Monday, June 11, 2007

Marketing Using Marginal Utility

Today I ran to Subway to get a sandwich for lunch. While browsing the menu, I noticed an interesting use of Marginal Utility concept. Usually sandwiches are advertised using their sizes, e.g. $2.99 for a 6 inches long sandwich and $5.99 for a 12 inches long one. But in this particular store in Evanston, the price is mentioned only for 6 inches long sandwiches. At the end of the column there is a note: “feeling hungrier? Get a foot long sandwich for only $2.99 more”.

Instead of having the total price for a 12 inches sandwich, the owner has advertised how much more a customer needs to pay for it. Now if one accepts a 6 inch long sandwich as the measuring unit, then a 12 inches sandwich is two units of product, or a very close substitute to two 6 inches sandwiches. The marginal utility of having the first sandwich is much larger than the second one, thus the willingness to pay for the second one is less than the willingness to pay for the first one. Thus by marketing how much one needs to pay to have an extra unit and showing that it is less than the price of a 6 inch sandwich, Subway is following customers’ demand.

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