or have his sales made by special representatives or agents. Encyclopaedias, subscriptions to high-priced periodicals, adding machines, life insurance and real estate are illustrations of goods that need such specialized attention.
(d) Degree of Perishability.—Perishable goods need methods of marketing unlike those used for non-perishable goods. Strawberries sent through the same channels as textile piece goods or hardware, or even the channels of most groceries, would never reach the consumer in condition fit for the table. Time is a very important element in the marketing of perishable goods. There must be no delay and little time can be given to the sale of any particular unit. Another illustration of a perishable article (though in a different sense) is the daily paper, the weekly or monthly magazine. Timeliness is the essence of their value. This makes necessary a highly specialized marketing organization to carry papers or magazines over the country and, in the case of magazines, to place them on sale everywhere at the same time. Such specialized handling calls for expense not incurred in goods not perishable.
(e) Unit Price and Distributing Markets.—The price of the product to dealers and to consumers, whether high or low, constitutes another factor governing the channels to be selected in marketing. A low-priced article with a small margin of gross profit to the seller cannot be sold in the same way as an article that offers a wide margin. A 25-cent (or shilling) article, such as a handkerchief, a magazine or a screwdriver, could scarcely be sold direct. The margin above costs of production could not possibly permit the article to be advertised and sold by itself by the mail-order method. It must take its way to the consumer through the channels of trade followed by thousands of similar articles. The producer of such an article would have to sell to wholesalers, to chain stores, to department stores, or to mail-order houses doing a general business in which this particular item would be but one of a great many.
(f) Competition.—The competition in the sales field of any article might readily determine the channel of distribution that is taken. For example, a manufacturer of hardware selling direct to the retail trade found that his strongest competitor's policy was to sell to every dealer who would buy and to offer no exclusive sales arrangements, while he himself made a success by offering his goods only under exclusive sales agencies. Certain manufacturers of soaps, perfumes, and toilet goods have found it so difficult to place their products advantageously in drug stores and similar retail outlets because of the number of competing lines that they have found it advisable to sell, especially in country districts or small towns, direct to consumers by means of agents and canvassers working on a commission basis. A motor-car tire maker found it so difficult to break into the market through automobile dealers and garages that he sold his product to a mail-order house.
(g) Familiarity of Consumers with Product.—A new product must as a rule be sold through channels that may be abandoned after the public has begun to know the article. Office devices at first sold only by speciality men are gradually taken over by stationery stores. Frequently orders for new food products must first be secured by speciality men from customers before dealers will stock them and offer them for sale. Sewing machines, talking machines and musical instruments, formerly sold only by agents directly in the employ of the manufacturers, are now sold more and more through regular retail stores. As demand becomes established specialized marketing systems can give way to the more general methods.
(h) Changes in Marketing Methods.—Occasionally a product which is being sold through the regular or customary channels and is having a large sale is withdrawn and sold through a more specialized channel. Ivory Soap is a recent example; its manufacturers, after a long experience of selling to retailers through wholesalers only, during which it built up the largest single soap business in the United States, decided to eliminate the wholesaler, July 1 1920, and sell to the retailers direct. No reports on the success of the policy were available in 1921, but it is to be presumed that the sales will show some increase over the previous year unless the general conditions of business interfere. The real test in efficiency in this case will come in comparing the costs of selling per unit. Examples of other large American concerns which sell to retailers direct include the National Biscuit Co., of New York, the H. J. Heinz Co., of Pittsburgh, and the big packing companies. Many, if not most, other large food manufacturing concerns distributing through the jobbers employ their own sales organizations that do “missionary work” among the jobbers' customers.
Inefficiency in Marketing.—Many criticisms of contemporary marketing systems appeared during the decade 1910-20. The cost of living had risen steadily for nearly 20 years, and very rapidly during the period of the World War, but wages in most lines had not risen in proportion. Hence the purchasing power of the average family had, if anything, diminished. This pressure on the family means of subsistence had caused breadwinners and housekeepers, as well as students and public officials, to listen readily to complaints of the shortcomings of distribution and its probable share in high costs of commodities. Many instances have been cited of the inadequacy of the marketing system. Food-stuffs have been reported as lying on the ground decaying in agricultural districts, while city people were ready to pay high prices for them could they but get them. Those engaged in distribution have been charged not only with inefficiency but also in some instances with deliberate waste to keep up prices by reducing the supply. This accusation is mentioned here, not because it is general, but rather because it shows the temper of the people towards distribution. In the main, however, the greatest criticism levelled at distribution is that it costs too much and that these costs must be paid by the consumer. It is asserted that there is a grocery store for every 80 families and that there should not be more than one for every 200 families. In other lines of merchandise, it is urged, there is the same oversupply of dealers, needless duplication of stores, equipment, and needless sales and delivery people, all of which must be paid out of the business. Criticism has become more pointed and perhaps more constructive as information concerning distribution and its real functions has accumulated. From such studies as have been made it seems safe to state that for most goods the costs of marketing, including transportation, run higher than those of production. This fact has been accepted by the public with some surprise and a feeling that marketing should not cost so much.
Reduction of Marketing Costs.—One method of approaching the problem is to propose some new or different method of distribution. It may be urged that a more general introduction of department stores or chain stores would give more economical results. But what do the facts, so far as they are available, show?
(a) Comparison of Costs by Various Methods.—Table I contains figures compiled from actual records by the Harvard Bureau of Business Research, Harvard University.
Table I.—Comparison of Costs of Retailing Shoes 1918.
Net Sales 100%.
|Independent shoe stores—|
|Low-priced shoes||13.3 %||32.33%||20.5%|
|Mail-order chain stores||9.85||57.60||24.6|
|Independent shoe stores||13.62||35.63||24.0|
It is clear that the statistics do not prove that in the case of shoes either chain stores or department stores can be conducted at less expense than independent stores. It is true that the lowest figure for chain stores is considerably lower than any other, but the chain stores also show the highest costs. The average costs of selling in chain stores seem to run a little higher than in independent low-priced shoe stores and in department stores. But taking the 1919 figure for the independents (a figure that includes both high- and low-priced shoes), department stores have a little the best of it.