximum number of customers and sales revenues.

There are four types of economic utility: form, time, place, and possession. Companies that can understand and recognize areas that are lacking in their marketing schemes can assess consumer purchase decisions and pinpoint the drivers behind those decisions, boosting their sales and profits.

Key Takeaways

  • Economic utility is the total amount of satisfaction experienced when a product or service is consumed.
  • Form utility is the value a consumer derives from products or services in a way that they need.
  • It’s referred to as time utility When a company provides goods or services to consumers at the time they demand or need them.
  • Place utility involves making products or services available in locations that allow consumers to easily access them.
  • Possession utility is the use or perceived value a consumer gets from owning and being able to use a product or service in a timely manner.

Form Utility

Form utility refers to how much value a consumer receives from a product or service in a way that they need. It’s 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. Company executives then strategize on the development of the product with the goal of meeting or exceeding those needs to create form utility.

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.

A cosmetics company might conduct focus groups and testing to identify holes in the market related to different skin types and skin tones. The company may decide to produce and market new offerings to cater to and complement the needs of a more racially diverse clientele. The company can increase its sales while adding value to these new consumers.


Utility doesn’t necessarily have to be measured in numbers. It can be gauged in perceived value. Someone may choose to walk rather than take the bus or drive because they perceive the health benefits from the exercise to be greater than the speed and ease associated with being transported in a vehicle.

Time Utility

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, the logistical planning of manufacturing, and delivery. The company should respond by producing and delivering more of the product to the market when demand increases.

Creating time utility includes considering the hours and days of the week when a company might choose to make its services available. A store may open on weekends if customers typically shop for a certain product at that time. Time utility can also include 24-hour availability for a product or a company’s customer service department that’s available through a phone number or website chat function.

Failure to factor time utility into the equation can lead to a drop in the customer base and this can result in a loss of revenue.


Economic utility can also be referred to as utility marketing because product development and design require companies to persuade consumers to make purchases.

Place Utility

Place utility refers to making goods or services available in locations that allow consumers to easily access them.

Most people typically think of place utility as a physical or brick-and-mortar location such as a retail store or shopping mall but the digital age helps broaden the definition of availability. Companies can maximize place utility through their websites. Those with effective search engine optimization strategies can improve their place utility.

Increasing convenience for customers can be a key element in attracting business. A company that offers easy access to technical support gives consumers an added value compared to a company that doesn’t offer a similar service.

Making a product available in a wide variety of stores and locations is considered an added value because it’s more convenient. Apple (AAPL) sells iPhones and laptops through its retail stores but it also offers its products through other electronics retailers such as Best Buy (BBY).

Possession Utility

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. The basic premise behind this utility is that consumers should be able to use a specific good or service as soon as they’re able to purchase or obtain it.

Someone who purchases the latest iPhone won’t get much utility for the product if Apple has it on backorder and can’t manufacture and ship it to the consumer in a timely fashion.

It’s important for companies to increase the ease of ownership. This boosts the product’s possession utility or perceived value. 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.

What Is an Example of Economic Utility?

The term economic utility refers to the total degree of satisfaction someone gets from using a product or service. It may be a car, house, food, clothing, financial services, or housekeeping. Companies that offer them can study the behaviors of their consumers and figure out what drives them to make these purchases.

An example of an economic utility is the value customers receive from the latest iPhone model. Apple responds to the needs and wants of its consumers by updating and upgrading its phones regularly.

What Are the Main Types of Economic Utility?

There are four main types of economic utility. The first is form utility or the amount of value that someone receives from goods or services they need.

Time utility has to do with the amount of time it takes for companies to respond to the needs and demands of their consumer bases.

The third utility relates to place. It refers to a centralized location where consumers can easily access the products and services they need.

Possession utility is the fourth type of economic utility. 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.

How Can a Business Improve Utility for a Customer?

Businesses can take many steps to improve utility for their customers. They include research and marketing activities such as focus groups and testing. Companies can also consider increasing the speed with which they conduct their production process, resulting in the ease of bringing products and services to market. Companies can also make their products and services easily available in retail locations and online at lower costs.

The Bottom Line

People purchase goods and services to receive some benefit or satisfaction. They fulfill a need or want when they consume it. This phenomenon is called economic utility.

Four basic principles fall under this umbrella, including form utility, time utility, place utility, and possession utility. Companies can boost their sales and revenues by understanding and tailoring their marketing and production efforts to the way individuals purchase and consume their products.

Read the original article on Investopedia.