Law of diminishing marginal utility implies that as we consume more and more of a good, the contribution of each additional unit to our total utility is less than the contribution of the unit consumed before it. What are the implications for marketers?
At university we learn that the concept of marginal is always related to the last or incremental unit. Utility refers to the benefit derived. When it comes to services or goods, marginal utility is the change in utility from an increase in consumption.
It's difficult to understand that marginal utility decreases with increased consumption. Easy example? Think about a cake: the first piece of cake you eat gives you huge amount of satisfaction while the second piece will give less satisfaction, and so on.
That's how in economics we would visualize the concept of diminishing marginal utility.
We, marketers, pay attention to the law of diminishing marginal utility because we want to keep marginal utility high for products that we sell. This is extremely important when we consider multi-products e-commerce shops whose basket size is fundamentally low.
A product is bought because it feeds satisfaction, but we are also aware that too much of a product might mean that the marginal utility reaches zero because consumers have had enough of a product and are ultimately satisfied.
We should always keep in mind that abstract understanding consumers' decision-making process is one of the most important goal in marketing. The traditional tools like surveys, personal interviews, market research can turn to be inadequate when it comes to understand how customers really behave. The so-called Neuromarketing studies are playing an important role when it comes to apprehend what customers "don't want to say" when they are interviewed. This new branch of marketing offers better understanding of behavioral phenomena relevant for consumers' behavior.
Considering what we discussed above, marketers can stem the effects of the law of diminishing marginal utilities with different methodologies: pushing for improvements of the product to wow customers, keeping social media channels as active as possible to communicate the value of the product in different ways, playing with prices structure and level, evaluating subscription models - if the business itself enables such a strategy.
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