Diminishing Marginal Utility

Late in the week I was speaking with some florist clients reviewing some content for new pricing sessions scheduled for early in 2015. One thing kept coming up...


What is "Diminishing Marginal Utility" again?


It does sound kind of abstract and complicated but the idea is pretty simple – the more you consume of something the less utility (use, benefit, enjoyment, etc. - it depends on the nature of the product) you get from it.

It applies more to some products/services than others. A classic example is movie theater popcorn, the first few handfuls are great but soon each handful (the increased consumption part) offers a little less utility (in this enjoyment) than the once that came before it. That's part of the reason why the larger sizes are discounted so aggressively (on a per-unit basis, relative to the smaller sizes).

It doesn't really apply to something like gasoline, where each unit of fuel offers the same benefit as the unit that came before it.

There is a good definition of diminishing marginal utility, along with some interesting real world examples (of it and other common pricing terms and concepts) at the Beyond Cost Plus website.