The shopping center

The shopping center is another postwar development. The growth of suburbs made some sort of suburban central shopping inevitable. By 1960, the shopping center was no longer a phenomenon, but a large majority of those in operation were less than five years old.
The total number of shopping centers in operation in the United States and Canada has been estimated at between 4,000 and 5,000. Indeed, in 1960, the city of Portland, Oregon, announced the opening of a downtown shopping center with 82 stores, parking space for 8,000 cars, covered malls, escalators carrying shoppers from door to door, restaurants and recreation areas. This concept goes far beyond the earlier shopping centers which brought together from four to ten stores of different kinds.
Based on the kind of market for which the shopping center was designed, shopping centers fall into different types. These are regional, community and neighborhood shopping centers. The regional center services a fairly wide region, pulling customers from many miles around. Some regional shopping centers serve areas from 20 to 40 miles away. The community shopping center serves a community. Shoppers will come from three to ten miles away. The neighborhood shopping center draws most of its customers from a relatively compact neighborhood.
While there are some indications that shopping centers may not fulfill all the optimistic claims made for them by their proponents, it is certain that, as a type of retail merchandising, the shopping center will continue to grow and assume greater importance in the American consumer shopping picture. Some warnings have been posted that they have grown too fast and too big. But the shopping center definitely has pleased the consumer with its wide one-stop type of shopping facilities. Most department stores, and the more important chain stores, especially food, drug and clothing, as well as the variety chain, vie vigorously for space in new shopping centers. This competition is good and the consumer is the likely beneficiary.

Non-store retailing

Non-store retailers include mail-order houses, vending-machine operators, and direct house-to-house selling organizations. Mail-order retailers are particularly prominent in department- store-type merchandise such as shopping goods and women's and children's clothing. Some 77 per cent of all mail-order sales are in this department-store-type merchandise. Mail-order retailers also sell automotive merchandise, books, stationery, and even furniture and food. Total mail-order sales represent about 1 per cent of all retail sales.
Vending machines have become big business in recent years. They are destined to grow as more and more merchandise is developed specifically for vending machines. In 1958, the volume of vending-machine sales was only about $750 million. Now, it is over the three- billion-dollar mark.
In the last years of the decade of the 1950's there was a great proliferation of items sold in vending machines. Many manufacturers are making special products and special package sizes for vending machines. Shortly, it is estimated that sales from vending machines will reach $4 billion.
House-to-house selling is another form of retailing that has gained momentum in recent years. The Census of 1958 showed total volume of sales at $2.5 billion. Building materials, farm equipment, groceries, milk, apparel, household appliances, books, stationery, general merchandise and cosmetics all have found ready out¬lets in house-to-house selling. It should be noted, however, that the total volume of sales in 1958 was not very much larger than in 1954. House-to-house selling has certain natural disadvantages such as consumer resistance and cost. Some cities and towns have ordinances against peddlers.
In truth, house-to-house selling is a direct descendant of methods used by the old "Yankee peddler." But unlike the Yankee peddler, the modern house-to-house salesman often offers specialties not available elsewhere. There are many marketing people who believe this type of retailing will become increasingly important. Much will depend on the aggressiveness of local store merchants and their ability to serve the consumer better.
House-to-house selling has the advantage that the dealer or salesman has little capital invested in merchandise. His type of operation gives him flexibility and a home-service convenience that the retail store cannot offer. Also, as shopping areas become more congested, the house-to-house retailer is in a position to offer the consumer greater convenience by shopping in her own living room. It also offers manufacturers an opportunity of introducing new products directly to consumers, and of making sure that consumers get the product by the simple expedient of delivering it to their homes.
The greatest single obstacle to house-to-house retailing is the problem of recruiting, training and holding salesmen. The turnover among such salesmen is often 100 per cent and higher in one year. While some salesmen make a very comfortable living out of such retailing activity, many others, who are often only part- time workers, get discouraged easily. It is not easy to take direct rebuffs day after day and come back for more. Direct house-to-house selling is much more difficult than in-store selling. From the point of view of the manufacturer, house-to-house selling is also costly because of the high commissions needed to attract and hold specialty salesmen.
Many observers believe that the growth of self- service in supermarkets, which has spread to almost every other type of retail store, will give house-to-house selling a great impetus. The competition for shelf-space is tending to limit the selection available to the consumer. Shopping in the suburbs entails certain difficulties, such as lack of adequate parking place, and the cost of getting baby sitters. Also, better advertising has acquainted the consumer with products by name, so that much of the peddler's stigma is eliminated.
The volume of house-to-house selling has reached the $3 billion mark, with some 3,000 houses selling direct to consumers. Despite the relatively high cost of selling in this manner, profits from such sales are reported to be above those of sales through conventional channels.
House-to-house selling has proved especially effective in opening up new territories and in introducing new products. Effective demonstration is virtually assured. And if the quality is as good as prevailing products, a greater consumer interest is almost certain.

The Discount House

One postwar phenomenon in retailing has been the development of the discount house. Originally, those running a discount house were often referred to as "the upstairs boys," because they often did business in upper floors of loft buildings, and admission into their stores was by card only. Members recommended the store to others, and the membership grew. The discount house operated in household appliances, silverware, jewelry, and similar merchandise. It was, of course, vigorously opposed by the regular merchants.
The discount house grew out of the practice of manufacturers giving large discounts to retailers on certain types of goods. Jewelry, household silverware, household appliances, and similar merchandise often carried as much as 45 per cent margin for the retailers. By adopting the minimum service principle, discount operators could sell this merchandise at discounts ranging from 15 to 30 per cent, a substantial savings to consumers.
Most manufacturers, concerned because of increasing complaints, attempted in various ways to prevent discount houses from selling their goods at a discount. Manufacturers resorted to such practices as refusing to sell to them, placing rigid resale prices on merchandise, and attempting to enforce resale price maintenance, more generally known as fair trade.
Some manufacturers were more successful than others in enforcing full price merchandising. But eventually, as will be discussed in another section of this book, fair trade lost much of its power. One after another of the manufacturers abandoned the practice of enforcing fixed prices. Household electrical-appliance manufacturers were among the last to give in. Thus, it became possible for discount houses to offer a wide variety of well-known brands at substantial discounts, thus forcing department stores and electrical-appliance dealers to reduce prices or lose sales.
By 1960, discount houses were not only generally accepted by the public, but even had been accepted into membership in the retail merchants' associations. In other words, they had attained full status as accepted merchants in most communities. They had also grown. Several of the larger discount houses are, in effect, discount department stores, offering a wide variety of merchandise at savings ranging from 5 to 25 per cent.
Most consumers do not recognize the term syndicate stores. The student of marketing should, however, be familiar with the term. It indicates a special kind of chain-store operation such as Sears, Roebuck and Company and Montgomery Ward, stores which operate chains of department stores as outgrowths of original mail-order business.
One of the chief characteristics of syndicate stores is that, while they offer a wide variety of merchandise to consumers, they seldom sell well-known brands. Most of the merchandise they sell is their own. They do very large volumes of business.
Syndicate stores are, for all practical purposes, retail chains. They buy only merchandise unbranded or under their own private brand. Syndicate stores are large customers for certain types of merchandise such as automobile tires, batteries, garden equipment, and large household appliances which are made for them by well-known manufacturers who also sell their own brands.

Why we have large-scale retailing

The type of large-scale storekeeping that has developed is properly described as horizontal integration of merchandising. Its chief advantages are that large-scale economies can be made in buying, in specialization of manpower and skills, in joint advertising and merchandising promotions, and in wider assortments for consumers.
Horizontal integrations, generally referred to as chains, would not have been possible if they had not, through a greater assortment of merchandise, lower prices and convenient locations, given the consuming public better service than that provided by small stores. It is true that the growth of chains has, to a degree, destroyed the personal relationship often existing between the storekeeper and the consumer. But the verdict of the consuming public, which in the end must determine what services the public is willing to buy, has still been overwhelmingly for bigger stores, bigger assortments, greater convenience and lower prices.
    Department stores are also horizontal integrations. In essence, a department store is a variety of small stores grouped together under one roof. Department stores cater to people buying shopping goods. As a rule, they are not neighborhood but downtown shopping stores, and they depend, to a large extent, on transportation facilities for store traffic. With the development of shopping centers, department stores have tended to move out into these centers with branch stores, so that, in effect, many department stores have also become chain stores.
In a recent year, sales of each department store on the average amounted to about $4.2 million. Some stores, like Macy's in New York, had much higher sales. There are approximately 3,200 department stores in the United States. Although this is a very small number relative to the total of 1,800,000 retail stores in the country, department store sales account for 7 per cent of the total retail sales.
One development in department stores, not usually found in chain or independent supermarkets, is that many of the departments inside the store are actually independent, leased concessions. The practice of leas¬ing departments inside of large units is growing. It will probably spread, in the years ahead, into all types of large-scale retail operations. Leasing makes possible a wider variety of offerings to the consuming public without tying up greater amounts of capital on the part of the store owner.
One point about the size of retail establishments deserves mention. Size can become a handicap as well as an asset. The larger a unit of operation, the more rigid the operating policies tend to be. Fixed expenses have a way of becoming fixed at a high level. Some consumer buying concessions, such as the practices of accepting returned merchandise, of delivering free, and of giving extended credit, have cost department stores considerable in the past, and have proven hard to discontinue.
The movement of populations to the suburbs has also cut heavily into department store profits, particularly those which remained downtown establishments. In many cities, the downtown area has suffered, and while there are some indications of partial comebacks, the scattering of the population into the suburbs has meant that department stores have had either to build branches or to accept a smaller share of the market.
Again, the student will do well to remember that the only reason for the existence of retail establishments is to serve the consumer. Convenience to the consumer is therefore the first requisite of success for any retail store. Department stores are no exception.

The role of the retailer

The retailer is the last link in the chain of distribution between the manufacturer and the ultimate consumer. When people speak of middlemen, they mostly think of the retail store because this is the business establishment most consumers know best. They know their favorite department store, grocery store, drugstore, hardware store, clothing store and candy store.
Without retail stores to make the goods of industry conveniently available to millions of consumers, there could be no mass production. The country would never have experienced an industrial revolution. The retail shop is one of the oldest and most universally-used business establishments not only in the United States and Canada but the world over.
The function of the retail store is to bring the correct assortment of goods for consumers to use, and to make them available in the most economical and convenient form. The only reason for retail establishments is that household consumers need to purchase frequently, in small amounts, a variety of things needed in the home: food, clothing, gasoline, hardware, drugs, and many other items that enter into the daily lives of the people.
The development of large-scale retailing has been a phenomenon of the twentieth century. Even department stores, many of which have become giants in their own right, were a development of the early 1900's. Postal service aided the growth of retail mail order houses, which in turn evolved into the present-day syndicate stores such as the great retail chain establishments of Sears, Roebuck and Company, and Montgomery Ward. Changing consumer habits and buying patterns favored the growth of large retail establishments, especially for shopping goods. Consumers found convenience in the "one-stop" shopping facilities of the modern department store.
From this, it was inevitable that giant convenience goods stores should also develop. The supermarket, a product of the early days of the depression and the need for lowering the price of necessities, has today become the most successful single type of large-scale retail merchandising. The shopping center, outgrowth of the movement of population to the suburbs, and of vastly increased mobility because of improved transportation facilities, has truly made one-stop shopping possible.
Shopping centers require a large volume of business. This makes for bigness, and the big independents and chain stores are mushrooming everywhere. The reason, again, is consumer convenience and consumer service at low cost.

Specific kinds of wholesalers

There are two specific kinds of wholesalers who deserve mention in this discussion: (1) petroleum bulk stations, and (2) assemblers of farm products.
Petroleum bulk stations are wholesalers who distribute petroleum products. These products require special handling and special installations. The services performed, however, are similar to those of other wholesalers.
Assemblers of farm products pick up the products of these farms, assemble them, grade them, and ship them to wholesale markets. For fresh fruits and vegetables, this is a costly operation because of the spoilage and special handling necessary.
In spite of gloomy forebodings which used to be common a few years ago, the wholesaler has managed to hold his own because of the very real services he renders. But the wholesaler today, as compared with one hundred years ago, is a much less important member of the business fraternity. One hundred years ago, there were no such things as chain stores, department stores, supermarkets, discount houses, and large retailers found now in every community in the land.
For a long time, many producers have used various means to bypass the wholesaler. As retailers grew larger, they, too, began buying direct. When groups of retail merchants started forming cooperative wholesale distributing houses, remaining wholesalers adopted modern cost-cutting methods in order to compete successfully although, in many instances, they were to serve only the smaller retailers.
The reader should keep in mind that the function of wholesaling is vital to any widespread economy. By modernizing establishments, merchant wholesalers have been able to hold their own and, in some instances, to make spectacular comebacks. By adopting newer techniques of the integrated distributors, wholesalers have been able to regain some of the ground lost to manufacturers' branches, sales offices and agent middlemen. By providing rapid, low-cost and efficient service to the retailers who depend upon them, such wholesalers have adapted themselves to changing conditions.
We are not implying that marginal and inefficient wholesalers will be able to survive. They are likely to be driven out of business in many lines in the years ahead. Small wholesalers, with annual sales of one-half million dollars and less, appear to face serious trouble ahead. Some of these wholesale merchants show operating costs as high as 30 per cent of sales. The modern consumer is in no mood to pay for such high distribution costs. The large, full-service merchant wholesaler can operate on 6 per cent or less, while the average for all merchant wholesalers is 13.2 per cent.
The push is on for lowering the cost of distribution, and a wholesaler who cannot meet the demands of retailers and their customers is likely to drop out of the competitive race in the next decade. Obviously, larger operators have a decided advantage in effecting economies which will permit them to remain in business.
It is natural, therefore, to expect that wholesale establishments, like their counterparts in retail marketing, will grow bigger and will reduce the cost of operations through more volume, more efficient merchandise handling, and the use of electronic data processing for inventory controls, order processing, and similar operations which, in the past, have been done by hand labor.
It should be kept in mind that the function of wholesaling will be maintained as long as there is a small number of producers, concentrated in a few localities, and a very large number of consumers or customers, spread out over large areas. The function cannot be eliminated, although it can be integrated with other functions: manufacturing on the one hand, or retailing on the other.

Manufacturers' sales branches

In an effort to integrate the distribution services which have to be performed, manufacturers have, for many years, operated their own sales branches wherever the volume of business or the type of products warranted such distribution. By numbers, less than 10 per cent of all the wholesale establishments in the country are manufacturers' branches, but these do more than 30 per cent of the total business.
Almost every kind of merchandise is sold through manufacturers' branches, with and without stock. It should be noted, however, that certain lines lend themselves more than others to sales through manufacturers' branches and sales offices. Food, for example, is ideal to sell through manufacturers' branches or sales offices because large chain stores and supermarkets buy direct and are serviced through the manufacturers' warehouses in the field.
Among the most recent developments in manufacturers' branches are the manufacturers' distributing or mixing centers. These, in effect, are large-scale manufacturers' warehouses or branches with stock, strategically located, which receive carload lots of merchandise from the various decentralized factories of the manufacturer. In turn, they mix and assort the goods for carload or truckload shipments to other branches owned by the same manufacturer, or to large direct- buying retail customers.
This development has been especially swift in the food and drug fields, but already the economies noted have led other types of manufacturers to view these distributing centers as possible additions in the near future. Substantial freight savings can be effected by these mixing centers.
To keep clear the difference between wholesale middlemen and functional middlemen, it should be kept in mind that functional middlemen do not take title to merchandise. They seldom see the goods they sell, and their earnings are a percentage of the total net sales price (a commission). Their main function is to facilitate selling, although there are some buying functional middlemen.
These functional middlemen are classified variously, but there are five groups which may be considered the most important. These are as follows:
(a)Brokers: This group operates to bring buyer and seller together. Brokers are especially important in the food, textile, used machinery and real estate markets. Primarily, brokers sell information—information of products available for sale or purchase.
(b)Commission merchants: This group, which is prominent in the agricultural products fields, handles the selling function for large numbers of producers. Like the broker, a commission merchant finds markets for the products for sale, but unlike the broker, he generally handles the goods he sells but does not own them. The
importance of the farm products commission merchants has declined in recent years as more and more direct-buying chains and other large retailers have supplanted them.
(c)Manufacturers' agents: These agents work for several non-competing manufacturers and act as sales representatives for such manufacturers in a territory. The main job of manufacturers' agents is to call on and sell to wholesale and industrial buyers. As a rule, the manufacturer's agent does not handle goods. He sends the orders to the manufacturer who, in turn, ships purchases direct to buyers. Some manufacturers' agents carry limited stocks. These agents work in products that have large volume sales and rapid turnover. Their commission runs around 2 per cent; but with new items and items of limited sales, their commissions may run as high as 15 per cent.
(d)Selling agents: Like the manufacturers' agents, selling agents sell for the manufacturer, but usually handle the entire output of such manufacturers. They take over the entire marketing job, for a commission. The selling agent is prominent in the textile industry, where many small producers have to sell products fast and at the lowest possible cost.

Independent and voluntary group and cooperative wholesalers

Among the merchant wholesalers, there is still another distinction that must be made if the student is to get a rounded picture of this type of operation: the distinction between independent and voluntary group and cooperative wholesalers.
Purely independent wholesalers are merchants who buy for their own account from many manufacturers, and resell the goods in different forms and quantities to retail merchants wherever they can find retail buyers. The relationship between wholesaler and retailer is simply that of supplier and buyer. Both operate independently of each other. While these independent wholesalers far outnumber the other two types discussed, they do, on the average, less business per establishment.
Independent wholesalers have decreased in number materially over the years. Between 1929 and 1954, they decreased 42 per cent. While this has serious implications, the student of marketing must remember that the wholesaler exists because of the services he renders to the retail customers. One of the important services obviously is making it possible for the retailer to survive in competition with other forms of distribution, such as corporate chains, supermarkets, and discount houses. Obviously, these independent wholesalers have not been able to provide this service. Voluntary group wholesalers operate primarily in the grocery field. As the name implies, the association between wholesaler and retailers is voluntary. The wholesaler buys in large quantities as economically as possible, obtains advertising and other promotional allowances, and in turn obtains from  retailers a pledge that the retailers will purchase stated quantities of sup¬plies from the wholesaler.
Sometimes, the wholesale house extends management services to the retailers, such as accounting and advertising. The kind and amount of services rendered to retailers differ, and will influence cost. Many voluntary group wholesalers own and sell their own branded merchandise in competition with nationally advertised brands. This gives retailers affiliated with them an extra exclusive which makes such affiliation even more attractive.
Small retail stores predominate in the voluntary group movement, some 86 per cent of them doing less than the accepted minimum of established supermarkets (under $375,000 a year sales). And less than 3 per cent of the stores affiliated in voluntary groups do $1,000,000 or more a year. But their ability, through voluntary cooperation, to buy as cheaply as the chains, and to do certain group advertising and merchandising jointly, places them, despite their small size, in a position to compete with other retail food merchants on a more or less equal basis.
Cooperative wholesalers or retail-owned wholesale distributing houses are, as the name implies, wholesale houses, owned by the retailers who are joined together in the venture.
The number of retailers who normally join together to own their own wholesale house averages about 200. This kind of wholesale house has an annual revenue averaging $14,000,000. These retailer-owned groups are in a position to buy advantageously, to do joint advertising and merchandising and, in other ways, to compete on fairly even terms with the corporate chains. Retailer-owned cooperatives have grown consistently over the years, in spite of the natural turnover of member stores. Currently 20 per cent of the total food business is done through them. The number of $1,000,- 000-volume retail stores affiliated in retailer-owned cooperatives has increased over 550 per cent in the past ten years.
Again, the reason for the existence of these retailer- owned wholesale houses is service to the retailers at economical cost. Purchasing, advertising, warehousing, delivery, store engineering, managerial advice, floor displays and other services are regularly rendered to member retailers.
The average cost of doing business is considerably lower for retailer-owned wholesalers than for either voluntary group or totally independent full service wholesalers. Through national organizations, they, too, sponsor private or distributor-owned brands. And profits, if any, are distributed as dividends to the members

Why we have wholesale merchants

Wholesalers exist because there are close to 1,800,000 retail estab¬lishments, the majority of which have neither the capital nor storage facilities to buy direct from the manufacturer.
As we have seen, there are 38,000 manufacturers whose products eventually reach the consumer through 1,800,000 retail establishments. It is the job of the 308,- 000 wholesalers to see that the 1,800,000 retailers are stocked with merchandise to accommodate the millions of consumers.
In round numbers, 1,800,000 retail stores serve the needs of 200,000,000 consumers, or an average of 111 consumers per retail store. The enormous volume of re tail sales, which in a recent year ran to something like $304 billion, would be impossible to attain on a direct factory-to-consumer basis. Nor could a relatively small number (38,000) of manufacturers of consumer goods attempt to sell direct to 1,800,000 retail merchants, many of whom are small. That is why we have merchant wholesalers.
The primary function of the wholesale merchant is to assemble merchandise from many sources, warehouse it, regroup the goods for convenient buying by retailers, and then deliver the goods to retail customers. Traditionally, the wholesale merchant has extended credit to his retail customers. This practice is referred to in the trade as carrying his customers, sometimes for a period of many months.
Naturally, it is the small merchant who benefits from this practice because it enables him to obtain goods on time. Often, he is able to sell the goods to consumers before he has to pay his bill to the wholesaler. For the small merchant with limited capital, this is often the only means of staying in business.
Despite the growth of the so-called cash-and-carry wholesaler, who neither extends credit nor delivers merchandise-the retailer calls for his own purchases and pays cash-most wholesale merchants do extend credit to retail customers.
Most modern wholesale merchants provide information and advisory service to retailers, and they are often in a position to provide local market information to manufacturers as well. And since wholesale merchants send their own salesmen into the retail establishments of their customers, they also supply merchandising advice and other selling aids to retailers. Their most important service, of course, is that of making it possible for the manufacturer to sell to thousands of smaller retailers who cannot be sold direct from the factory because of their remote location, their small buying power, or their lack of storage space to purchase in large enough quantities to make such direct shipments economically feasible.

The wholesale trade in the United States

Despite all the services which wholesalers provide, merchant wholesalers do less than half the business done at wholesale in the United States today. The pattern in Canada is pretty much the same, and for the same reasons. These services cost money, and in the constant push towards reducing the cost of distribution, many different methods and channels are tried by manufacturers seeking to reach the consumer in the most efficient manner possible. This does not always mean the least cost, as we know, because such considerations as the control of merchandising practices, quicker and more efficient service to retailers, and service to ultimate buyers often enter into the picture.
Merchant wholesalers are wholesalers who take title to goods they bring into their establishment, break bulk, reassemble and resell.
There are many different types of merchant wholesalers. Some handle general merchandise, and are known as general merchandise wholesalers. Others handle a single line, such as dry goods, groceries or building materials. A third type is known as a specialty wholesale merchant, who handles only a narrow range of products and caters to specialty shops in the con¬sumer goods field, or to special buyers in the industrial field where a high degree of technical knowledge is necessary.
Limited function wholesalers are merchant wholesalers who do not provide full services and often provide only a minimum. Among the limited service wholesalers, certain types stand out and have become trade institutions. We can cite the following as the most important ones:
Wagon or truck jobbers. As the name implies, a wagon and truck jobber sells from his wagon. His main contribution is that he covers wide rural territories and delivers perishable or semi- perishable merchandise to small and often out- of-the-way retail customers. The cost of operating a truck-jobbing business is relatively high (14 per cent of sales or higher, equivalent to the cost of the full-service wholesaler). But he renders a real service to out-of-the-way retailers and their customers.
Per markets, a new type of wholesaler has developed to take care of these retail customers. The rack jobber specializes in such products as beauty aids, small items of clothing, and household items, often displayed in wire racks inside supermarkets, hence, the rack-jobber designation. His main function is that he keeps stocks and displays filled and properly price-marked. He usually sells for cash and is paid for the amount of merchandise he sells and delivers to each customer. Cash and carry jobbers. A cash and carry jobber sells only for cash, and sells only at his place of business. The retail customer comes to the wholesaler's warehouse, selects and buys what he wants, pays cash for it, and carries it away. Cash and carry jobbers are found in all lines of business. It is not the type of merchandise handled, but the method of operation that makes them different. Mail-order wholesalers. Many of the earlier distributors were mail-order houses, once more prominent than today. In the days of poor communications and scattered rural populations, mail ordering (especially retail) was often the only way consumers could purchase during winter months. Mail-order wholesale houses service retailers, both mail-order retailers and others, usually through catalog sales. Often lower prices are possible because the amount of service rendered is reduced to a minimum.

Role of the middleman in marketing

There are approximately 300,000 manufacturing plants in the United States, of which less than 96,000 employ 20 or more workers. Of the 96,000, nearly 40 per cent (38,- 000) can be classified primarily as manufacturers of consumer goods. These plants employ over 4,500,000 people, some 29.6 per cent of all industrial workers. The other 58,000 manufacturing plants are engaged primarily in manufacturing industrial goods.
Of necessity, manufacturing is highly concentrated, since production cannot take place everywhere. But consumption, especially of consumer goods, takes place everywhere. The 200,000,000 people in the United States and the 20,000,000 people living in Canada live and consume everywhere. And while again we find concentrations-the United States has some 17,000 municipalities with close to 70 per cent of the total population —we also find another 17,000 townships with millions of people living in them. All these people are consumers. The finest food or apparel factory in the world is of little value unless its products get from the factories into consumers' hands. The men and women who perform the multitude of services of all kinds connected with the movement of goods from producer to consumer are the distributing middlemen. Regardless of who owns the institution-a manufacturer who operates his own sales branch, the wholesaler, the retailer, the carrier who transports the goods, or even the consumer who "buys direct"-whoever performs any service in connection with the movement of goods from factory to consumer is a middleman.
In marketing, as we have seen, we recognize two basic types of middlemen: (1) the functional middlemen (brokers, agents, commission men), and (2) the marketing middlemen (wholesalers, who are also referred to as jobbers or distributors, and retailers, who are often referred to as dealers).
The services performed by functional middlemen are limited, although very important in some lines of business. They are classified, in the Census of Distribution, as wholesale operators, and will therefore be included in the totals under wholesalers.
The student should remember, however, that functional middlemen are engaged primarily in bringing buyer and seller together and, for the most part, do not take active part in the physical movement of goods from producer to consumer. To most consumers, these functional middlemen are employees or agents of the manufacturer, much as a commission salesman might be employed by a manufacturer. To most people, there fore, these functional middlemen are not strictly middlemen at all. When people speak of middlemen, they generally have reference to the wholesale or the retail merchant.
Of the total value of goods of all kinds sold at wholesale in the United States, merchant wholesalers handle approximately 43 per cent. Manufacturer-owned sales offices and sales branches handle another 31 per cent In our consideration of wholesaling, we shall be primarily concerned with these two types of wholesale distributors: (1) the merchant wholesaler, and (2) the manufacturer-owned sales office or branch. The distinction between a sales office and sales branch is that the sales office does not carry merchandise whereas the branch does.

Consignment and Franchise selling

Consignment selling refers to the practice of placing goods in the hands of middlemen, with title and control remaining in the hands of the seller. Distributors who sell on consignment are in effect not wholesalers or retailers, but merely agents. They receive a commission or a share of the sales price. The manufacturer who owns the goods specifies the manner, time and price of sale.
The advantages of consignment selling to the distributor are obvious. He runs no risk of buying and being "stuck" with goods. He has no money invested in stocks. As far as the manufacturer is concerned, he fixes the price and controls the selling techniques. Consignment selling makes cut-price competition impossible.
This method of distribution is not a common one in recent years. It was particularly advantageous to a distributor who lacked the capital with which to buy and sell for his own account. But there was always some doubt about the legality of such arrangements which permitted the manufacturer to enter into agreements with the distributor as to price, selling terms, etc. This has been looked upon in some circles as a violation of antitrust laws. Consignment selling, except for individual and restricted situations, may be said to be on the way out. More and more responsible merchants are in a position to purchase merchandise and finance their profitable distribution.
Although not a new method, franchise selling has in recent years received considerable impetus. The number of independent business men doing franchise selling is estimated to be between 50,000 and 100,000. In essence, this is a system of merchandising whereby a manufacturer or other purveyor of services sets up, under a single brand, a chain of small business men who buy supplies from the franchiser, but otherwise run their own business as they see fit. In some instances, they have to pay a franchise fee, buy equipment, or pay a royalty. The franchiser keeps title to the basic product or service rights.
Franchise merchandising gives the small man a chance to buy on credit. With a minimum of capital investment, he sells specialties or special services, such as ready-cooked meals, specialty foods, carpet cleaning and automobile parts. The parent company does the promoting and supplies management know-how. Bulk buying gives the franchise holder buying advantages in prices and terms.

Selective distribution

Selective distribution is a policy of a manufacturer who selects a limited number of wholesale or retail distributors and works closely with them to further the sale of his merchandise. Generally, this is done on a carefully worked-out plan. Selective distribution can be used on any type of product, even with convenience goods, but, of course, such a policy will restrict the distribution. The idea is to select the best distributors available, concentrate effort on them, and thus obtain a greater selling effort for the manufacturer's products.
Naturally, the volume of business desired is important in appointing selective distributors. Fewer distributors may mean fewer sales, fewer contacts with prospective buyers. There are distinct advantages, however, in appointing selective distributors. The manufacturer can pick the outlets he wants. He can concentrate on them, and eliminate some of the marketing headaches which beset almost all sellers who sell on a wide regional or national basis. Some of the problems include such things as small orders placed by buyers with limited volume sales, the credit risk in dealing with everybody, limited or negligible services rendered by the dis tributor, and excessive return of goods because of the inability of some distributors to dispose of the merchandise.
Generally speaking, selective distribution lends it self better to shopping goods, which carry a higher unit price, and which are not purchased as frequently as convenience goods. Goods which require service are often sold through selective distribution outlets. This is the case with some household appliances and office- type equipment.
Exclusive distribution refers to the practice of selecting and giving a distributor an exclusive territory. The manufacturer agrees to sell to no one else in that territory. This is called an exclusive selling agreement. The distributor in turn often (but not always) agrees not to handle or to deal in any competing product. This is called an exclusive dealing agreement.
Naturally, an exclusive distributorship limits the contacts with the buying public, and thus the total volume of possible sales. In return, however, the manufacturer gains by knowing that his products will be featured and, if the dealership has been chosen with care, the manufacturer acquires a degree of prestige because of having an exclusive dealer.
In turn, it is to the advantage of the exclusive distributor to push merchandise, because he is not only protected as far as competitors in the area are concerned, but also he is protected against any price cut ting. If price reductions are made, the manufacturer makes them, fully protecting the dealer's margins and profits as he does so. The exclusive dealer, buying with greater confidence, often places larger orders. His credit risk is minimized as is the manufacturer's.
There is some doubt about the legality of many exclusive distribution agreements. While still widely used in industry, there is growing agitation on the part of governmental agencies to examine and condemn such agreements on the grounds that they restrict trade.

Setting trade channel policy

We have seen that the manufacturer must consider the nature of the product, the characteristics of the market, the characteristics of the individual buyer, the buying habits of the buyer, and the competition he faces before he determines what he can or should do. The failure of some distributors to serve the consumer (for example, the appliance distributor who is not in a position to service major appliances in the buyer's home after purchase) has often led the manufacturer to go closer to the consumer in an effort to improve the total selling job.
Most manufacturers do not consider that the sale is made until the ultimate buyer gets full value and use out of the product. Some manufacturers have even established retail stores, feeling that many retailers lack marketing stability. A manufacturer must, therefore, constantly review his channel policies and make sure that they are not only adequate, but the best for his situation.
In setting his channel policy, the manufacturer will consider his total sales volume, the stability of sales in his line, the effect of the different channels on his gross margin and on his operating costs and profits. Much will depend on the degree of aggressiveness exhibited by different types of distributors, as well as the amount of sales effort the manufacturer considers necessary to sell his products effectively.
No marketing policy, and this includes channel selection policy, can be permanent or unchangeable. Many manufacturers have made the mistake of waiting too long before they change, only to find that competitors have outstripped them by taking advantage of the changed policy. On the other hand, of course, it is dangerous to make drastic changes without adequate information and reasonable expectation of improvement. The ultimate test must be the effectiveness and economy of serving the consumer.
Intensive distribution is the policy of a manufacturer who seeks to use as many outlets as possible, in as many places as possible. It is also called maximum expansion. Manufacturers who sell convenience goods usually try to get intensive distribution.
Convenience goods are those which consumers purchase frequently, on the spur of the moment for a small unit price. Cigarettes are a case in point. There are literally hundreds of thousands of outlets for cigarettes. The fantastic growth in the consumption of cigarettes has been due, in part, to their general availability. Tobacco manufacturers increased their advertising from $93 million to $210 million during the last decade in order to provide adequate advertising support to the ad¬ditional tens of thousands of outlets added during that period.

The four principal trade channels

Attempts have been made to establish exact points of difference between the usually recognized trade channels. Sometimes, they are designated as long or short channels, depending on the number of separate hands through which the goods pass between manufacturer and consumer. There are direct or indirect channels, depending on the degree to which the manufacturer himself controls and performs the functions which must be performed in the process of moving goods from point of production to point of consumption.
Perhaps the best method is the one that distinguishes between the type of middleman that takes part in the process. In this way, we can set out four distinct types of performers:
(a) Channel A. Distribution through an agency that stands between the manufacturer and the wholesaler. In this channel, we find the broker, the manufacturer's agent, the commission merchant, and the export merchant. Generally speaking, the manufacturer uses this channel when he cannot afford or does not wish to invest the necessary amount to develop a sales force of his own.
One example will make this clear. A manufacturer of high-pressure hose and brass couplings for the transportation industry found that he could operate a sales
branch with stock at a cost of 7.7 per cent of sales. The earnings and expenses of his salesmen cost him an addi¬tional 11 per cent of sales. Thus the cost of managing his branch and the cost of direct selling added up to 18.7 per cent of sales. A commission merchant agreed to distribute the same goods for 6.5 per cent, provided the manufacturer warehouse the stock and ship to the buyer against orders sent in.
By centralizing warehousing activities, the manu¬facturer was able to establish three shipping points, operated at an overhead cost of 6 per cent of sales. This, plus the 6.5 per cent commission to the agent, made a total cost of 12.5 per cent as against 18.7 per cent when he sold through his own branches and sales force. In this instance, the manufacturer gave up some of the advantages of control which he could exercise with his own branches, and saved the difference in cost.
(b) Channel B. Selling to wholesalers who sell to retailers. Selling to wholesalers is often referred to as the traditional channel. The term wholesaler stands for very specific functions of buying in large quantities, re¬ceiving and storing, selling in smaller quantities to a large number of retail buyers (this is sometimes re¬ferred to as breaking bulk), and doing all these things for his own account. Thus, the wholesaler is a merchant who buys goods from a manufacturer and sells to the retailer. He naturally tries to sell for more than he pays. The difference is called the margin, markup, or gross profit.

(c)    Channel C. Selling direct to retailers or dealers. When the manufacturer sells direct, he assumes the functions of the agent or broker, whose job it was to find wholesale buyers. He also assumes the functions of the wholesaler, whose job it was to buy in large quantities, and resell in smaller quantities. This naturally means greater inventory and a larger sales force for the manufacturer. It means operation and management of warehouses. It means more activity on the part of the manufacturer in arranging for, supervising, and controlling transportation to the retail destinations.
The development of supermarkets, of department stores, and of discount houses would have been almost impossible if it had not been for the ability of large retailers to buy direct from the manufacturer, and, in turn, for ability of the manufacturer to establish close merchandising and promotion relations with these large-scale retailers. Exclusive selling, discussed later in this chapter, would also be difficult in some instances without this direct relationship.
(d)    Channel D. Selling direct to consumers. Selling direct to consumers is more common in industrial marketing than in the marketing of consumer goods. Industrial chemicals, machinery installations, heavy equipment and made-to-order installations are generally sold on a direct manufacturer-to-user basis.
The federal government, which has become the largest buyer of machinery and equipment in the world, also buys direct from the manufacturer. Most goods manufactured for the government, particularly for the defense program, are made to order. By their very nature, these cannot be commercial products. Even commercial products, such as automobiles, jeeps, and supplies are usually purchased direct by government agencies.
Direct selling of commercial goods to the consumer, by house-to-house, mail order, or through vending machines still constitutes a very small part of total retail selling, about 3 per cent.

Factors determining the choice of channels

The selection of channels of distribution depends first and foremost on the requirements of the market: what the consumer wants, and how much is wanted. But the manufacturer entering a market must also determine what he himself wants; what share of the market he wishes to attain, how much he is willing or able to in¬vest in order to attain it, and how best he can reach the market in order to attain it, and how best he can reach the market in order to get his desired share of it. There is no over-all blueprint which can tell any seller what the best channels are for him. In each instance, the seller has to consider his own objectives, resources, and, of course, the channels which are available to him.
The individual manufacturer or seller making a choice of how he will get his goods most economically and efficiently into the hands of potential consumers has to consider several specific factors. The following six factors will always enter into his calculations:
(a)    The type, size and nature of customers demand. The market is naturally going to influence the channels selected.
(b)    The nature of the company's business. A manufacturer of fine writing paper in West Virginia has only certain channels open to him if he wants to sell paper for letterheads to a corporation in New York City. But the manufacturer of locomotives has only a handful of potential customers and he deals directly with them.
(c)    The type of product sold. Is it a consumer product or an industrial one? Is it a capital good (that is, a piece of major equipment capitalized over a period of years), or an industrial material, such as a heavy chemical? Is it bulk, like petroleum products, or individually packaged units, like cigarettes?
(d)    The price of the unit of sale. What does the unit sell for? Three-thousand dollars, like an automobile, or thirty cents like a package of cake mix?
(e)    The price, margins and markups necessary to induce distributors to handle the goods. The performers of the different services have to be compensated for their services. How much does the distributor need to make to induce him to handle the product?
The manufacturer of only one product or a limited line of products has a distribution problem entirely different from that of the multi-product manufacturer with an extensive line. For example, there is little similarity between the problem of a manufacturer of aluminum window sash and that of a manufacturer like General Foods which produces several hundred products.
The ability of the manufacturer to compete successfully will be based on his ability to gain the most economical form of distribution, and to develop continued profit. In general, we recognize two primary choices that a manufacturer has in his attempt to get his goods from factory to consumer: He may turn the selling job over to someone else, such as selling agents. These are independent business men who operate on a commission and whose principal function is to sell the entire output of a manufacturer or of a limited number of manufacturers. Such business men have unlimited territory, and generally unlimited authority to set price and terms. In effect, they operate as sales agents for manufacturers, generally for a commission ranging from 3 to 5 per cent of net sales.
He may choose to use one of the available trade channels, and thus participate to a greater or lesser extent in the distribution process. If he chooses to use a channel, he has a choice of four channels which have general identifiable characteristics setting each apart from the others.

The importance of choice of channels of distribution

The channel chosen, whether direct from factory to consumer or through functional and merchant middlemen, has a great deal to do with the destination reached by the goods, the cost at which they reach this destination, the utility, value and satisfaction derived by the consumer from the goods.
The choice of channels will also determine the type of coverage obtained by a seller, and the services provided to both seller and consumer in the process of transferring both the physical goods and the ownership of the goods from producer to consumer. In a mass- production economy, such as we have in our complex industrial society, goods must be moved from point of production to point of consumption. This involves people, services, equipment, expense, and the passage of time.
Without this service of getting goods from point of production to point of consumption, we could not have mass production. By its very name, mass production implies production in far greater quantities than can be consumed by the people living near a factory. The bigger the production, the larger the market must be. Markets-regional, national and world-wide-would be impossible without distribution; and distribution would be impossible without the channels which render the services and perform the necessary functions. To this extent, therefore, middlemen and channels of distribution might be said to be synonymous.
When the consumer performs any part of the necessary functions of movement and transfer, such as ordering by mail, or carrying purchases home, he himself is performing as a middleman. The same is true of a manufacturer who chooses to sell direct, through sales men who sell house-to-house. The independent performer might thus be eliminated, but not the performance or function.
Thus, the choice of channels will influence not only the extent of the market attained by the seller and the service rendered the consumer, but will influence employment, total earnings, volume of goods manufactured and sold, and volume of goods consumed. It will influence the standard of living and the well-being of the nation as a whole. For this reason, many marketing people believe that the proper choice of channels is one of the most important management decisions in marketing.

The meaning of distribution channels

The channels of distribution are the means employed by manufacturers and sellers to get their products to market and into the hands of users. Channels are management tools used to move goods from production to consumption; they are the means by which title to goods is transferred from seller to buyer.
In essence, therefore, channels are tools hired to do the job of getting goods from factory or place of production into the hands of the ultimate user. It is natural that the cost of hire should be paid by those who benefit from the service; in most instances, the ultimate consumer.
The entire function of getting goods into the hands of the consumer is often referred to as distribution. This function includes transportation in the broadest sense, as well as the middlemen who handle the goods and help to transfer title to the goods. Thus, it would be unwise and inaccurate to refer to channels of distribution as the middlemen engaged in moving goods from production to consumption unless we include transportation in our category of middlemen.
Channels of distribution help to move goods from one place to another; hence, they add place utility. They bring goods to the consumer when the consumer wants them; hence they add time utility. They bring the goods to the consumer in convenient shape, unit, size, style, and package; hence they add convenience value. They make it possible for the consumer to obtain goods at a price he is willing to pay, and under conditions which bring satisfaction and pride of ownership; hence, they add possession value.
Not all channels perform all these services with equal efficiency. Some cost more than others. Some render greater service to the consumer than others. Some add greater value to the goods in transit than others. Manufacturers and sellers are therefore constantly reviewing their channels of distribution with an eye to improving efficiency and reducing cost. There is consequently continual change going on at both the wholesale and retail level.
It is essential ior the student to distinguish between the service rendered by the various channels of distribution and the cost of distribution. Many persons have glibly advocated eliminating the middleman as the cure-all for rising costs of distribution. This is fallacious thinking because these critics confuse the function with the performer.
The function performed by the distribution channels must be performed if we are to get the goods from the furniture factory in Grand Rapids, Michigan, for example, to the housewife in Boston, Massachusetts. Someone must handle, ship, package, transport, warehouse, store, sell, retail and deliver the furniture before the consumer can use it. And, of course, unless the consumer can use it-that is, can get utility out of it-the particular item, whether furniture, gasoline or a head of lettuce, has little use to the consumer.
It is possible, of course, to eliminate a given individual, such as a wholesaler or a retailer middleman, and buy direct from the factory. But this means that the service of transfer, storage, handling, and transportation has to be performed either by the manufacturer or by the consumer himself.
The services or functions connected with the movement of goods from factory to home must be performed. The desired objective is to perform these services or functions at the lowest possible cost, with the greatest possible efficiency in order to serve the consumer best. This is not charity but common sense. If one manufacturer or seller does not seek to do this, a competitor will replace him. Even if a manufacturer should not want to serve the consumer to the best of his ability, he would be forced by competition to do so.

The merchandising characteristics of a good package

From the foregoing, it is evident that the package today is far more than mere protection of contents. In fact, the modern package has merchandising characteristics which give it unique powers in marketing. We can summarize these characteristics as follows:
The package serves as a distinct identification for the product.
The package makes it possible to give an entire product line "family identification."
The package is a means of communicating information and instructions to the housewife for correct use.
The package serves as a silent salesman in the retail store where self-service has largely displaced and supplanted the store clerk.
The package makes impulse buying easy, by serving as a reminder, at the point of sale, of pre-selling done through advertising.
The package lengthens the life of the contents.
It is now possible to consider some major over-all product policy decisions which confront the manufacturer in this age of increased competition.
What strategy shall we use to differentiate our product? We have seen that there are various devices by which we can make our product different. Management chooses that which is most appropriate under the circumstances.
Shall we change the physical characteristics of products by regions and sections, adapting them to changed market demands in various sections? Many manufacturers and marketing people feel that the market is a series of individual and different markets and that products should be slanted for these different regional markets.
To what extent can we make our products according to customer specifications? Theoretically, all products are custom-made. In reality, all marketing people know that most consumers do not consciously know what they want except in a general way. Further, consumer-want-s are neither fixed nor stationary. How far does a company go in compromising the ideal with the realities of the situation in a specific case?
Shall we engage in planned obsolescence? This means the adoption of such practices as the bringing out of annual models, the changing of style merchandise, changing the design of heavy appliances, short-lived models, arousing the consumer desire for the new. This policy involves decisions that virtually all managements face at one time or another.
The policy of planned obsolescence has given great impetus to research and development, and has been responsible for much progress in many lines. It has also helped to maintain a high level of employment in in¬dustries which otherwise might have become sated.
How extensive shall we make our product line? Shall we attempt to produce every make and model offered by competition, or shall we restrict ourselves to a
certain limited number of offerings? How many items can we afford to make? How many can we justify making on the basis of volume of profitable sales?To what extent shall we standardize our line? Simplification has many advantages: it makes for economies in production and in selling; it makes possible published standards or the use of recognized standards (government standards, trade association or group standards, etc.); it reduces the amount of promotion necessary to sell the products; it tends to stabilize prices and reduce uncertainty and risk.

Product packaging

Product packaging has assumed great importance in modern marketing. Packaging is not only an important means of protecting the content (its first and most important single purpose), but it is also a powerful means of pre-selling the consumer and of assisting in the in-store selection.
Packaging has not only become a multi-billion-dollar business-it is estimated that American manufacturers spend as much as eleven-billion dollars annually for packaging and package research-but it has become one of the best and most effective means of differentiating one product from another. In order to make one offering different from another, a product is branded, given a name of its own, and packaged in a distinctive manner.
The package that gives the consumer an advantage, gives greater satisfaction in some manner, is the one that has the advantage in the market. This may come from some sales gimmick, like a pouring spout, or a cellophane tape for easy opening. It may be the advantage of a new packaging material. The aerosol package and the plastic squeeze bottle are examples.
New packaging changes have become as numerous, and often as important, as new product changes. New types of treated paper are being developed as suitable substitutes for tin; new plastics are rapidly supplanting tin and steel plate, as well as glass, in some fields. New- use ideas are being developed daily, calling for different types of packages.
Because packaging made earlier and rapid headway in the food industry, and because self-service merchandising in supermarkets would have been impossible without packaging, the art of packaging has perhaps developed furthest by manufacturers supplying the supermarkets. This covers food and grocery products primarily; but it also includes drug, cosmetic and toiletry articles, generally designated as health and beauty aids.
The supermarkets needed packages that would be easy to handle, easy to store, easy to display, and that would carry sales appeal to the consumer who would spend an average of less than half an hour in the store, selecting from a wide variety of products. Supermarket packaging has developed certain merchandising characteristics, the furnishing of which has developed entirely new industries of package designing and package engineering.

Product style

Virtually all consumer goods, and many industrial goods, are now styled or readily adaptable to styling. In some lines, style and style changes become the most important single marketing or selling point. Everyone is familiar with the importance of style in women's clothing. But the importance of style in such items as automobiles, electrical appliances, home furnishings, furniture, house building, and almost every other field of consumer-goods merchandising cannot be overlooked.
Product styling is a distinct manner of design or mode of expression. The shape, or style, can often differentiate one product from another. The same article may be presented in various styles, such as the different styles of women's shoes. The most popular or generally accepted style becomes the fashion for the duration of its popularity.
Thus, a style can stay fashionable for a comparatively long time, or it may go out of fashion in a short time. Some years ago, the "sack" styling of women's dresses swept the country and died in a matter of months. On the other hand, the style for mink jackets has endured for many years. Sometimes style comes back, after having gone out of fashion for a time.
Style is dominant in the field of apparel, but it is also important in other fields. Whenever basic quality and engineering, such as in automobiles, are taken for granted, the choice between different offerings is often made by consumers on the basis of style. Since it is generally true that several manufacturers can easily reproduce or match each other's quality, the only way to differentiate one product from that of a competitor may be through changes in styling.
Most marketing people recognize that styles pass through what is called the style cycle. When first offered, even with heavy promotion, a new style is apt to encounter consumer resistance or, at least, consumer indifference.
Most products have a period of distinctiveness when the product is first offered in a particular style. This period is often marked by high price, exclusive or high-style merchandising, with a few of the more daring, style-conscious buyers indulging in it. If it catches on, however, such style passes quickly into the second stage, the "stage of imitation." More producers copy the style; more merchants offer it to the public; prices drop; and more consumers adopt it. The style becomes popular. It becomes the fashion.
If a style is very popular, it passes into the third stage of the style cycle, "mass imitation." In this third stage, mass producers flood the market; every outlet in the land sells the same style; and the original high-style outlets withdraw and start looking for a new style offering which may or may not become the fashion. The process is virtually continuous. Some styles are slow to become popular. Some become popular overnight. The duration of the style cycle is always a gamble. Timing is important. While fortunes have been made with new and creative styles, perhaps more fortunes have been lost by coming in too late or hanging on too long. It is very difficult in marketing to forecast, with any degree of accuracy, the life of a given style. The consumer is notoriously fickle, and in matters of style he is particularly unpredictable. Part of the cost of all new styling is risk.

Reasons for adding new products

The reasons for keeping a product line up to date. Here, we shall concern ourselves with the reasons for expanding a product line. The student who has read the reasons for keeping the product line up to date will recognize immediately the overlapping of some of the reasons given for adding new products. That is natural, since one of the principal methods of keeping a product line up to date is by adding new products. In spite of such duplication, the student of marketing should bear in mind that the purpose is different. In the one case, the purpose was to keep the line modern. In this case, it is to increase the size of the product line. Here are the principal reasons for increasing the size of the product line:
(a)    An important customer wants a special product, something unique that he can sell.
(b)    Sales are down and the company needs something to "pep them up."
(c)    A major product is seasonal and the company needs something to take up the slack.
(d)    A company wants to make a special appeal to a special market.
(e)    A line is too limited and the company needs
new or additional products in order to take advantage of carload or truckload shipments.
(f)    A company wants to be able to get distribution in stores where the owners do not want to handle a limited line.
(g)    A company wants to survive in a changing market. Most people want something new and a company must be prepared with new things, or lose its "consumer franchise."
(h)    A company has excess plant capacity and realizes that idle machinery pays no dividends.
(i)    A company wants to reduce its dependence on one or a limited number of products.
(]') A firm wishes to exploit the findings of engineering or technical research.
(k) A firm wishes to utilize the talents of some specialist on the staff.
(1) A firm wants to increase total company sales volume.
The pressure for expansion may come from anywhere. In consumer-goods companies, the pressure is often exerted by the customer. Management must always bear in mind that while it is relatively easy to expand a line, it is much more difficult to eliminate a product once it has been added. This is especially true when products have been added to meet the demand of important trade customers.
In marketing, brand policy goes far beyond the mere choosing of a correct name for a product. An exotic perfume may be called "My Sin," but unless that name is protected and identified with one product it may lose its distinctiveness and value. The purpose of a definite name or brand on a product is to make it different from any other and to make it easy for the consumer to specify.
Accordingly, the brand policy of a manufacturer will cover also such factors as the name itself, the trade mark (legal protection for that name), the trade slogan, and often the trade character, if any, used in connection with it (the Planter's Peanut Man, the White Rock Girl, or Morton Salt's little girl).

The role of electronic data processing

Many careful students of marketing see great possibilities in the rapid development of electronic data processing for a more scientific marketing. The use of electronic data processing equipment for such things as inventory control, billing, order filling, sales analysis and dealer auditing is no longer in the planning stages. It is already in practice in important segments of marketing in various areas of the country.
One of the deterrents as seen by some who have followed this development closely is the fact that, as with automation in the factory, automation in order processing, calculating and other data processing requires a large volume of operations and may have advanced too fast, too far. It still takes people to feed these machines and, with the almost incredible speed with which calculations can be made in the latest machines, an entire day's proceedings can be recorded in a matter of seconds. A whole year's operations might be, therefore, a matter of minutes or, at most, an hour or two on the data processing machines we already have. Their use, therefore, will be limited to large corporations whose vastly complicated transactions involve millions of calculations.
For other companies, such machinery might lie idle much of the time, thus making it uneconomical. Newer machines may have to be devised which are not as efficient as the current equipment in use, in order to slow down the scientific progress of automation in distribution and marketing.
But it is certain that the use of electronic data processing is destined to increase in marketing. Many operations now carried on manually will be done electrically, with greater speed and accuracy. Office procedures will be speed. Records, analyzes, and computations will be possible on a scale not now practical. To the extent that such data processing can be adapted to medium and small businesses, substantial reductions in the cost of operations will be possible.
The major marketing trends of the decade ahead are quite apparent. They call for substantial changes in marketing practices, thinking, and planning. Marketing experts predict that all business by the end of the next ten years will be customer-oriented as a matter of sheer survival. Marketing management will be engaged in long-range marketing programming in all types of businesses, large, medium and small.
Those who watch trends estimate that marketing faces four areas of extreme change in the next ten years:
(a)    New products will come from engineering and research and development laboratories at an ever-increasing rate.
(b)    There will be dramatic shifts in channels of distribution to meet equally dramatic shifts in population and consumer needs and wants.
(c)    There will be startling changes in competition, both domestic and foreign, which can have significant impact on wages, prices, and commodities.
(d)    Distribution costs will rise and profits will be squeezed unless marketing learns to automate much more than has heretofore seemed possible.
The next ten years, according to most experts, will be a decade of change. Time-tested marketing methods and programs will be severely challenged by rapidly growing innovation. The marketing of new and improved products will be based on greater knowledge of the market, better control of the activities involved, and tight control on costs.
The productivity and efficiency of our distribution system will require overhauling. And business thinking will have to accept the fact that there will be more people working at selling and servicing goods than at making them. Efficiency in selling and servicing will have to catch up with the efficiency at production if we are to have a continued forward march of the economy as a whole.

The meaning of product policies

A policy is a guide to action. It is a principle of operation adopted by management to guide those who carry out action. A policy sets the limits within which management determines to operate. Of necessity, therefore, policies are set by top management to guide subordinates in carrying out their respective tasks.
Product policies are company rules to guide those engaged in product planning, development, production, or marketing. A manufacturer's product policies will operate in five specific areas:
(a)    Product planning and development.
(b)    The product line.
(c)    Product identification.
(d)    Product style.
(e)    Product packaging.
Product planning and development were discussed in the last chapter. In this chapter, we shall discuss the product line, product identification, product style and product packaging. In the previous chapter, we saw that there is nothing more important than a company's product development program
The consumer obtains satisfaction from the use or ownership of a given product. He is interested only in the finished product. He evaluates the total satisfaction he obtains without analyzing the specific elements that make up that total satisfaction. Yet each element must be planned for, and in each area there must be guides for the performers to carry out their individual activities. While the consumer, therefore, sees only the total, and accepts or rejects the total finished product, management must make sure that each element contributes its full share toward that total consumer satisfaction. 2. The product line. The consumer today is offered, literally, tens of thousands of products from which to choose. In a modern supermarket, the housewife can find from 6,000 to 8,000 different items any day of the week.
Technology, as we have seen, has created new products and new industries. Some companies, on the basis of the products they offer, have had sales gains averaging 15 per cent or more per year in the past decade. Others-in antibiotics, for example-have experienced a rate of growth of more than 25 per cent per year. And from a fourth to a third of all the consumer products on the market today did not exist five years ago. In the face of such unprecedented development, no management can afford to be com A product line consists of the products offered by a single firm. There are some companies, known as single- product firms, which manufacture only one item, but the more common practice today is for a firm to have more than one product, or to be, in marketing terms, a multi-product firm. the cigarette field. Most consumers recognize the name of the brand, but not the name of the manufacturer behind that brand. The decision is a matter of company policy. Much depends on such things as how the company grew and the degree of consumer acceptance behind the product at the time it was acquired by the company.
Usually, when a small company is acquired by a larger one, and the small company has a good name and a good product with local or regional good will attached to it, the manufacturer does not destroy the good will by canceling the local name and giving it the name of the parent company or parent brand. But whether it does or not, is a matter of company policy.
A second major policy decision in connection with the product line concerns itself with the number of products in the line, how extensive the line should be, and how the new products shall be added: by mergers, by acquisition, by purchase from another producer, or by new development.
The pressure is constant to expand a product line, and it takes real courage and firm policies on the part of management to resist some of it. Such pressure comes mostly from the sales department, seeking to have the company develop or add products to counter the offerings of competition. Frequently, the pressure is for products which are not related to products already offered, or which cannot be profitably added to the line.
The very fact of offering more than one product to the consumer brings with it a host of policy decisions that management must face before it attempts to market successfully. Even single-product companies may offer their product in different sizes, styles, or colors. For example, the manufacturer of men's shoes may make only men's shoes, but he must offer several sizes, styles, colors, and often several different brands and prices. Each change calls for a management decision. These decisions cannot be made unless and until management has set down basic policies which will determine the kind of decision made.
The manufacturer of multiproducts has to decide whether or not he will market his line under one name, such as the twelve or fifteen different cars all branded "Ford," or the fifty-seven varieties of food all bearing the name "Heinz." Some companies prefer to market each product by its own name, as, for example, General Foods, which markets Minute Tapioca, Maxwell House Coffee, Post Cereals, and many other products, each under its own brand.

The role of the behavioral sciences in future marketing

While some exaggerated claims have been advanced as to the importance and contribution of the behavioral sciences-psychology, sociology, biology and anthropology-on scientific marketing, there is little doubt that these sciences will be called upon more often in the years to come to aid marketing to attain a more professional and scientific status. This will be especially true of the techniques used in these social sciences, including the techniques of depth interviewing.
These social sciences, which study man, his motivation, his actions, his thinking, and his reactions, can be a great help to marketing. But there is always the danger that too great reliance may be placed on such find¬ings to make generalizations which may or may not apply in the actual market.
Marketing research is moving steadily forward in the development of new techniques, many of which are borrowed from these social or behavioral sciences. But despite much talk, the use of motivational research in marketing is still quite restricted. There are many important marketing people who do not believe it is possible to establish accurately what motivates people to buy. They point to such well-known facts as the important changes between what people say they intend to buy and what they actually do buy. Intention to buy correlates only about 35 per cent with actual purchases.
Critics of motivational research also point to the repeated studies concerning so-called impulse buying which indicate that, in some commodities, unplanned or impulse buying runs to 50 per cent and higher. Is it possible to determine what motivated such purchases? Mass displays in the store, reminder advertising, a new package, prettier color combinations, the recommendation of a friend, sudden impulse at the point of purchase, and many other motivations are known to enter into the picture. If consumers themselves do not know what caused them to buy, is it possible through behavioral science studies to determine such causes?
Marketing in the future will, without doubt, borrow much from other sciences in its steady march towards the application of scientific management principles to the marketing function. It is perhaps too early to tell which of these social sciences will contribute the most -psychology, sociology, anthropology, or economics. But there is a growing realization that interdisciplinary activity will result in greatly improved marketing in the future.
Certainly no careful student of marketing can afford to disregard the possibilities of help from such al¬lied sciences. It is apparent that industrial and agricultural productivity is far ahead of consumption and demand-creating productivity. Marketing (demand creating and demand satisfying) must grow up to the level of production if we are to establish a balance between production and consumption. Without this balance, we are doomed to recurring ups and downs in the business cycle.
In a nation whose declared national policy is full employment, we must study carefully all the elements that make for employment (production, consumption, consumer demand, consumer needs, consumer action and reaction, purchasing habits, etc.) in addition to shifts in population and in purchasing power. Much of this is the result of psychological factors rather than economic. In marketing we must study these factors, understand them, and be prepared to interpret them correctly. To this extent, a greater borrowing from psychology is no doubt essential and inevitable.

Additional obstacles to scientific marketing

Probably the two most important problems or obstacles are connected with new product development and with development of the total marketing program.
In the area of new products, almost fantastic things may be anticipated from many sources. The company that is not prepared to meet this competition will soon find itself on the outside. Ultrasonic dishwashers, irradiated foods, picture frame television, vertically rising automobile-helicopters for family use, daily use of atomic power for ordinary home appliances, and many other new things are not only being planned but are actually being tested today. Bold experimentation and discovery are the order of the day. This will call for equally bold marketing and marketing tactics.
Failure to develop adequate strategies and programs is indeed one of the important obstacles to scientific marketing of tomorrow. By its very nature, planning means looking ahead. It means studying all available facts and choosing alternative courses. A coordinated market plan, therefore, starts with good research, sound interpretation of findings, and realistic programs to attain objectives. It calls for intelligent judgment, which is opinion-forming as a result of competent work done. Marketing men will have to exercise much more intelligent judgment in formulating their strategies to meet the future.
Management is faced on the one hand with an insistent demand to reduce the cost of distribution, and, on the other hand, with mounting costs in the performance of virtually every marketing function. For example, from 50 to 60 per cent of the total cost of marketing (which, as we have seen, is about 50 per cent of the total price the consumer pays) is represented by cost of transporting goods and people in marketing. There are many inefficiencies such as congestion in densely populated areas, delays, accidents, damage to goods in transit, etc. This area of cost alone calls for study and improvement if we are to meet the challenge of tomorrow's markets.

The problem of mounting cost

Other marketing costs are also growing at a faster rate than it is possible to increase prices. Advertising and promotion costs have increased. The trend towards substituting advertising for personal selling and for retail store-selling may well have to be reversed. The public pays for all such costs, and it is asking pointedly whether such costs are, in fact, justified.
Management must find a way of measuring more accurately what advertising and promotional expenditures actually accomplish. There is demand for study as to whether a reduction in price of goods might not accomplish as much, or even more.
Sales expenses, too, have mounted. Marketing has become a complicated activity, and the application of sales techniques in the field is a complicated and subtle activity today. Better accounting management has also resulted in more realistic cost allocations, and many specific costs are being charged to selling expenses that previously were absorbed in the mysterious overhead, miscellaneous, or general accounts. For more realistic cost accounting, we have to have the proper organization and the proper selection, training and supervision of the sales force.
Man¬agement anticipates the need of greatly expanded sales research and distribution auditing. The location and relocation of sales forces to follow shifts in population and markets, the significant changes in distribution channels, the disappearance of many products and the introduction of new ones, all will call for expanded research operations.
A vast new science of color and of styling is developing, adding greatly to consumer choice, but also to cost. There is need also for closer profit analysis, by markets, by products, by territories, and by channels of distribution.
Marketing management is likewise faced with the necessity of studying price and price reactions more deeply than has been done in the past. Consumer income and demand will be watched with special care to determine reaction to price both in theory and in practice in the market.
Much more will have to be known concerning geographic differences in demand. The regionalizing of magazine advertising is only a beginning in the direction of sectionalizing markets. Market segmentation will require greater attention to local differences than in the past. Some way must be developed of making mass production economies available on a mass- marketing basis to individual buyers in different sections of the country.
In the elimination of waste in distribution, attention will also have to be paid to methods, tactics and practices of the distributors, both wholesale and retail. A more realistic division of the distribution job may have to be made. Perhaps manufacturers' advertising and promotion will be limited to the job of promoting sales, while the advertising and promotion of wholesalers and retailers will be concentrated on the job of making sales.

Major problems envisaged by business in marketing

Most companies are agreed that the lack of trained marketing people is the greatest deterrent of all to the expansion of scientific marketing. Many more such people are needed. Where to find them and how to train them are taxing management skills to the utmost.
This is evidence of the fact that marketing men have never had a better opportunity. This is not to say that it will be easy for such men. The greatly increased demands of tomorrow call for men who are outstanding in their specialty, who demonstrate creative ability, who know how to apply this ability to the solution of practical problems, who are willing to learn other aspects of the company's business, and who learn how to manage other people. Leadership means the ability to select and motivate people. The major obstacle to scientific marketing is finding and training a sufficient number of qualified marketing performers.
Other problems, however, are also important. One recurring problem is that of more and better marketing research. We need more reliable information. We need better fact-finding techniques. The identification and appraisal of the markets of tomorrow pose a giant prob¬em to business. The population is growing. The purchasing power of people is growing. The composition of population is changing. New and potentially large mar¬kets are opening up overseas.
In 1945, there were only 51 nations in the United Nations. The number has now doubled. Most of the new nations had previously been colonies whose trade was controlled by European nations. Almost unlimited opportunities exist for development in these new markets. But first we must get the facts on these nations. At home, the problem of adequate market information is almost as critical. The changing markets in the United States and Canada will dictate many changes in our marketing habits. We need much more information on the factors that create demand, the types and amounts of advertising that stimulate consumption.
Marketing research is due for a tremendous growth. This will include not only the process of fact-finding as such, but also of interpretation and of application of these findings. Drawing sound conclusions from the findings of research will occupy our best brains in future years. And this will, as always, depend upon judgment and experience of executives.
One of the areas in which marketing research will be applied more extensively and more effectively will be in the area of product planning. The competition of new products, as we have seen, is not simply that of a product versus another product of similar nature, but cross-product competition (for example, a mink coat against a second car or a boat against a summer home). New products are also competing on the basis of new style, color, packaging, and convenience. Increasing attention will be given to products that give greater convenience and which enhance status. For this, we shall need more and better research in consumer behavior and consumer motivation.
We know that people change their ideas and their sense of values. Products will have to change accordingly to satisfy those changed needs and wants. Our methods of presenting those products to the public will also have to change.
There will be significant changes in personal selling, advertising, and promotion. Gearing promotional tactics and techniques to the new markets poses an ever growing problem to business and to scientific marketing. More and more, we have to think in terms of creating a company image as well as a product image. There is need for a greater welding of publicity and advertising, a greater coordination of the total promotional effort.
Further, the educational aspects of advertising and promotion, which already have had a profound impact on our mode of living and our social and economic behavior, are due for great changes in the immediate years ahead. Advertising and promotion have affected the foods we eat, the homes we live in, the clothing we wear, the way we travel, the care we take of our persons, and the standard of living we demand. Advertising has increased people's desires and wants, and has stimulated industry. But a great problem still remains: why people buy, what motivates people, why they choose one product over another. How to gear advertising and promotional effort towards these basic human motivations is one of the baffling problems marketing faces.
And finally, business faces the major problem of the changing distribution channels. Many manufacturers anticipate that they will have to reappraise their entire distribution system in terms of new markets, rising costs and new methods of physical handling of merchandise in factories, warehouses, and in retail outlets. Some mechanized innovations, already being tested, might well result in push-button buying in retail stores, with automated and mechanized machinery filling orders, and mechanized traveling belts delivering these orders to the shopper in the parking lot.
A greatly increased use of electronic data processing machinery would make possible the complete calculation of charges and billing of the customer at the point of receiving the goods, thus avoiding needless time spent at the check-out counter. The problem of slow, wasteful and inconvenient shopping is one that concerns business greatly.

How business is gearing for the anticipated change

Business is conscious of the fact that North American industry is capable of producing more than the market will absorb today. The emphasis of management must, therefore, be on finding new ways of stimulating demand and of creating greater markets. Of necessity, business starts its preparation in terms of management because business cannot run itself.
But where production management was more important between 1910 and 1955, marketing management is now receiving greater attention. It will assume even greater importance in the immediate years ahead. Thus, we find that in 1955 only 20 per cent of the top executives of the leading corporations in the United States had come up through marketing. By 1960, fully 40 per cent of all such top executives had come up through marketing.
Business is also anticipating the demands of market changes at the operating level-in sales, advertising, product planning, marketing research, physical handling, marketing administration and market planning. Most of these topics have already been studied separately. Certain areas offer greater challenge and greater opportunity than others. We shall look briefly into each of these as we consider the steps business is taking and plans to take in order to meet the challenge of tomorrow.
Business today no longer plans for next year, but for five, ten, fifteen, and twenty years hence. Many studies have been made of what the market will look like twenty years from now. This is translated into concrete terms of operating capital, plant and equipment, new products, new advertising programs, new sales effort, and above all, personnel requirements. There are five areas of marketing causing management the greatest concern today as it gears for the changes anticipated in the next decade.
Heading the list is the problem of personnel. A large number of trained marketing people will be needed. One typical, large corporation anticipates that it will need almost 100 per cent more trained marketing people five years from now-fifty per cent more to meet the greater demands of the increasing market and fifty per cent to take care of replacements due to resignations, promotions, transfers and other losses. This particular company has an extensive in-company training program. It supplements this with an active recruitment program.

The market of tomorrow

It took 250 years from the founding of the first English settlement for the population in the United States to reach 30,000,000 (1607 to 1857). It took only ten years (1950 to 1960) for the population in the United States to add the last 30,000,- 000. At least another 30,000,000 will be added by the end of the 1960s in the United States alone and several more millions in Canada. The total market in terms of people in North America may well exceed 250,000,000 by the early 1970's.
People with purchasing power create markets. The average family income at this particular stage in our history approximates $6,000 in the United States and Canada. Shortly, this is expected to rise to $7,300, and eventually more than $8,500. There will be close to 60,000,000 families in the United States alone. The total purchasing power of the people will, therefore, rise to almost incredible totals.
But changes in the number of dollars and in the number of people are not the only changes anticipated in tomorrow's markets. Indeed, the next ten years are expected to bring about more marketing changes than were witnessed in the entire first fifty years of the twentieth century.
In performing its function of supplying the needs of a changing market, marketing, of necessity, changed with the changing social, economic, and sociological needs of the nation. The change from city living to suburban living brought about great changes in housing, in mode of living, in transportation, in ideas of what constituted status, and, above all, in products built for consumer convenience and consumer comfort.
Many marketing observers feel that changes in the decade ahead will equal or surpass those of the previ¬ous decade. This will be especially felt in homes and home building, in products needed to meet the new sociological and psychological needs of the people, in transportation, entertainment, education and in personal care (including health, beauty, and grooming care). Marketing students see the need for a large number of new products to save time and to make living more convenient and pleasant.
Among the changes foreseen for the immediate future is a large-scale urban redevelopment. Some of the factors leading to the exodus from the city to the suburbs were the congestion, the near breakdown of transportation, the deterioration of housing, and the changing needs of schooling and education.
With giant urban redevelopment will come new markets for all types of things-household goods, school equipment, hospital and medical equipment, new forms of rapid transportation, new types of stores, new traffic facilities and new centers of distribution to avoid delays, congestion and waste. New channels of distribution will have to be developed, new marketing policies evolved, new tactics and programs established.