Tags: Mentol Models https://www.investopedia.com/terms/m/marginalutility.asp
Key Takeaways
- Marginal utility is the added satisfaction a consumer gets from having one more unit of a good or service.
- The concept of marginal utility is used by economists to determine how much of an item consumers are willing to purchase.
- The law of diminishing marginal utility is often used to justify progressive taxes.
- Marginal utility can be positive, zero, or negative.
Marginal utility is useful in explaining how consumers make choices to get the most benefit from their limited budgets. In general, people will continue consuming more of a good as long as the marginal utility is greater than the marginal cost. In an efficient market, the price equals the marginal cost. That is why people keep buying more until the marginal utility of consumption falls to the price of the good.
Applications of Marginal Utility
Consumers
Higher marginal utility often leads to greater customer satisfaction because consumers feel they are getting their money’s worth. This can lead to brand loyalty over time, as well as word-of-mouth recommendations.
Businesses
Products that offer a higher level of satisfaction over time, and after the first time they are used, offer a higher level of marginal utility. This makes them more valuable to customers, so they can be priced higher for greater profits. This can also serve as a guide for businesses to create better products and increase customer satisfaction by focusing on products that offer higher marginal utility.
Marginal utility can also guide businesses when deciding which products to innovate or upgrade. A product or service that already has a high level of marginal utility becomes even more valuable when it is improved, allowing businesses to continue increasing the price over time or for newer models. For example, if a car manufacturer has an SUV that is already a top seller, they can create trim levels with additional features or upgrades. Because the original version is already popular, with a high marginal utility, customers are more likely to pay the increased price for an even more premium version.
What Is Marginal Cost?
Marginal cost is the change in production cost from producing or making one additional unit. You can find it by dividing the change in production costs by the change in quantity produced. If the price per unit is higher than the marginal cost, a business can make a profit. Tracking marginal costs allows businesses to achieve economies of scale.
I ask AI to give me examples and help me better understand how to create better products and increase customer satisfaction by focusing on products that offer higher marginal utility?
🧼 1. Consumer Goods: Dyson Vacuum Cleaner
🧠 Base Product Utility
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Traditional vacuum: cleans dust off the floor
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Marginal utility of 1st Dyson use: “Whoa, it cleans more deeply and is easy to move.”
→ Users get visible, emotional satisfaction the first time.
🚀 How Dyson Offers Higher Marginal Utility:
| Feature | Utility Gain (Δ Satisfaction) | Why it works |
|---|---|---|
| Cordless battery | No unplugging, quick clean | Saves time, removes friction (convenience) |
| Transparent dustbin | Visibly see dirt removed | Visual proof → emotional reward → satisfaction |
| New model = quieter | Still powerful, less noise | Comfort + productivity |
| ”Animal” series | Targets pet hair (specific use case) | Tailored, deeper relevance |
🧠 Dyson doesn’t just make it “better” — they make every upgrade solve the next real pain point, so people actually feel the improvement.
📱 2. Digital Product: Duolingo Language App
🧠 Base Utility
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First-time user learns basic words → “Wow, I can say ‘hello’ in Spanish!”
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First unit satisfaction is high because it feels easy and encouraging.
🚀 How Duolingo Sustains Marginal Utility:
| Add-On Feature | Δ Satisfaction | Why it Increases Marginal Utility |
|---|---|---|
| Streak rewards | Builds daily habit + motivation | Turns short-term usage into long-term habit → each additional session feels more rewarding |
| Leaderboards | Adds competition/social proof | Creates social motivation → users stay longer, feel satisfaction from improving relative to peers |
| Stories & mini-games | Feels fresh, more engaging than repetition | Reduces boredom/fatigue → additional sessions feel novel, not repetitive (diminishes diminishing returns) |
| Speech practice | Covers real pain point = “I want to speak better” | Makes learning more practical & real-world applicable → later use gives more meaningful value |
| Premium (no ads + offline) | Removes annoyance + adds flexibility | Improves experience with each session → every new use feels smoother, faster → more enjoyable over time |
Duolingo understands:
“At some point, flashcards get boring. So what’s next?”
Every new feature is timed to solve the user’s next motivation dip.
🧠 Patterns You Can See Now:
| High Marginal Utility Comes From… | Seen in… |
|---|---|
| Solving the next most annoying pain point | Dyson removing cords, Duolingo ads |
| Adding features that feel distinct + useful | AI summaries, streaks, voice drills |
| Emotional payoff: “This feels easier/cooler” | Transparent bin, points, streak fire 🔥 |
| Offering visible value jumps, not small tweaks | Tiered features, targeted upgrades |
Through these two examples I can feel they indeed have high Marginal Utility, they first have a great MVP that can solve people’s real pain points, and people can really feel the problems be solved, the progress is clear, it is practical. Then they added more features , each feature people can actually feel the improvement or motivate people more to use it, give more satisfaction.
Let’s walk through a concrete example—a simple note-taking app—and show step-by-step how you’d boost marginal utility so each “next step” feels like a meaningful leap.
1. Identify the Core “First Unit” Utility
Explanation: Find the single feature that solves your customer’s No. 1 problem.
Example:
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Base app: lets you create and search notes instantly.
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Core utility: “Find any note in 0.5s”
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Satisfaction score (1–10): 8. Users say, “I can’t live without lightning-fast search.”
2. Map Out “Additional Units” of Value
Explanation: Brainstorm add-ons that layer on top of your core and rank them by impact.
Example Add-Ons:
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Auto-tagging: the app reads your note and suggests tags.
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Version history: roll back edits to any prior draft.
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Smart summaries: AI generates a one-paragraph summary of each note.
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Collaboration: share/live-edit notes with teammates.
| Feature | Effort | Estimated Δ Satisfaction |
|---|---|---|
| Auto-tagging | Medium | +2 points (from 8 to 10) |
| Version history | Low | +1 point |
| Smart summaries | High | +3 points |
| Collaboration | Medium | +2 points |
3. Design to Minimize Diminishing Returns
Explanation: Bundle complementary features so each tier feels big.
Example Tiers:
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Free (Core): Create & search (satisfaction = 8)
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Pro (Tier 2): + Auto-tagging + Version history (satisfaction ≈ 10)
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Premium (Tier 3): + Smart summaries + Collaboration (satisfaction ≈ 12)
Each step feels like “I jump from 8→10, then 10→12,” not 8→8.5→9.
4. Use Tiered/Modular Offerings
Explanation: Capture willingness to pay at each jump.
Example Pricing:
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Free → $0
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Pro → $5/mo (users see 2 extra points of value)
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Premium → $12/mo (another 2 points)
Customers know exactly what they gain at each level.
5. Iterate Rapidly with Feedback
Explanation: Roll out a Minimal Viable Improvement (MVI) to a subset, measure satisfaction bump, then expand.
Example:
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Release Auto-tagging to 10% of power users.
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Survey: “Rate your search experience now.” Score jumps from 8→9.
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You build the full version—auto-tagging now reliably gives +2 satisfaction.
6. Leverage Network & Habit Effects
Explanation: Add features that multiply value with more users or daily use.
Example:
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Collaboration: every new teammate adds value for you; marginal utility increases as your network grows.
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Daily Reminders: streaks nudge you to use the app daily—each day you use it, your note-taking habit (and perceived value) compounds.
7. Communicate “Next Unit” Benefit Clearly
Explanation: In-app messaging and marketing should spotlight the specific gain.
Example Banners:
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“Upgrade to Pro and save 30 minutes/week with auto-tagging!”
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“Go Premium for AI Summaries—get a one-paragraph brief of every long note.”
When customers see “this next feature = X extra benefit,” the perceived marginal utility skyrockets.
🔑 Key Insight
Higher marginal utility = features that solve the next-biggest pain point in a visible, measurable way.
By walking your user through clear jumps (8→10→12 satisfaction), you turn small tweaks into compelling upgrades—and drive both value and willingness to pay.
This even break down the steps by steps, much clear for me. I like No7, we should express our improvements clearly for customers and try to make their understanding more easier.