"How many of you have been to Disneyland?" is a question I always ask my classes. Smiles break out, memories are rekindled and a certain joy pervades the room as almost everyone raises their hands. As we discuss what value Disneyland provides, it becomes clear that the
Functional Utility is pretty low. Rides at Disneyland are interesting but if you wanted thrills you'd be better off going to Six Flags, where the heart is sure to pump faster. What people remember and value the most about their Disneyland experience is linked to who they were with, what they did with them and how they felt. All of these factors fall in the realm of social and emotional utilities.
Functional utility relates to what the product basically does. It is a commodity. It is the starting point but it rarely provides significant differentiation. Let's call this the necessary condition. A watch must tell time accurately, a theme park must have rides that are both safe and provide some enjoyment and a fast food restaurant must serve food, fast.
Beyond this functionality, what else is provided?
Social and Emotional utilities are more intangible since they deal with feelings and self-beliefs. Often these two utilities are intertwined.
When the iPod first came out, Apple was not the preferred name on college campuses. But, as the white iPod buds proliferated, more and more students were swayed by Apple's hipness. This led to a greater penetration of Macs which then begat iPhones and iPads. This virtuous cycle is a good example of social utility.
What do you see in most beer commercials? There is a set of cool people having fun, seemingly living life to the hilt and then there is this one gawky looking fellow on the outside who wants to be cool. Being perceived as cool and socially adept creates social utility. This in turn can make us feel better about ourselves thereby providing a dollop of emotional utility too.
To get a better sense of these utilities, let's try to quantify them by dividing 100 points between the three utilities. This is not a scientific equation so there are no right answers. Is it arbitrary? Yes. Nevertheless, the exercise will give you insight that is directionally correct.
This is my best guess for the utilities for Disneyland:
Functional: 20% It provides fun rides
Social: 30% It's fun to visit with friends
Emotional: 50% Great memories are created
I think that emotional satisfaction creates the most value at Disneyland. Walt Disney created these theme parks to make people happy and he obviously succeeded. The social value created by being with your family and friends is also significant.
We don't have to agree on our answers. As they say, "Your mileage may vary." This is just an exercise to understand a business in one more way.
What would your allocations be for Walmart? This is what I came up with:
Functional: 90% People go there for the price
Social: 0% Nobody brags about it
Emotional: 10% Saving money provides some delight
How about Nike? Why are people willing to pay $200, or more, for a pair of sneakers to walk around in? Will you run faster or jump higher? Or is it because it makes you feel that you might just have a bit of LeBron James in you? My guess is:
Functional: 20% The high price is rationalized based on quality, fit and the looks
Social: 30% It signals that you are serious about fitness
Emotional: 50% "Be like Mike" used to be the song people hummed when Michael Jordan was around. Today it might be "Got Game?"
These utilities often vary by country and culture. In Brazil, for example, the population is very brand conscious and really likes to dress up. Branded sneakers there, cost more than two or three times what we pay in the United States. Nevertheless, they love buying expensive sneakers, even though the greatest wear and tear of these sneakers takes place in shopping malls rather than at the gyms. For Brazil the ratings might be:
Think of other products that have a heavy dollop of emotional utility, e.g. jewelry, purses, perfume, chocolate, perhaps a Rolls Royce? Or is that mainly social utility at play?
By thinking about products and services in this way your understanding of "utility" and the "job hired to do" will increase significantly.
Verinder Syal, Author: Discover The Entrepreneur Within