What determines price in the market

In classical economics, price was determined by supply and demand. This, however, assumed that there were many buyers and many sellers, that buyers were fully informed of the supply available and were free to come into the market or go out of it at will. It assumed what economists call a state of perfect competition. Actually, it is doubtful whether Such a state ever existed. Certainly, we do not have it today. Economists today refer to our economy as monopolistic competition, oligopoly, administered or controlled competition, and other terms, all of which indicate that we do not have a free market.
The business manager setting a price on his goods today has to consider consumer demand, competition, political consequences, legal aspects, and even ethical aspects of pricing. In addition, he must consider his own costs, the cost of the channels he uses to reach the market, and the various activities he has to perform in connection with the sale, such as advertising and promotion, personal selling, freight, handling costs, discounts and allowances, and the like.
Furthermore, the product itself, and what it will do for the buyer, has a great deal to do with the price at which it will sell. An automobile is a modern means of transportation; it will carry the buyer from one place to another. But there are automobiles which sell for $2,000 and others which sell for $20,000. Thus, there are many influences which determine a particular price. We shall study some of these influences separately. We should start with the influence of the consumer.
In customer-oriented marketing, the consumer influences price. The value of a given product to the consumer is a prime consideration. Every product has utility for the buyer. It gives the buyer service, satisfaction, pleasure, the total of which is the value to a particular buyer.
This value is subjective; that is, it is personal with each buyer. A grandfather clock may be just what an antique collector wants, but it may have no value for a person living in a modern ranch house, or in an auto trailer. The price quoted could be the same to both, but the value to one would be much higher than to the other.
Personal, economic, social and psychological elements enter into each purchase made by a consumer. In each of these areas, the manufacturer must match strategy with consumer need or desire. The prestige of the brand, of the product, consumer buying habits, buying motives, all will influence the transaction. And consumer acceptance will, to a marked degree, influence the price of the merchandise.
If the consumer does not consider the value of the merchandise worth the price, he will refuse to buy. Obviously, then, with the multiplicity of choices available to the consumer, the first influence, dictating to the manufacturer what he should do about pricing, is the consumer himself.

Definition of Price

Price is the exchange value of a good or service in terms of money. If there were no money, we could have exchange, but we would not have price. In some underdeveloped areas of the world, and in times of depressions, exchange is sometimes effected by exchanging one economic good for another. There is no uniformity of value when we exchange one commodity for another.
One of the chief characteristics of money is that it is a universally accepted medium of exchange, exchangeable for any commodity anywhere. Exchange in terms of goods (apples, and shoes, for example) would have to depend upon one party wanting apples and the other party wanting a pair of shoes. With money, the buyer can use a universally accepted medium of exchange for any other commodity or service desired. The exchange value is called price.
Price is an important element in meeting consumer needs. Price and pricing policies are among the most important problems that confront management. The value, and the utility of a product have to be set against the price of it. Price is always an important consideration to the buyer and to the seller. Price can often spell success or disaster.
Price has figured prominently in economics for hundreds of years, but it did not always have the importance it has today. For many centuries, exchange was limited. Most people of the world were busy staving off hunger, and cold. But as the wealth of the world increased, especially after the discovery of America which filled European treasuries with hard money (gold and silver), national and international exchange was greatly facilitated. A commonly accepted medium of exchange was essential. The importance of money grew. More and more people had money. And what they could do with it-in terms of the price they paid for what they wanted-became the very heart of exchange of a money economy.
But it was reserved for the twentieth century to liberate millions of families from the drudgery of making a living. Today, we have a large and growing consumer buying power. At this point in the latter portion of the twentieth century, the effective buying power of the people in the United States approaches $400 billion. In Canada it is nearing $30 billion. The annual rate of growth in consumer income in the 1950s was 6.6 per cent in the United States and 8.6 per cent in Canada. And consumers spend from 93 to 97 cents out of every dollar of income. It is very important, therefore, to determine the basis of price, which influences consumers to spend as much as they do.
But the purpose of putting a price on an item is not simply to effect its exchange. Price has to determine the value of the item to the consumer (the price at which it will sell on the market). It has to recover the maker's costs. And, ideally, it has to establish a fair value that will result in repeated exchanges

How to plan for marketing

The first step in planning for marketing is to determine certain market facts. How big is the total market for our kind of products? What share of this market do we now have? What unique or special factors work in our favor, such as unique features of our product, special advantages that the company may have?
This first step, establishing needed market facts, should be broken down in terms of customers, of goods available, of competition, and of the relative importance of these factors to the company. For example, in a customer-oriented firm it is likely that customers carry greater weight than would be the case in a company which still operated under the production philosophy. Raw materials and available supplies would be more important for the latter company.
Similarly, the relative position of the company determines the importance of competition: a company that dominates the field considers competition but not in the same light as a company that stands second or third, or tenth in the industry. In modern market plan¬ning, this step is called "making a market position au¬dit."
Having made this audit, and having established the true position of the firm in the market, we are ready for the second step, that of setting goals. For example, a company may determine that it wishes a 35 per cent in¬crease in sales and a 10 per cent improvement in profits five years hence. It may also determine that it wishes to improve its market share, especially in those areas where the company is doing below the national average.
A company may have 20 per cent of the total industry business nationally, but may do only 8 per cent in one area, and 39 per cent in another. Ideally, of course, each area should yield the same share of market. But this is seldom true in the actual practice. Competition, lack of company resources, lack of adequate manpower, lack of proper promotion, lack of proper channels of distribution, any or all of these may impede getting the company's rightful share in any one territory or region. Goals are set for each area so that we can determine what we have to do in each area to reach the goals.
The third step is to make a managerial inventory. No business runs itself. Without management (supervision and control), performance cannot be orderly or effective. How well is the present group of managers performing? How much more can present managers accomplish? What additional training is needed? What do we have to do to motivate sales and marketing managers to do their best? What additional managerial personnel do we need to reach marketing goals? What is the company policy with regard to promoting from within? Can we go outside for needed managerial personnel?
Having established requirements in terms of the personnel that will supervise the effort, we are ready for the next step: strategies and programs needed to reach the goals. There is always a choice of alternative methods. For example, suppose that a food company decides to introduce a line of gourmet foods. First of all, the officials of the company must consider such questions as the following: Shall they introduce these special foods through regular food stores? Shall they select food specialty stores? Shall they set up a group of stores of their own? How will each of these actions affect their regular business? Policy decisions must be made from among all the possible alternatives. Such decisions will influence the final results.
The executives' next step is to formulate the precise plan in terms of sequence of events. They will have to do several things over a period of time. They must plan what shall be done, when, and by whom. What duties and responsibilities will have to be delegated and to whom? What action will be needed, where, and when? What will be the cost of their actions? They must also plan how they will control and appraise the action in order to assure progress.
The actual program now has to be carried out. In doing this, the company's executives are again forced to make a series of decisions. How much of the proposed program will they install now? How much money and what resources will be allocated to this at present? How much will be marked for future use? What changes do they need in their organizational structure?
Finally, they have to establish some yardstick by which they can measure how close they are coming to attaining their goals. In this last step, they must control, watch, measure and improve. Obviously, this is a job of management. The top marketing executive has this re¬sponsibility, and he cannot delegate it.

Role and purpose of planning in marketing

Planning means looking into the future. It is looking ahead to where we want to go, what we want to do, and what obstacles we are likely to encounter. In this sense, planning is not new. In one way or another, most business men have planned since it first became necessary to exchange surplus goods.
In early days, planning was relatively simple and the risk involved was correspondingly small. As markets expanded and mass production grew, it became necessary to plan better in order to reduce the risk of the uncertainty.
We have seen that, in recent years, more people are at work selling and servicing things, than making them. One of the direct consequences of this change has been the need for better long-range planning, particularly sales planning. The greater the market, the greater the chance for a wrong guess. The greater the surplus production, the greater the need for more successful marketing.
We also saw that, with increased income and a wider distribution of income, the discretionary buying power of the public has increased. A greatly increased number of families are now able to buy more than the bare necessities. With an almost incredible multiplication of products available, the choice open to the consumer is multiplied many times.
The chances for failure of any one product, therefore, are great. The risk involved is great. Management cannot afford business by trial and error. The only way to minimize risk is to plan ahead.
But planning involves more than simply avoiding or minimizing the risk involved in business. Planning gives direction to the action of the company and its departments. It seeks to anticipate company and departmental requirements. In this sense, planning becomes a matter of matching means and ends. We have certain tools and means at our disposal, and we want to accomplish certain things. By planning, we provide the facilities for the future requirements as we anticipate they will be. We plan the plants, tools, supplies, and people we shall need for future periods in order to market the products we expect to sell during those periods. We provide a definite plan of activity to put plants, ma¬chines and people to work to accomplish our objectives.
The purpose of planning, therefore, becomes that of directing the over-all action of the company and of each department to achieve the most effective balance between what we put into the effort, and the results we get from this effort. In management theory, this is known as the "input-output theory." By analyzing each element of the effort (each input) we can determine how much we need to do to accomplish a given result. If we want to change this result (to get more out of it), we then know what we have to do (what we have to put in) to get that much more out.
It is obvious that planning calls for study and research. Planning calls for determining, as accurately as possible, the climate in which we shall be doing busi¬ness and how much business we can reasonably expect to be doing.
Since all company income comes from sales, it is very important that we anticipate sales income. If we make proper forecasts, the total anticipated sales can become our target. We then know what we need to reach the target—how many more machines, what kind and where, how many and what type of people, and how much money. We see, therefore, that the basis of planning is a good sales forecast.

Measuring the effectiveness of advertising

It is not only the money's worth received in service from the agency, but the money's worth received in terms of added sales that business men are concerned with. It is natural that business should ask, "How can we tell whether we are getting our money's worth?"
Gradually, an appraisal formula is beginning to emerge, which some marketing observers feel may contain considerable usefulness for business in its effort to determine how effective specific advertising campaigns are. But the marketing student must always remember that advertising is only one segment of the total selling effort. It will always be difficult to establish with accuracy that one advertisement or an advertising campaign was responsible for a determined amount of sales. At least, however, a more scientific measure is possible. Such an attempt would include six specific factors:
Establishing the specific purpose of the advertisement or the campaign. Generalities, such as getting more sales, will not do. Management must establish precisely what it proposes to accomplish with the specific message or series of messages. This then becomes the standard against which is measured the effectiveness of the advertising.
Determining the audience. As we have seen, the type of buyer or prospective buyer influences the choice of media. The appeal of any product is personal and individual. There is no such thing as mass appeal. All purchases, when made, are individual.
To be effective, therefore, advertising must be as personal as possible and must appeal to a specific audience. The student will note once again, the need for customer-orientation.
Evaluating the media. Evaluating the media is closely connected with the point we just made about determining the audience. What media do we choose to reach the specific audience we want to reach? Should we use the Saturday Evening Post to reach a group of engineers? Should we advertise a new instant dessert in a farm or business publication?
Evaluating the message. It is necessary to ask whether the message is proper for the medium selected. Is it the best message we can send to this chosen audience? Is the message convincing and believable? Is it clear? Is it the type of message that gets across best through the medium chosen?
Evaluating advertising as a factor of the total sales effort. Admittedly, the problem of evaluating advertising as a factor of the total sales effort is one of the most difficult of all assignments. What share of the total effort is due to advertising, to promotions, to personal sales effort, and to the reputation of the company? What part does a good package play? By study
and judgment, it is possible to establish the share of credit that should go to advertising in the total sales effort.
Having now evaluated all five parts, we evaluate the total. Did we establish clear objectives? Did we aim our message at the proper audience? Did we use the proper media to reach that audience? Did we use the most convincing message for that audience? Did we create the proper company and product image? How much of the total job did we assign to advertising, to personal sales, to other promotional efforts?
We still lack quantitative scales with which to meas¬ure several of these factors. But the increasing reliance of marketing management on research gives hope that we shall, through research, be able to establish an acceptable formula which can be used in measuring the effectiveness of advertising.

The role of the advertising agency

There is little room for argument concerning the chief responsibility of advertising agencies. It is to carry forceful, truthful and convincing selling messages to the buying public. There are some 3,300 agencies in the United States and Canada. Less than 50 of these bill as much as $25 million a year. The top 100 agencies in the United States account for as much as 35 per cent of all the advertising placed through agencies. The majority of advertising agencies are small or, at best, medium-size businesses, rendering a variety of services to their clients.
An advertising agency sells time and talent to the nation's advertisers. Until recent years, most of the income of the agency came from the 15 per cent commission paid by the media (newspapers, magazines, radio and television). The practice grew out of the original role played by agencies: buying advertising space  (mostly in newspapers and magazines) at wholesale price, and retailing it to the advertisers.
In many instances now, the advertising agency has become an intimate partner in the marketing effort of the advertiser. In effect, the agency works for the client rather than for the media. The original relationship as space seller for the media has given way to marketing and sales service to the client.
Naturally, the cost of services has been re-examined. In many cases, as the services grew, the amount received in commissions from the media proved insufficient. Many companies, in an effort to be fair to their agencies, have agreed to special charges for services such as marketing research, publicity counsel, counsel with the preparation of financial statements, and many other services required by modern marketing.
The question of what are proper charges for special services is one that has been given increasing attention by both advertisers and agencies. Some manufacturers have attempted to do their own advertising, claim¬ing agency commissions from the media. Others have agreed to varying scales of compensation to the agency for different types of services rendered.
Recently, a new arrangement was announced, one being watched with great interest by agencies and advertisers alike. The company puts the agency on a retainer, much as a lawyer or other counsel would be retained. The agency continues to receive the 15 per cent commission from media, and if the income from such commissions exceeds the retainer at the end of the year, the balance is credited to the company. If, on the other hand, the commissions received do not add up to the agreed-upon retainer fee, the balance is paid by the company. Thus, both agency and client may, in the future, be on a more realistic pay-as-you-use basis than they have been in the past.
A large proportion of the advertising agency's operating costs represents salaries. Services represent, to a marked extent, human skill and effort. Approximately half of the advertising agency's income goes for com¬pensation to employees of the agency. The balance is overhead and profit, if any. Profits have tended to shrink in recent years as agency services and costs have increased. A more realistic relationship between agency and client is therefore imperative.
On the other hand, it is difficult to establish when and whether the client gets his money's worth from an agency. Dealing largely with services, the agency deals with intangibles. While the agency has, like any other business firm, fixed expenses (overhead, rent, light, payroll, heat, supplies, and the like), the clients' appropriations, as we have seen, often fluctuate with sales, reduc¬ing total billing and, hence, agency income.
The agency's total income is directly related to the total spent by the client, and extra services rendered by the agency must come out of its own total income from commissions, or from extra charges agreed to by the client.

How the public looks upon advertising

Advertising has been criticized by consumers, by the government, and by business men. In recent years, many outspoken members of the advertising industry have suggested remedies. Codes for truthful advertising have been drawn up and approved in many circles. Some feel that these codes may be too little and too late.
Congressional investigations and regulations have intensified public interest. So has the appearance of certain books such as "The Hucksters" and "The Waste Makers." Terms such as "Madison Avenue," referring to advertising people and their techniques, are intended as terms of scorn. There seems to be little doubt that what is generally known as the corporate image of advertising needs bolstering.
On the other hand, the student is reminded that the abuses and excesses which exist are by no means universal. Most advertising agencies maintain scrupulous care, and adhere to stringent codes of ethics in their methods of operation and in their messages to the public. It is manifestly unfair to brand all advertising as exaggerated, misleading, or deceitful because of the relatively few instances in which carelessness or downright dishonesty has led to misleading, deceitful or untrue advertising.
In practice, advertising agencies handle only about 50 per cent of the total advertising money spent in the
United States and Canada. The balance of advertising expenditures is handled directly by the companies that do the advertising. While undoubtedly the techniques and practices of advertising agencies influence advertisers who do their own advertising, "Madison Avenue" can certainly not be considered responsible for local advertising practices.
A large proportion of all local newspaper advertising, as well as a very large share of direct-mail material (catalogs, brochures, price lists, booklets) and much of spot radio and spot television advertising, is handled directly by advertisers.
A recent survey undertaken by one of the country's leading business publications indicated that most company presidents expected to spend more on advertising in the years ahead, reflecting faith on the part of the leaders of American industry in advertising. However, these company presidents also indicated concern with the weaknesses shown by advertising, its ethics, its waste, and most of all, with the inability of business to measure directly the effectiveness of advertising. Most business men are demanding a quantitative measure of their money's worth in advertising. So far, no such measure has been discovered, although much effort has been expended on this.
It is undoubtedly true that a large proportion of the general public has a distorted view of both the power and ethics of advertising. Many people have no idea of the contributions that advertising has made to the economy, especially toward raising the standard of living in the Western World.
Several of the most important national associations, such as the American Association of Advertising Agencies, the Association of National Advertisers, the Advertising Federation of America, the Advertising Research Foundation, as well as the Better Business Bureau and many private firms, have intensified their efforts to clarify the contributions of advertising. It is confidently expected that the image of advertising will improve as a result of these efforts.

What are advertising expenses?

One of the chief difficulties in applying scientific methods to the determination of advertising budgets and to the measurement of advertising effectiveness is the absence of any general agreement as to what is or is not a legitimate charge to advertising. Carefully prepared lists have been set up of those expenditures which are clearly advertising, those which are borderline, and those which should not be charged to advertising. But very few companies have accepted these lists, except in prin¬ciple.
For example, one large food company, with sales in excess of $100 million annually, charges samples, free goods, and showroom displays to sales promotion. One of this company's principal competitors, on the other hand, not only charges such items to advertising, but also charges the cost of publicity, of customer entertainment, and of participation in trade meetings and in conventions to advertising. All these, of course, are in addition to newspaper, magazine, radio, television and other measured media advertising.
A manufacturer of machine tools and equipment charges all printed matter to advertising, including catalogs, leaflets, and direct-mail material sent to dealers and customers. Their largest competitor does no advertising. The competitor restricts its promotional efforts to trade-show participation and limited amounts of printed matter. This latter is charged to administrative overhead, while the participation in trade shows is charged to entertainment.
Failure to determine what is advertising, and charging to advertising expenses not otherwise classified, are two common failings in the management of the advertising budget. This complicates the problem of determining the returns from advertising.
In spite of these shortcomings, business managers have a fairly One of the chief difficulties in applying scientific methods to the determination of advertising budgets and to the measurement of advertising effectiveness is the absence of any general agreement as to what is or is not a legitimate charge to advertising. Carefully prepared lists have been set up of those expenditures which are clearly advertising, those which are borderline, and those which should not be charged to advertising. But very few companies have accepted these lists, except in principle.
For example, one large food company, with sales in excess of $100 million annually, charges samples, free goods, and showroom displays to sales promotion. One of this company's principal competitors, on the other hand, not only charges such items to advertising, but also charges the cost of publicity, of customer entertainment, and of participation in trade meetings and in conventions to advertising. All these, of course, are in addition to newspaper, magazine, radio, television and other measured media advertising.
A manufacturer of machine tools and equipment charges all printed matter to advertising, including catalogs, leaflets, and direct-mail material sent to dealers and customers. Their largest competitor does no advertising. The competitor restricts its promotional efforts to trade-show participation and limited amounts of printed matter. This latter is charged to administrative overhead, while the participation in trade shows is charged to entertainment.
Failure to determine what is advertising, and charging to advertising expenses not otherwise classified, are two common failings in the management of the advertising budget. This complicates the problem of determining the returns from advertising.
advertising dollars among measurable media, we can obtain a picture of how different types of industries use one or another medium.
The type of product handled has a great deal to do with the type of medium used to tell the story to the consumer. Thus, we find that "the big three" in automobiles-General Motors, Ford and Chrysler-spend be¬tween 30 and 37 per cent in newspapers, between 20 and 25 per cent in magazines, between 18 and 20 per cent on television network and another 3 to 5 per cent on television spots.
On the other hand, "the big three" in the soap and detergent business-Procter & Gamble, Lever Brothers and Colgate-Palmolive-spend less than 10 per cent in newspapers, from 6 to 15 per cent in magazines, from 45 to 54 per cent on television network advertising and another 25 to 44 per cent on television spots.
The marketing student will note that all six companies cited in the foregoing are predominantly consumer-goods manufacturers. Their advertising budgets currently range from $50 million to $110 million and are much larger than the advertising budgets of typical industrial-goods manufacturers.
Such an industrial giant as United States Steel, for example, spends less than one-tenth as much for advertising as is spent by General Motors or Procter & Gam¬ble, and only one-fifth as much as is spent by Colgate- Palmolive or Chrysler.

The advertising budget

Advertising expenditures in the United States are now running at a rate of over $18 billion a year. With such a vast sum being spent, it would seem natural to expect that business would use a scientific method for appropriating this money. In some cases it does. But for the most part, the usual practice is for a business firm to allocate a certain percentage of its sales to advertising. Then, if sales go down, the advertising budget is automatically cut.
When sales go up again, the budget for advertising is once more increased. This practice has been criticized, not only as unscientific, but actually as defeating its own purpose. When sales are down is when more total sales effort is needed, not less.
With the greater acceptance of the marketing concept, including the partnership of sales and advertising, management has now begun to re-examine its total marketing policy. This is leading to policy changes in the setting of the advertising budget.
One improved approach to setting the advertising budget is to work on the premise that advertising is an investment. Since most advertising is cumulative and there is a time lag between the appearance of the advertisement and the total impact upon the consumer, it is extremely difficult to establish the proper credit for such impact.
This approach to advertising recognizes that advertising often is intended to lay the groundwork or create the proper atmosphere for the sale. As such, advertising expenditures are viewed as a long-term investment, and the total amounts spent are amortized over a period of years, much as machinery and equipment are amortized. Sales increases are then measured as a return on this investment. So far, however, it is impossible to determine what share of the total sales increase is attributable to advertising, and what are the other elements of the total sale.
Another, more scientific approach to setting the
advertising budget, is the so-called task method. Under this method, the company sets an objective. It then determines, as closely as it can, how much it will cost to attain that objective. It allocates a given amount to personal selling, a proportion to sales promotion, and the balance to advertising.
This method is called scientific because it sets a precise objective or goal, isolates the task or tasks, and then allocates the necessary money to reach the objective.
Many companies are moving towards this latter method of setting the advertising budget. The task of doing this has become easier with the general spread of the philosophy of the marketing concept, involving as it does the application of scientific methods of management to the marketing functions. One of the precepts of scientific management is, as we know, the setting of definite objectives. Since, of necessity, each company will set its own goals, we can say that every advertising budget, however determined, is tailor- made for the company.

Advertising and Promotion

Advertising is a presentation of ideas, goods or services paid for by an identified or identifiable sponsor. Advertising is non personal, mass communication and, as such, has become a potent means of mass education and mass selling. Advertising complements the efforts of personal selling and, in recent years, has been assigned a growing share of the total selling effort. In contrast to product or service publicity, advertising is paid for by the advertiser, and the name of the sponsor appears in connection with the advertisement.
Advertising may use any of several media, such as newspapers, magazines, billboards, catalogs, booklets, car cards, store signs, radio, television, novelties, calendars, blotters, matchboxes, and sky-writing. The selection of media has become a carefully researched activity and some of the best marketing research is done in connection with media studies.
Despite much criticism directed at advertising, induced in a measure by certain advertising excesses and abuses, business is assigning a constantly growing share of the total selling effort to advertising. This has been especially noticeable in recent years in industrial marketing, where the cost of personal calls has soared to $25 or more per call. In contrast, first contact can be made by proper advertising for very much less.
With the growth of the buying committee, where from four to eight people may be involved in a single purchase, advertising is being called upon more and more to open doors and to create interest.
The tasks assigned to advertising have grown in importance and in range. Today, advertising not only broadcasts original information on products or services, but it widens markets by such devices as revealing new uses and attracting leads.
In consumer goods, advertising is given an ever- widening task in creating consumer interest and loyalty, and in selling the company behind the product. This last task-that of creating and enhancing the company image-has assumed special importance in the last few years. Many marketing people believe that customer faith in a company is as important as any other single element in customer loyalty and "repeat" business.
With the increased emphasis on customer-oriented, integrated marketing, advertising has assumed a different and, in some respects, more important role in the total sales effort. Advertising was once considered a rival and a competitor of the sales department. Advertising and sales now work together as partners. Advertising often assists sales in the specific tasks assigned to sales. The total selling job may be broken down into six parts: (1) making preliminary contact, (2) arousing interest, (3) creating preference (for specific brand or product), (4) solving a customer buying problem, (5) getting the order and (6) keeping the customer sold.
Analysis will show that major responsibility for one or the other of these parts may be assigned to either advertising or sales. Both can and do work together towards the same goal. They are, in every respect, partners in accomplishing the total job.
In consumer-goods marketing, pre-selling has become a definite and important part of the total selling effort. This task is assigned almost exclusively to advertising. But personal selling is relied upon to keep the customer sold. With the growing recognition of the imperative need for demand creating, in view of the enormous productive capacity of American and Canadian industrial plants, management recognizes the necessity of wedding the arts of selling and advertising.

How business organizes for scientific product planning

Companies often take different approaches to the problem of product development. The reason for this is quite simple: formal product development is a new activity in most businesses. For this reason, the type of organization for this activity is undergoing constant and often drastic change, as individual firms seek the "one best way" for them.
Before the adoption of the marketing concept (i.e., market-oriented thinking), product-planning was largely a function of engineering, and, in the typical organization, engineering was part of the general manufacturing department. With the widespread adoption of the newer marketing concept, product-planning has been generally moved into the marketing department.
In the typical customer-oriented organization, product planning and development are part of marketing services, along with marketing research, advertising and promotion, and other services grouped together in the modern marketing organization. This is logical in view of the fact that modern marketing starts with the customer, and all company decisions are made in the light of the customer's need and of the requirements of the market.

In many companies, particularly the larger ones, the most recent development is the product division. Not all companies call them divisions, but most of them use the same approach: from one to ten products are grouped together in a product division, with a general manager (often a vice president) responsible for production and marketing.
In essence, divisions are small, semi-independent companies within the corporation. Since they have responsibility for results, they have full authority for production and marketing. Product planning and development is placed in the product division. This makes a simpler and more straightforward organization. It permits the division, which is responsible for research, manufacturing and selling, to design the products.
If there are several divisions-the General Electric Co. has 110 divisions, while some important industrial chemical companies have ten divisions, and others only four-it may be necessary to provide for a coordinating committee to avoid duplication. Since many products have more than one use or application, several divisions may often be working on the same product. To avoid duplication and its attendant complications, some companies provide a corporate-level (top corporate management) coordinating committee.

What is product planning?

The evolution of scientific product planning in business, designed to reduce the risk of failure and to avoid the enormous waste that failures cause, has led to the formalizing of the various activities involved in product planning. In general, we can summarize the function of product planning in the following ten points:
(a)    Evaluation of the idea. Does the product belong in our line? Is the time right for it now? Does this seem like a good idea for us to make this item?
(b)    Evaluation of the potential market. Does the consumer want or need this product? Is the market big enough to warrant our investing the necessary time, manpower, and money to make it? What influences consumer buying of this type of product?
(c)    Evaluating the product. Is this new idea sufficiently different and superior to existing products (competitive products) to warrant investment? Will this new product give the consumer substantially more for his money?
(d)    Evaluating company resources. Is our company set up to make this new product? What additional equipment or manpower will we need to make and market it? Can we make and sell it economically against the price the consumer is willing to pay? How long will it take our company with its present or potential resources to recoup investment and start making a profit from its operations? Approximately where is the break-even point?
(e)    Preparing customer specifications. If preliminary evaluation is favorable, just what is it that the consumer would like in a product of this kind? What would the consumer not like? What assurance do we have that a product meeting those specifications will find a ready market? What should our new product be like? What should it do to meet customer specifications?
(f)    Developing the product. Armed with this information, which marketing research has developed for us, we can turn to the engineering or laboratory department for the development of a product which meets those specifications as nearly as possible.
(g)    Pre-testing the product. The sample or model product, as designed and developed by engineering, has to be tested in the market against competition. If there is nothing like it on the market now, it must be tested against consumer apathy or resistance. Generally, at this stage, some modifications are indicated as consumer
 tastes change, or as our model fails to meet customer specifications.
(h)    Producing the product. Once we have tested the model, and have confirmed customer desire to buy, we can return it to engineering for last- minute modifications and then turn it over to manufacturing for production for the market. Careful timetables will have been made, allowing the sales, advertising and promotion departments to prepare their programs for proper market coverage and market introduction.
(i)    Marketing the product. If all necessary planning and programming have been accomplished, marketing the product should begin as soon as production has turned out enough units to meet the initial plan. It is important that dealers and distributors, as well as the company's own sales force, shall have full knowledge beforehand.

Interpreting the data

Important as sources of information and methods of gathering data are, of even greater importance is the interpretation of the data. It is at this level that many research reports fail. The best fact-finding study can be rendered completely useless by faulty or improper interpretation of facts. Technical competence, broad understanding, and intimate knowledge of the problem at hand are prerequisites.
The final step in marketing research is summarizing the results of the research and making a report. The findings and recommendations of the researcher must be in such a form that whoever receives them can understand them clearly enough to use them effectively.
In general, we recognize four types of reports: (1) the executive report, (2) the technical report, (3) the data report and (4) the popular or persuasive report.
In most cases, where the report has been prepared for a business executive, it will be in the form of an executive report. This will have a title (all good reports have a specific title to identify them), a summary of the findings, recommendations if the researcher has been asked to make them, followed by a detail of the findings themselves, a statement as to how the study was made (called methodology), and any additional proof in the form of tables and charts that might help the reader to better visualize the contents of the report. The aim is to give the busy executive a quick, factual report on which he can base business decisions.
The greatest aid in such report-making, aside from making the study itself and the use of trustworthy data, is the ability to express oneself simply, forcibly, and clearly. Many beginners make the mistake of believing that the use of strange or erudite words stamps them as learned. The reverse may very well be the case. Writing, like any other form of communication, gains from simplicity, from the use of positive-action words rather than outmoded cliches, complicated terms, or other archaic forms of speech used by many people when they attempt to impress rather than to inform.
The experienced researcher presents his findings and recommendations in simple, forceful language everyone can understand. He knows that an expression or word which sends the reader to the dictionary might be an additional block to the acceptance of the report. And since the ultimate aim of all marketing research is action to improve a given situation, acceptance of the findings and recommendations becomes the objective of such studies.

The marketing sample

The sample, as we have seen, is a small group taken from the total group (the universe). This total can be a city, a state, a nation, the whole world, or it can be a relatively small universe, such as the total number of students enrolled in a high school for the current academic year.
A good marketing sample has the following four main qualifications which must be met if the researcher is to use his findings to project them to the total universe.
(a) It must be random. By "random," we mean that everybody in the group has an equal chance of being chosen as a respondent such as, for example, every tenth student in the high school as they come out after school. (But note that it would not be random if we took every tenth student who comes out for football practice, since many students do not come out for football, and naturally all girls would be excluded. )
(b)    It must be representative. By "representative" we mean that the sample must include all important kinds of units in the total universe. For example, we must include representatives from each of the three junior high and three senior high grades. We must include both boys and girls, of all ages, and of all economic groups.
(c)    It must be proportional. "Being proportional" means the sample contains the various segments enumerated under representativeness in approximately the same proportions as exist in the total universe. In a typical city high school, for example, we might find sixty per cent white, forty per cent non-white. Our sample would have to reflect those proportions. Further, we might find 85 per cent native and 15 per cent foreign. These proportions would also have to be reflected in our sample.
It must be adequate. Since we are selecting a given number out of a total universe, we must be careful to choose an adequate number so that we can say with assurance that the results of the findings from the small group represent the total universe. Naturally, the larger the sample, the more nearly correct such a full representation will be. But in all sampling work, it is found that, after a rather limited number, there is a tendency to level out. In many studies, such a leveling out or repetition tends to show itself after even 100 or 200 replies.
Suppose, for example, we were to ask 1,783 students how many of them would like to see rugby substituted for football in their school. We could ask the entire 1,783 students (the entire universe) or we could make up a representative random sample of say 250 students. After the first 100, there would tend to be a repetitive pattern, and later additions would simply confirm this. One such study in an eastern high school showed the following:
First 100 83 no, 15 yes, 2 don't know Next 100 81 no, 14 yes, 5 don't know Third 100 82 no, 15 yes, 3 don't know
It was safe to conclude that four out of every five students in the school did not favor the substitution of rugby for American-style football.
The danger in all sampling is bias. Bias often results from lack of information, lack of understanding, lack of proportionality of responses (even when the sample was set up properly), mistake in interpretation due to limited experience or limited technical knowledge on the part of the researcher. Bias can result from any shortcomings of the sample, of the interviewer, of the respondents, and most especially, of the interpreter. Distortion can easily lead to greatly distorted conclusions.

Evaluating research data

Locating information is only part of the job. The careful researcher wants to make sure that the data is trustworthy. He will want to ask such questions as: Who made this study? Under what conditions was the study made? Has the sampling been done correctly? Were the interpretations made by a properly qualified person? What procedures were used?
The careful researcher does not accept facts blindly. If he is not sure of the organization behind the report, he will check with other reports. The reader is reminded of but at least partially correct statement that "Figures don't lie, but liars figure." But it is not necessary to resort to distortion of the truth. From the same set of facts, different interpreters will draw different conclusions, depending upon their individual points of view, their interests, and their individual biases.
A survey is a technique for gathering information not readily available. It is the technique that obtains information from a sample of respondents. The sample is supposed to represent a larger group of people, sometimes all the people.
It is clear that very few organizations would be in a position to take a complete census. For example, in gathering information as to buying intentions for the coming year, it would be impossible to question all the 52,000,000 families and non-related individuals vPho maintain homes. What is done is to select 1,000 or perhaps 2,500 representative units and, on the basis of their answers, "blow up" the answers to represent the total (universe).
The survey, which gathers information by asking questions, was, until quite recently, the most widely used method of market research. Recent techniques have been developed which may eventually supersede the survey but, because it has been the most important, a reference to it is in order.
In making a survey, once we have determined exactly what information we are seeking, we proceed to select our proper approach. That is, we decide whether we will obtain the information through a mail questionnaire, by asking questions face to face, or by telephone. We decide on the questions we will ask, the type of people (respondents), their location, and the number that will constitute our sample.
Depending on the kind of information desired, there are at least six major types of surveys, as follows:
The factual survey. As the name implies, the factual survey seeks the facts. Do you own a Cadillac? How many children do you have? Do you own your own home?
The awareness of information survey. The awareness of information survey determines how many people are aware of something. Do you know what the law requires as standard equipment in automobiles? Do you know how many stars a full General of the United States Army has on his uniform?
The opinion survey. The opinion survey seeks to ferret out opinions. What do you think is the most important issue in the next presidential campaign? What do you think is the best way to handle juvenile delinquency?
The attitude survey. The attitude survey seeks to determine attitudes. Which kind of toilet soap do you prefer? What country has the greatest friendship towards the United States? Do you think the Canadian Mounted Police are the best police force in the world?
Future intentions survey. The future intentions survey seeks to discover future intentions. Are you planning on buying a new car this year? Will your next car be a compact, a regulation size, or a foreign car?
The reason why survey. The reason why survey seeks to determine why a person has done something, or thinks a certain way, or intends to do something in the future. Why do you intend to vote Republican (or Democratic) in this year's elections? Why do you prefer a gas heater or dryer?
One survey may combine several types, since it may seek several kinds of information. For example, in an election year, we might want to determine how many people voted Republican in the last election (factual); how many intend to vote the same way in the current election (future intention) and why (reason why survey). We might also attempt to find out, in the same survey, what people thought was the most important single issue before the voters (opinion survey) and to ask whether the nomination of a certain individual as Secretary of State before the elections would sway their vote one way or the other (attitude survey). The skilled researcher can incorporate several types and techniques and obtain much valuable information.

The most important fields of study in marketing

Several nation-wide studies have been made in an attempt to establish the specific types of market research studies that business men consider most important. From these studies, it is possible to make a composite table of the types of studies found useful in business today. The twenty most important of these are as follows:
(a)    The competitive position of a company's products (share of market).
(b)    The total size of the market (for an entire industry).
(c)    Estimated demand for new products (size of new market).
(d)    Forecasts of future sales possibilities.
(e)    The specific characteristics of a market, by regions.
(f)    Potentials of sales territories.
(g)    Trends in current products and product-lines.
(h)    Acceptance of new products in market (new product testing).
(i)    Establishing or revising sales territories.
(j) Study of competition in its various aspects.
(k) Measuring variations in territorial yields.
(l) The effectiveness of advertising.
(m) Analyzing salesmen's activities and effectiveness.
(n) The economic factors that affect the sale of a product.
(o) Price studies
(p) Evaluating present sales methods and policies, (q) Determining source of customer dissatisfaction.
(r) Determining relative market profitability, (s) The simplification of a product-line, (t) Studies on the cost of distribution.
Research work calls for a high degree of competence and training. To be fully effective, the marketing researcher must also be thoroughly familiar with the organization and its problems. In the discussion of methods and techniques that follows, such familiarity with the individual firm's activities and problems is assumed.
There are six principal steps which should be taken by a market researcher. A discussion of these steps follows.
The first step a market researcher must take is to define the problem. This is not as simple as it sounds. It is one of the most difficult and probably the most important step in making a marketing research study. The precise definition of the problem sets the stage for techniques to be used, extent of information necessary, and the meaning of the findings.
No researcher can proceed with confidence until he knows precisely what he is trying to find out. Within this framework of exactly what we need to find out, he can determine subsequent steps. It is important to bear in mind that a general statement of the problem is not enough. In one case, for example, the problem was defined as the declining sales curve. Obviously, such a statement of problem is totally inadequate. We must isolate and identify the marketing elements of the problem such as the industry, the company, the products offered, what competition offers, and the size, location and needs of the market. Once the over-all problem has been stated, we proceed to refine and subdivide it into its logical segments. We then confine ourselves to those points or subdivisions of the problem that we need to cover and on which we need to develop facts. 11. Planning the procedure for fact gathering. Knowing the specific areas in which we need information, the second step is to develop the best procedure for getting the information. In technical language, this would be known as planning the research techniques. We know or we establish how many facts and what kinds of facts are readily available to us now; what printed or other available information can be gathered by simply collecting it. From this, we determine what has to be gathered first-hand. In marketing research, we would refer to this last as primary data.

Most important fields of marketing research

Business today is using marketing research in a variety of ways. These can be grouped into four major categories: (1) product and service research, (2) market research, (3) sales research, and (4) advertising research.
The intensive competition of the postwar world led many companies to intensify their product research in order to develop new products. Product planning will be treated in detail in another chapter. Here we take note of the great increase in the marketing research activities connected with new product development.
More and more companies are discovering the need for accurate and reliable information for the development and successful commercialization of new products. Product and service research includes the study of the acceptability of new products, consumer reactions to present products and packages, the study of competitors' lines, and product testing. About 45 per cent of all companies doing organized marketing research use marketing research facilities for product information and testing.
Market research was the original type of research done, but this has become greatly intensified and augmented as more marketing executives have learned to rely on market facts for decision-making. Finding facts about the market-size, location, preferences-is the traditional kind of marketing research with which most students of marketing are familiar. But we go beyond that now, and establish also the characteristics of the market, market changes, and the share of the market and what a company can do to increase its share. Some 85 per cent of all companies that do organized marketing research engage in studies of this kind.
Most companies have studied sales figures for a long time. An organized discipline of sales research, however, is relatively new, though growing in importance. This area includes studies to determine sales territories, allocation of manpower, compensation of salesmen, development of equitable quotas, and the use of premiums and other sales stimulants. This area of research also delves into test markets, customer audits (breakdown of customers by size, lines carried, relative profitability, and types of customers) and channels of distribution. Between 75 and 95 per cent of business firms doing organized marketing research engage in sales research in one form or another.
Traditionally, advertising research was restricted to media analysis, copy research, and projective techniques. Projective techniques will be discussed later in this chapter. But the great publicity that advertising has received in recent years, and the waves of public and private criticism that have swept over advertising in all its forms, have focused manage merit attention on the need for finding out more about advertising as a social and economic force.

What is marketing research?

Practically every important management decision involves some prediction of the future. Without adequate information on which to base such decisions, management must, of necessity, fall back on hunches. Those fortunate enough to have had experience with the same sort of thing in the past can also fall back on such experience.
The emphasis placed on marketing research in recent years indicates that practical business men have found marketing research of practical value. In fact, they spend between $250 million and $300 million annually on it.
Marketing research is the practice of gathering and interpreting facts pertaining to any phase of the marketing activity. Facts are needed for better decision-making, for better planning, and for better programming.
The importance of marketing research in modern marketing. Marketing research is destined to make its chief contribution by narrowing down the area of uncertainty and by reducing the risk attached to the introduction of new products, to planning of long-range programs, and to economic and sales forecasting. Research is not merely a matter of finding out facts. To be useful in business decision-making, research must also include sound interpretation of these facts. Business decisions always involve the future. The oft- quoted statement that most of us possess 20-20 hindsight applies to business decisions as well as to personal ones. It is fairly easy to determine what we should have done in a situation which has passed. What we need to do is to gather and correctly interpret information that will help us anticipate what we will need to do in situations about to develop. Thus, marketing research is of value because it helps us in sounder decision-making.
Business is placing larger funds at the disposal of the marketing researcher, indicating greater confidence in the techniques and findings of such research. The growing realization of the importance of the interdependence of all segments of a business has led to greater understanding and appreciation of the role and potential of marketing research as an aid to the entire business.
Because we deal with people (consumers) in marketing, and because human beings, their wants, aspirations, needs, and capacities are constantly changing and hence, to a degree, are unpredictable, the addition of the findings of the social sciences to our marketing knowledge has made important scientific contributions to marketing technology. Psychology, anthropology, sociology and economics have all helped to improve marketing research. Thus, marketing research may be said to have come of age with the decade of the 1950's. It is ready to play a major role in the application of scientific principles to marketing in the years ahead.

The industrial distributor

The industrial distributor as a rule handles very few lines; and he sells in larger quantities. Therefore, he is in a position to know his lines well, and to become familiar with his manufacturing sources of supply. His salesmen are in a position to become experts in the manufacturer's lines, and therefore to be marketing counselors to the industrial buyers of the products which the industrial distributor handles.
Perhaps the greatest service rendered by the industrial distributor is to provide ready inventory of the manufacturer's products in the distributor's trading area. He carries stock and supplies to fill small orders, emergency orders, and to keep the customers' equipment in operation. Especially with big installations, machinery, equipment of all kinds, "downtime" (the time the equipment is idle for lack of a part or a component) is completely lost time for the user of the equipment. The ability to service such equipment quickly and economically is of the greatest importance to the customer.
Spare parts available for emergency service is the deciding factor with many buyers of industrial goods. They prefer to buy from distributors, knowing that if they need service or emergency repairs, they have a local source for parts or components.
At the present time, there are some 10,000 industrial distributors of all types, selling supplies, equipment and goods valued at a total of over $5 billion. This in¬cludes everything from screws, cutting tools, and stationery supplies, to important components for all types of installations. The average distributor maintains a warehouse where he carries stock worth about $350,000. He sells about $1,500,000 worth of goods a year, hence he turns his stock over about four times a year. In trade language, he "carries three months' inventory."
The typical industrial distributor employs 30 people, 6 of whom are outside salesmen. Each salesman has approximately 130 "accounts" (customers and prospects ) and sells an average of $250,000 a year.
The typical industrial distributor operates on a gross margin of 23 per cent. Out of this margin comes all his expenses. He has less than 1 per cent net after taxes, and after meeting his expenses of administration, sales¬men's salaries and travel expenses, advertising, promotion, maintenance and delivery. 10. The agent middleman. The practice of buying industrial goods direct has given rise to the agent middleman, who may be a broker, a manufacturer's agent, or a manufacturer's selling agent. In essence, the principal job of a middleman is to find buyers for his principal. He gets paid a commission, a percentage of the sales price.

The changing buying habits of consumers

One more phase of the consumer market bears closer scrutiny. This has to do with the rising standard of living of the people, bringing about a great change in living and buying habits.
The American people, as we have seen, earn more and can buy more than ever before. Many things which once were beyond the reach of most people have become everyday items in our personal lives. The automobile is now a daily necessity in 75 per cent of the homes of the land. In fact, there are more automobiles registered than there are homes. The suburbs have made the two-car family "standard."
Almost 65 per cent of the people of the land own their own homes. Literally, millions of families have gone from the slums to suburbia.
In many other fields, buying habits have changed. The food consumed today is a far cry from the daily victuals of meat and potatoes consumed by our grandparents at the turn of the century. Clothes, which used to set off the wealthy from the rest of the people, today offer the same styles and choice to virtually all the people. Everyone is familiar with the near-saturation in such things as electric stoves, refrigerators, washing machines, radios, and television sets.
Changes in population, in income, and in buying habits are creating enormous markets for consumer goods. The relative shares for food, housing, clothing, personal and medical care, recreation, education and travel are also changing. Marketers who sell consumer goods or services are studying each change, each shift, and each new need or demand to see how best to meet them.
Marketing today has become the art of meeting consumer demand. Where we used to speak of "making goods for the market," today we speak of "making profitable customers." The marketing problem now is to find out what people need and want, and then to satisfy the needs and wants.
In subsequent chapters, we shall see what these tre¬mendous changes mean in terms of marketing research, channels of distribution, product planning, personal selling and advertising. This has all been brought about by the changes in the number of customers, consumer tastes, buying habits, and buying power. In a very real sense, we shall see that, in the competitive, private- enterprise economy of North America, the consumer is literally "king."

The significance of buying power

In modern society, buying power comes from money income. This is true even in non-capitalistic countries. Exchange in modern society is on the basis of money, and people must receive money before they can spend it on goods and services. Here, again, the student of marketing must be wary of averages, since there are many families earning more than the average for the country, and many families earning less. Furthermore, there are wide variations in income by regions, by states, and within states and regions.
As a general rule, the higher the per household income, the higher the per household retail sales. But there is no direct correlation between the two, because people spend money for many things (rent, mortgage payments, insurance, and services) which are not purchased in retail stores.
The use of credit-buying is another reason why there is no necessary correlation between income and retail sales. Credit is the ability of consumers to buy on time. This is an enormous plus item in an expanding standard of living. It has been a potent force in expanding markets and in providing people with more things for them to enjoy.
We have now considered people and money as two of the basic requirements for consumer markets. The third requirement is the need or want for a particular type of product. In considering the third requirement, we must first recognize the fact that there are two classes of consumer expenditures: (1) essential expenditures and (2) optional or discretionary expenditures.
Spending by lower-income families is chiefly for essential goods and services. Discretionary spending does not become much of a factor until family income reaches an amount which is more than sufficient to provide for essentials.
It is in discretionary buying power that marketing people are particularly interested because it is in this area that selling ability, promotion and advertising are essential to the successful selling of products which are something more than bare necessities, and which compete with other products that depend upon discretionary buying power for their sale.

What is the consumer market?

 The consumer market is the sum total of all the goods and services purchased in a given period by all the inhabitants of a given country or section. Although we refer to the total consumer market as so many dollars worth of goods and services, such totals are useful only for limited sta¬tistical computations. In marketing, we must break down this "consumer market" into its component parts before we can make any analytical or planning use of the figures.
Actually, a consumer market consists of four specific factors or components as follows:
(a)    People.
(b)    Purchasing power.
(c)    Need for a specific product.
(d)    Willingness to fill that need with a given product.
The reader will immediately note that the oft quoted definition that "markets are people" falls short of our marketing definition. A moment's reflection will tell him why. People, just people, without the ability to buy, do not constitute markets. The proof lies in such vast concentrations of people as in India or China where hundreds of millions of people do not purchase in one year what the people of New York alone purchase.
Before you can buy anything in modern-day society, you must have the purchasing power, that is, the money with which to buy it. Marketing people say that people with money to spend constitute potential customers. All these customers together represent a potential market.
Potential is something that is possible as opposed to something actual. It should be understood that even people with a lot of money to spend do not, in themselves, constitute a potential consumer market for a par¬ticular product. People must have a need or want for the product.
Even when we establish the fact that there are people with money to spend and with a desire to buy the type of things we make, we still cannot say we have a market. In a competitive, private-enterprise economy based on consumer choice, a consumer can satisfy his need with a variety of items, many of them quite similar, but not necessarily the one we happen to manufacture and sell.
For example, a well-stocked supermarket may have as many as sixteen brands of coffee available. The reader can easily enumerate more than ten kinds of automobiles. The same is true of detergents, soaps, cereals, and many other items. Another element, therefore, comes into the picture-the willingness of the con sumer to satisfy his need or want with a particular brand or item.
Thus, we see that from the point of view of any one manufacturer, the consumer market is only that segment of the people who can afford to buy his product, who have need for it, and who are willing to buy the product in preference to all similar products sold by other manufacturers.

The functional classification of marketing

The functional classification, which has been the most widely used in recent years, looks at marketing from the point of view of the functions performed in the course of moving the goods from the manufacturer's assembly line to the consumers hands.
These functions are not mutually exclusive. For example, the manufacturer of men's shoes, whose assembly line turns out, let us say, 10,000 pairs of shoes in one day, is also engaged in packaging shoes, one pair to the box. At this point, they are handled, perhaps packed six packages to a case, placed on a conveyor to the shipping room. There they are handled again as they are lifted off the conveyor and stored or placed in waiting trucks or railway cars.
After shipment is made, they are handled again at the receiving end, where again they may be stored or shipped out immediately to a retail store. The goods are handled once again when they are sold to the ultimate consumer who either carries them home or has them sent. The shoes may be handled by as many as nine hands for each pair before they arrive at the home of the ultimate consumer.
Storing is also a function which is not exclusive. The manufacturer may store the finished shoes overnight, or he may warehouse them for days, weeks or months. The distributor, if he enters the picture, will do likewise. The retailer, if he buys in large quantities, may store them until he transfers the packages to the retail outlet and thence to the consumer. Even the consumer may bring the pair of shoes home and put them away until he is ready to use them.
Similarly, there is shipping between manufacturer and his own branch, or manufacturer to distributor, or distributor to retailer, or retailer to multiple consumers.
Involved in all these functions is the matter of financing and risk-taking. There is risk-taking at every transaction where title passes, and in many where title does not pass. There is risk in selling operations, in advertising and promotion. There is even risk on the part of the consumer in buying.
The financing of risks is often overlooked by the casual student of marketing, but obviously it assumes an important part of the total marketing process. Putting up the necessary money to carry on trade and commerce is an important function in distribution, often involving outsiders such as banks, lending institutions, and even the federal and state governments which participate in the extension and regulation of consumer credit.
The functional approach to the study of marketing has been the most useful and the most widely used. It is, in fact, the foundation of modern marketing study. Certain phases of this functional approach will be studied in greater detail in subsequent chapters, such as wholesaling, retailing, marketing research and transportation.

Marketing as a science

From time to time, marketing people get into controversy as to whether or not marketing is a science or an art. The student of marketing will do well, therefore, to clarify, at the start, the distinction between a science and an art.
The word "science" refers to an organized body of knowledge by means of which it is possible to establish cause and effect relationships. For example, we say that two parts of hydrogen and one part of oxygen, combined in a certain manner, make what we know popularly as water. Thus, H20 stands for water everywhere and at all times. In chemistry, we have many such formulas or established relationships. We know that every time we combine certain chemicals with certain other chemicals we get the same results.
An art, on the other hand, is a branch of skilled learning involving certain techniques but lacking the certainty of cause and effect. For example, suppose we want to sell ten-thousand apples. We suspect that, if we 1 educe the price by five per cent, we may increase sales by ten per cent or more. But there is no certainty of this. Actually, in some instances, sales have increased when price was raised. In other situations, sales have decreased when price was reduced.
This inability to predict with any degree of certainty how the consumer will react prevents marketing from being a science. Of course, there are many techniques in marketing which, in effect, employ the scientific method. But until it is possible to say that a given number of dollars spent in a certain way will always produce a given volume of sales, we cannot speak of marketing as a science.
Marketing deals with the consumer, and the consumer's wants and desires. These cannot be predicted from one moment to the next because a large share of all buying is impulsive, personal, subjective, and individual. The combination of two colors in a necktie may appeal to one group of men, and repulse another group. Or the same combination may repulse the first group at another time. Why? There often is no known identifiable reason. Hence, in marketing there do not exist, in all instances, scientific causal relationships. We cannot say that the same conditions will always produce the same results.