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.

The importance of communications

It now becomes clear that if management is getting things done through people, it is imperative that the people understand what is expected of them, and that they be in a position to consult with others, engage in self-appraisal, and make recommendations for such changes as experience and circumstances may require. In no field of management do proper communications play as important a role as they do in marketing.
Many marketing activities are performed in scattered, often isolated territories. The situation of the salesman far away from home office is a familiar one. But many others also perform far away from home base. Distribution, by its nature, involves people, in many different parts of the country, operating under many different circumstances and situations,
Reporting, correctly and clearly, and communicating with superiors and subordinates, assume para¬mount roles in proper measurement and control of the marketing effort. A good communications system is necessary at each level if the supervisor is to judge the effectiveness of the performance under his supervision.
Effective communications is a two-way street. Both sender and receiver must know what is required of them, what is meant by each message, and how the information is to be used. Before it is fair to judge a man for his performance, that man must understand fully what is expected of him. It is up to the manager to communicate this knowledge to subordinates. Whether or not a company has a formal and elaborate system for measurement and control, it is evident that measuring the total marketing job depends upon senior management decisions and cooperation. All measuring activity is undertaken for the purpose of improving the status quo. Therefore, any effort made to measure and control must pay for itself in better results or it is not justified.
Controls and yardsticks should not be established for their own sake, nor for the sake of policing. What we seek in any attempt to measure and control is a method of knowing what is going on so that it can be done more effectively. The entire organization must accept this principle. The most successful marketing operation is that which succeeds in applying most effectively a profitable sales effort throughout the entire organization.

Cutting costs of distribution

We have already seen that distribution costs are high, that it often costs as much to get things into people's hands as to make the things in the first place. Marketing management faces the responsibility of doing everything possible to reduce the cost of distribution.
But cutting the cost of distribution is not merely a matter of ordering it done, or of assigning the task to the cost-accounting department. To cut costs effectively, marketing must organize for cost-cutting. This means it must assign direct responsibility for the job to the chief marketing executive. This is being done in a growing number of businesses.
The control or reduction of the costs of distribution is properly an integrated top staff assignment. This becomes apparent when we consider the various approaches to cost-cutting, and the various facets of the problem involved:
(a)    Sales policies must be reviewed: terms, prices, channels, service.
(b)    Manpower allocation and efficiency must be examined: where do these people come from? What do they do? How do we recruit better people? How do we train them? How do we compensate and motivate them?
(c)    Dealer relations must be reexamined, and changed where needed.
(d)    The organization structure must be reexamined and changed if necessary: size, activities, supervision, relationships, etc.
(e)    The advertising and promotion program must be scrutinized: how effective is it? big enough? too big? how can we improve it?
(f)    The product mix needs examining: How well does it meet customers' needs?

(g)    Warehousing and inventory policies need reexamining. Production and sales have to be coordinated. Out-of-stock sales are costly, sometimes fatal. Balanced inventories call for close production-sales scheduling.
(h)    Research and forecasting must be improved if they are to make their full contribution to efficient distribution.
While marketing naturally does not hold sole responsibility in all these areas, it does hold primary responsibility. The successful job of controlling the cost of distribution is a total company effort, requiring data from accounting, as well as from marketing, and requiring careful and sound interpretation on the part of management.

Identifying individual circumstances

Before a manager can constructively measure the marketing effort (or any component part of it), he must identify the conditions under which his particular company is operating. While many of these conditions will be internal and subject to some control on the part of management, others are external circumstances over which the individual company management or marketing director may have little or no control. Nevertheless, these circumstances affect his performance and that of the men under him.
Marketing management needs to examine and measure those factors, internal and external, which affect performance. Sometimes outside forces may affect the performance of one company But not that of a competing company. For example, General Electric Company and Sears, Roebuck and Co. are competitors in the sale of electrical appliances. But General Electric sells through thousands of independent retail merchants. Sears sells only through its own controlled retail outlets whose operating policies, prices and methods are standardized. General Electric has no such control over its independent retailers, who sell what they want, at whatever price they want. It is thus obvious that the conditions at the point of sale vary for the two companies.
Thus, even though we may critically examine a company's total performance, we cannot disregard the reasons why conditions are what they are. These conditions may, and often are, quite outside of the area of control of the individual performer.
Everything that has been said emphasizes the need for fact finding in any attempt to measure the marketing performance of a company. It is at this stage that the marketing manager realizes the value of marketing research, and of the growing importance of this tool of management, not only to know what his company is doing, but to determine how it can do the job better.
And here we can see the importance of the various factors discussed under fact finding and marketing research, such as forecasting on the basis of facts, getting factual information as to what the market can absorb and at what price, determining the share of the market and calculating manpower needs.
We cannot expect to measure the effectiveness of the performance of marketing people unless we know, as accurately as it is possible to know, what can be done, where, and under what circumstances. It is only then that we can plan to do our share of the business, measure and control the total effort aimed at doing this, and adopt additional goals, changes, improvements, and tactics to finish the job.

The twelve areas of measurement in marketing

We are now ready to set up our checklist of marketing areas to be measured.
Area No. 1: The sales force. How well did it do? Did it distribute its efforts properly? Did the men have adequate supervision? Did they cover their territory? Are they properly compensated and motivated? Do the men understand fully what the company expects of them?
Area No. 2: The-cost of getting business. What is our yardstick for measuring the proper sales-cost ratio? How well did we do, territory by territory, and overall? Where can we improve? How do I, as the manager, know when a weakness shows up?
Area No. 3: The market position. What is the total market potential? How big a share of that do we have? In what areas are we above and below national average? What must we do to bring below-average areas up to average and to increase our total company share?
Area No. 4: The product line. Do products meet the current needs of the market? Is the product mix properly balanced? Are packages, unit sizes, etc., in line with what the market demands? Do our products reflect the latest advances in technology, science, benefit to user?
Area No. 5: Merchandising policies. What effort are we making to back up sales effort of the men in the field? Are we allocating our promotional effort (dollars, manpower, etc.) properly by territories, by po¬tentials? How much and how good is our advertising? How much cooperation do we have from distributors and dealers on our promotional efforts? How can we improve?
Area No. 6: New product policies. Are we properly set up to bring out new products? Are we keeping up with the parade of new products? Are we leading or following competition? Why? Are the company's new product plans adequate to meet future demands? Do we know what the effect of new products will be on established lines?
Area No. 7: The distribution setup. Does the current dealer setup reflect current needs and opportunities? Does it reflect the many new changes that have taken place in channels of distribution? Does it adequately cover the market? Are our current distribution policies (selective distribution, exclusive dealers, etc.) the proper ones today?
Area No. 8: Advertising and promotion. Do advertising and promotion deliver the proper information to customers? Are we using the proper media? the proper mix? the proper allocation by territories? How do we measure whether it is proper or not? Area No. 9: The package. Does the package reflect modern trends in styling, materials, color, convenience to user?
Area No. 10: Pricing policies. Is the price realistic in the light of today's markets? Is our pricing structure basically sound? Do prices reflect changing patterns of distribution and of buying habits? Do prices recover costs?
Area No. 11: The total company image. What does the public think of the company behind the product? Are we up to date on this, or do we lag behind competition? Just what efforts are we making to establish or improve our image?
Area No. 12: Staff organization. Is our organization in line with changes in competition? Does everyone on the staff understand what his job is, and how best to perform it? Are we using the most modern tools of performance (e.g., electronic data processing, motivation, research, etc.)? Are decisions being made on the basis of facts, or are we still guessing based on past experience? Do we have adequate provisions to train people and improve their perform¬ance?

Setting standards for measuring performance

Most of the white-collar jobs in any business, including most marketing jobs, defy statistical standards. The problem is to measure performance of persons whose output cannot be measured in terms of facts and figures. Standard will, of necessity, be largely subjective rather than objective. Managerial judgments substitute for engineering standards in those jobs where we cannot set quantitative, objective standards.
Where jobs are said to be measurable, that is, where we can set more or less quantitative standards of performance, there is a relatively simple six-point formula for setting standards:
Define the job.
Define company goals or needs.
Define company resources to attain goals or needs.
Select the specific areas of performance that you propose to measure (for example, the over-all job of a district sales manager).
Check with present performers for realism of proposed means of measuring the performance.
Follow up and check results.
In the case of the job of the district sales manager, which is used as an example of the foregoing, a prominent company has set the following standards of performance:
Company policies: A district manager is up to standard if he administers set policy properly in his district.
Personnel: A district manager is up to standard if he maintains enough men to do the job adequately and has qualified trainees for any changes if needed, if he has job descriptions for the men under him, and reviews the performance of each man with this man at least once a year, if he has helped his men to plan their work effectively and to improve their sales skills, and if he handles personnel problems promptly and efficiently,
Sales: A district manager is up to standard if individual sales goals have been set for each salesman, if the sales volume of the district as a whole is satisfactory, if trade relations in the district are satisfactory, and if principal accounts are retained and new ones are added periodically.
Selling expense: A district manager is up to standard if annual budget is based on specific needs, if expenses are planned and administered within the budget, and if sales-cost ratio is in line with company goals.
Product sales: A district manager is up to standard if price-change recommendations are real¬istic and justified by market conditions, if there is reasonable price stability in the territory, and if the district attains a satisfactory product sales mix and consequent satisfactory profit mix.
Thus, we see that in this case the company sets up reasonable, realistic goals, and measures the district sales manager's performance on the basis of five factors: company policy interpretation, personnel administration, sales, cost of sales, and the product and profit mix in the territory. The district sales manager has a clear picture of what is expected of him.

The value added concept in marketing

Now suppose we use the same formula to measure value added in distribution. Take, for example, a typi¬cal supermarket. The cost of goods is $798,000. Labor and overhead cost $198,000. Total value of goods sold to the public, $996,000. Clearly, here, the value added was $198,000. If there are 10 employees in the supermarket, we can say the per capita productivity was $19,800, and average sales $99,600 per employee.
But now take a store only half as large, doing $500,- 000 a year. The cost of goods may have been only $300,- 000. But the cost of selling these goods, because of various services rendered by the store, was $200,000. This store employs only 7 people, so that the per capita productivity, measured by value added, would amount to some $28,500, considerably more than that of the supermarket.
The cost of doing business, on which we base our value added, was higher because they rendered more services. In this particular case, if the services rendered have value for the consumer, the higher cost might be said to be the result of more value which has been added to the merchandise. But it should be noted that we would then equate value with cost of doing business.
The importance of that becomes clear when we look at a third store. This store also has a total sale volume of $996,000, like the first one. But here examination shows that the cost of goods (what the store bought for resale) amounted to only $698,000. Because, however, this third store is not as efficient as the first, the cost of doing business is $298,000.
The retail price to the consumer is the same as in the first store but the cost of doing business is considerably higher. Under the value added formula, we would have a per capita value added of $29,800 or $10,000 more per employee than that attained by the efficient store. It is easy to see, therefore, that value added might give us a quantitative figure or standard, but it does not give us a qualitative one. And if we take the numerical standard alone, the more we spend, the more value we add. This, of course, is not true. Efficiency is a qualitative yardstick.
The reader may raise the same question in connection with the use of the value added theory in manufacturing; namely, that it measures how much is turned out per employee, but it does not measure how efficiently the employee works. To a degree this is true. But manufacturing productivity is the result of certain standards set by engineers on the basis of highly mechanized manufacturing equipment. Engineers set these standards on the basis of time and motion studies, industrial research, and industrial measurement. Machines are aligned in the most efficient line of flow, and production is measured in terms of number of units turned out.
In marketing, we cannot line people up and count the number of cans or packages they handle and sell. Much of marketing work has little, if anything, to do with handling cans or packages. We know total sales, and possibly total net margin from such sales effort. But we cannot measure, in terms of dollars, the value of the contribution of each performer.
A more realistic approach is found in measuring through job analysis. A good job description predetermines the job to be done. It gives a standard by which to measure performance.
If we have carefully established job specifications, have described the job we assign to an individual, and both he and management know what he is supposed to do, then we can watch and measure progress week by week or month by month. What we do, in effect, is to break down the job into component units. By assigning responsibility for getting each component done, we can hold the performer accountable.

Measurement an important part of management

Modern management has to establish some method of measuring progress towards pre-established goals. Marketing goals, as we have seen, have assumed prime importance in business. At every stage of the performance, management must be in a position to determine where it is, where it has been, and how much further it has to go to reach the goals set. The activity involved is generally referred to as measurement and control.
One such measurement is that of productivity. Over the years, management has become accustomed to measuring productivity in manufacturing by establishing standards of production. These standards have become part and parcel of management in industry. They measure time, motion, output and cost. The value of time and motion studies in the factory has been recognized for over fifty years. Thus, it has been possible to establish accurately industrial productivity.
We do not have such counterparts in marketing. Time and motion studies have been attempted in some limited fields, such as in measuring the effectiveness of a salesman's effort. But we know now that many marketing activities do not lend themselves to measurement in quantitative terms.
How can we measure, for example, the output of the marketing researcher? Surely, no one would attempt to evaluate the researcher's worth to the company in terms of the number of reports he had written during the year. Similarly, we do not evaluate the services of the engineer who helps design a new product in terms of number of kilowatts of energy consumed in his laboratory, or the number of conferences with his superiors. By and large, industry has accepted as valid the use of the value added concept to measure the value of the manufacturing activities of a company. Thus, for example, a company reports that the cost of raw materials was $2 million. Direct labor to transform these raw materials into finished products amounted to $3.2 million. Overhead and administrative costs added another half- million dollars. The value of the shipments was, therefore, set at $5.7 million. The value added in the plant was $3.7 million.
If the plant had 500 employees, the per capita productivity in that plant was $7,400, arrived at by dividing the total value added by the total number of employees. The calculation is simple and gives a figure which has been generally accepted to measure industrial productivity, despite serious shortcomings which will be apparent as soon as we attempt to measure productivity in distribution by the same method.

Benefits from integration

Many companies report distinct benefits from such integration. Better company- wide effort is almost certain. Some companies report that, as a result of the various efforts to integrate, everybody in the company goes on the marketing team.
Other companies report that better planning is possible as more members of other departments get to understand the over-all company objective of profitable marketing. Easier cost control is also noted. And the mutual understanding of each other's problems brings about greater cooperation and, as a consequence, better over-all results.
One of the most important benefits listed by many companies which have made serious efforts at integration of marketing with other activities of the company is the growing awareness among employees of the necessity for profitable operations. Everyone on the team becomes profit-conscious. This helps materially, especially in recent years when many businesses witnessed a declining rate of profit, making the need for greater profit-consciousness among the employees all the more important.
Although most companies recognize the need for integration and the importance of having the various departments work together as a team, many companies still shy from the necessary steps to secure integration. In some companies, the problems that arise when they attempt to secure integration prove too great. In others, the realization that many of these problems may arise discourages management.
The first and most important problem involved in any attempt to integrate and coordinate the work of many different people is, naturally enough, the problem of handling people. People cannot be regimented like machines. They must be motivated to work together.
Lack of qualified personnel within the company often results in bringing in people from the outside. This further complicates the company picture. The very fact that different performers are all brought together under marketing means that we have to deal with different points of view. Conflicts are bound to arise unless the people involved are carefully handled.
Another problem is that of communications. Different specialists speak different languages. The marketing-research man speaks an entirely different language than the sales-promotion specialist. Most people want to cooperate, but it is often necessary to translate the language of one specialist into the language of another.
A third and often encountered difficulty is the fact that not all members of the company organization are sold on the emphasis given to marketing in modern business. This is understandable when we realize that the first sixty years of the twentieth century were almost entirely devoted to production and production problems.
Still another problem rises because duties and responsibilities are redelegated. In reorganized companies, the ideal is to have the decisions made as close to the scene of action as possible. This often means that a higher management official gives up to a subordinate previously held (and sometimes jealously guarded) authority. Not all managers are prepared to give up authority.

How business secures integration

 The problem of integration of the consolidated and expanded marketing activity into the total company program is being solved in different ways by different companies. Many companies are using the committee approach. The marketing committee has often taken the place of sales, advertising, product-planning, and other committees previously used.
Members of the marketing committee are not limited to marketing people, but include people engaged in manufacturing, engineering, finance, purchasing and such other activities as may be deemed to have collateral interest. In many companies, the new marketing committee has supplanted the general planning committee and even the executive committee, further emphasizing the importance accorded to marketing in the modern era.
The committee approach, however, is not confined to one over-all marketing committee. Some companies have several small specialized committees, such as packaging, advertising, research, and product planning. Members of the marketing department serve as chairmen and coordinators. Other departments are represented on such committees.
A second common method of integrating and coordinating is the departmental-meeting approach. This is somewhat less formal than the committee approach. The manufacturing department, for example, invites members of the marketing department to attend the regular monthly departmental meeting of the manufacturing department. Such interdepartment meetings are especially favored because of their informality
The value of committee meetings and interdepartmental meetings depends, to a large extent, upon the leadership of the groups. In some companies, members of senior management "chair" the meetings. In some others, they attend as spectators, lending dignity and decorum to the meetings.
A variation of the interdepartmental meeting technique is the after-dinner group meetings. These meetings bring together members of various departments at and above the supervisory level who discuss mutual problems in an informal, social atmosphere.
A third method often used in business today is the mixed training program. Training programs are estab¬lished for the marketing department, but select members of other departments are invited to participate. The exposure of an engineer or a production manager to basic training in marketing gives such a person a picture of the other side of the coin, one he would not otherwise get in years of doing his specialized job.
A fourth method used to attain integration of marketing with the other departments of the business is the joint field operations method. In this method, teams of workers from marketing, manufacturing, engineering, purchasing, and the like, go into the field together for such purposes as testing a new product, observing the sale of a product, or undertaking a joint research project. The team usually consists of junior men from the other departments working with a senior man from marketing. The purpose is to educate all members on market conditions as they exist in the field.

Marketing and accounting

In marketing and accounting, much of the new thinking centers on the managerial aspects of both functions. Executives are realizing that marketing and accounting need to be coordinated. For example, both marketing and accounting executives need to know profit margins by products. Accounting must furnish management with accurate costing for realistic pricing. Accounting should also furnish marketing with information about profitable limits of every territory as well as of every product sold by the company.
In addition, accounting management can furnish accurate and timely customer costing, showing the relative profitability of customers by size, by type, by geographic location. Accounting can advise marketing of the relative profitability of order size. Accounting, like finance and manufacturing, needs, therefore, to be a full-fledged partner of marketing. Here, we look at these areas again from the point of view of coordination and integration into the total managerial responsibility of the company.
(a) Marketing is responsible for bringing out successful new products. This, as we have seen, will include the packaging, designing, distributing, and profitable selling of products, as well as promoting them. But this activity cannot be carried on without involving other departments. Manufacturing is concerned with the required production schedules, technical services, equipment, and facilities.
Finance is concerned with the cost of research and equipment, and with the added marketing costs (such as adding new salesmen, cost of new promotional programs, etc.). Purchasing must know what raw materials and supplies will be needed, in what quantities, and when. And engineering must be prepared to design the new products in accordance with sound engineering principles.
(b)Marketing is responsible for the company's advertising and promotion. But production must know of all promotion schedules which might call for more inventories, or unusual product mixes. Finance must also know of any unusual expenditures, either for additional inventories, raw materials, supplies, or promotion.
(c)Marketing is responsible for proper marketing personnel policies: recruiting, selection, training, and compensation. But manufacturing must know when these training programs involve trips to the plant and similar disruptions of production schedules. Likewise, personnel must know of marketing requirements in order to coordinate recruiting with over-all company personnel plans.
Marketing is responsible for marketing research: basic research on new products, product possibilities, channels of distribution, and market development. But engineering must know the specific product characteristics called for by the market, the product changes needed, and the timing of such changes. Manufacturing "must know of anticipated plans which call for changed manufacturing facilities, materials, personnel, quality standards, etc. The traffic department must know of anticipated customer requirements, deliveries, warehousing, inventories, and geographic market plans. And again, finance must know of inventory changes, new machinery or equipment investments.
(d) Marketing is responsible for its own departmental organization, and its manpower requirements. As we have seen, this organization often requires working with other departments, with committees, etc. Other departments must be advised of the need for special working arrangements, intra-company integration, and the like.
(e)Marketing is responsible for forecasts, setting quotas, and for territorial performance records. But accounting has to prepare the records on which these forecasts and quotas are based. Finance needs to provide the money for inventories, selling expenses, and additional purchases necessary to meet forecasts.

The problem of leadership

Leadership is often mentioned as a prerequisite of integration and coordination. It is also one of the most difficult of management activities to define. Leadership involves giving and receiving loyalty and cooperation between and among subordinates, associates and supervisors. But the modern marketing leader has to be much more than simply a good leader of men.
The knowledge required of a marketing executive today is much greater than it was ten years ago. Such an executive must have a good working knowledge of statistics, scientific decision-making, legal regulations. He must have an appreciation of the interdependence of the activities of a business. He must be profit- conscious, with a firm grounding in economic knowledge of the role of profits in modern business.
The marketing executive also must have a keenly developed appreciation of the need for flexibility and for innovation; hence, he must be ready to change, to develop new blood, to divide his time between people and operations. He must know what motivates subordinates, and how to help them to attain their individual aims and aspirations within the framework of company objectives. The new marketing leader must be able to attain that delicate balance between ethical conduct and moral principles, without which no leader can succeed. He must rise to the day-to-day demands and exigencies of a constantly changing market It cannot be repeated too often that marketing, although it has of necessity become the most important element of successful business today, is only one part of the total management job. Growing pains within the department of marketing are not the only integration difficulties encountered. Marketing must be integrated with every other major department in the business, receive assistance from such departments, and, in turn, render service to these departments.
Marketing must be integrated, for example, with manufacturing. Manufacturing in most modern business firms includes engineering, production, purchasing and service. To coordinate with production, marketing must have prompt and full information from manufacturing as to schedules, quality controls, deliveries, changes and costs. Manufacturing must also be willing to cooperate with marketing in trial runs, changes as called for by the market, and in making deliveries as promised.
Engineering (research and development) must likewise cooperate with marketing in product design to meet customer specifications, in willingness to make changes and adjustments-even when market requirements run counter to engineering perfection. And customers must not only buy products. They must be satisfied with their purchase. This calls for post-sale product service, in which manufacturing plays a large role.
Conversely, marketing has obligations towards manufacturing. Marketing must get reliable market information. It must select the proper products for manufacturing to produce. It must advise manufacturing of the needed volume of products, of the proper product mix, and of changes in marketing policies and programs which may affect the manufacturing department's ability to deliver on schedule.
Further, marketing must understand that changes in production schedules and product mix require time and planning. Marketing must cooperate with manufacturing in effecting such changes with minimum disruption of schedules and purchasing activities. Marketing must keep manufacturing advised of competitive changes and competitive activity. In plain words, marketing has the responsibility of fully advising manufacturing as a full and active partner.
Marketing must also be integrated with finance. The primary responsibility of the finance department is to watch costs and to protect the company's financial position. Marketing costs, as we know, are an important part of total costs. It is the responsibility of marketing to cooperate with finance in establishing what reliable and realistic cost information may be needed, to keep finance informed of market trends and changes. In the past, when the sales department had the simple job of selling what the manufacturing department turned out, emphasis was on volume. Marketing was said to have done its job when it got rid of the volume production. The question of figuring profits and profitable sales was up to finance.
Today, we consider that marketing is responsible for creating and maintaining a profit. It is not volume but profitable sales volume that counts. Marketing and finance are partners in protecting the company's interests and financial integrity. Thus, marketing must work to control costs in sales, transportation, handling, packaging, and promotion.
Finance, on the other hand, can help marketing by pointing out areas of possible cost reduction, such as sales expenses and territorial deviations from the "ideal." Finance must also keep marketing advised of possible areas of profit in such things as product innovation, new facilities, internal auditing, and the like. And finance must furnish marketing up-to-date cost control data, dealer audits, and similar information in order to make for more effective marketing effort.

Meaning and importance of integration in marketing

To integrate means to bring together parts into a whole. It means putting together the work of many diverse groups to produce a successful total effort. In that sense, integration assumes major importance in modern marketing, since it brings together, under one directing head, the work of many diverse, independent and even antagonistic groups. It unifies their work so as to produce successful and effective marketing action in the company.
Modern marketing has a dual task of integration:
(1)    to integrate the work of various groups in the reorganized, consolidated marketing department, and
(2)    to integrate the marketing effort with the management effort of the company as a whole. It must never be forgotten that marketing, although it is important today, is only one part of the total management activity of the company. Marketing must be coordinated with and integrated into the total management job.
From the germ of an idea for a new product to its ultimate consumption by the consumer, covering the many phases of planning, programming, selling, advertising, promoting and research, all the marketing activities of the company have to be brought together as parts of the whole. The task is not a simple one. We have already pointed out that different groups of people, previously not working together, are brought under one roof in the new marketing department. It is a novel experience for people in marketing research or product planning to work with those in advertising, or for people in sales training to work with those in public relations.
Furthermore, the very newness of the job of marketing calls for jobs that did not exist before, especially at the staff level. New job descriptions are called for. New relationships must be established among workers. And as the marketing department grows and expands, there is need for better communications, and better mutual understanding. The changed duties of many of the members of the department can lead to misunderstandings and conflicts unless everyone knows what his individual role is, and what the relationship of that role is to the total marketing effort.
There is further difficulty in integrating an expanded marketing department. Often the duties, objectives and responsibilities are not clear. In any new undertaking, there is always the temptation to get it done, to make haste, to show results when, in truth, there is need for making haste slowly.
Finally, in integrating a new and expanded marketing department, there is always the question of people.
People are the most important asset of a business organization. But they also create problems. The newness of the job of working together, the need for special training, for special kind of thinking, lead to conflicts and jealousies. Such problems call for patience, understanding and leadership.

Cutting price without lowering price level

In times of recession or slower sales, many manufacturers resort to price-cutting tactics which appear to leave the price level intact, but which actually result in price cuts of varying magnitudes and importance. One way is to extend credit. The practice of offering goods with no down payment and three years to pay is a familiar one. Another way is to give advertising allowances, without demanding full service or proof of such service. Still another is the so-called split shipment. The buyer buys a carload, and gets the carload price, but he receives the shipment in several smaller lots.
This does not exhaust the methods of cutting price without reducing the list price. Some manufacturers (especially in certain textile lines) offer seconds. The merchandise is actually first-class or first-line merchandise, but it is sold as seconds at a lower price. In other cases, the manufacturer may offer so-called tie-in sales. The first item is sold at the regular price. The second item (or another product tied-in to the sale) is sold at a reduction. Some sellers resort to split commissions. The commission merchant, broker, or exporter agrees to split commissions with the buyer. Although generally illegal, this type of behind-the-scenes price cutting is difficult to detect.
The reader should not confuse any of the above activities with legitimate price reductions, concessions, and allowances given to all buyers under similar circumstances. When openly offered and available on proportionately equal terms, these price concessions are legal. They are often offered to induce either large- quantity buying, greater dealer support, or more effective distribution on the part of the middleman buyer. Administered pricing. In recent years, much has been heard of so-called administered pricing practices of business. The term applies to the practice of pricing merchandise for the market, not on the basis of cost, competitive pressures, or on the laws of supply and demand, but purely on the basis of policy decisions of the sellers. In theory, this would mean that the seller would virtually disregard all other considerations except his own desire for maximum profits.
Actually, it is impossible in the market today to price merchandise on any such basis. There are forces beyond the control of the manufacturer which influence his pricing policies. There are also certain factors which make for price inflexibility, such as monopoly or near monopoly, price leadership, laws permitting price set¬ting, and the like. In the end, however, every manufacturer must select that price which will make it possible for him to stay in business, meet competition, and satisfy the consumer. To this extent, virtually every price is administered. To the extent that management makes conscious pricing decisions of its own, we can say that we have administered prices.
We must always remember, however, that price is a creature of the market and no seller can disregard actual market conditions. Supply and demand will always influence price. So will competitive activity. So will a manufacturer's costs, his promotional activities, and his policies. So will consumer reaction. The manufacturer has to consider all these forces and seek, in the light of these pressures, to attain price stability at a level where he attains the best combination of results.The price at which goods are sold determines the amount of the seller's income. For this reason, it is a top- management responsibility to price goods correctly. In many companies, pricing responsibility is reserved for the highest company officials. In others, the marketing director has the responsibility, sometimes to recommend, sometimes to set price.
There is a growing tendency in business today to have the top marketing officials participate in price making, even in those instances when actual pricing is a top-management function. It should be kept in mind, however, that pricing is a responsibility which most top executives do not feel can or should be delegated. Too much depends upon correct pricing. Income and even survival are at stake.

Pricing policies

It should be quite clear by now that the manufacturer is not really free to set his own pricing policies. But any good pricing policy must be aimed at offering a reasonable price to the consumer, insuring a fair return on investment to the manufacturer, permitting reasonable growth, and providing reasonable price stability. In addition, a good pricing policy should meet competition and comply with legislative requirements.
As a matter of common sense and survival, manufacturers seek to avoid cutthroat competition, a natural outcome of unrestricted price competition. Most manufacturers also seek an element of price stability, since it is impossible to plan with any degree of confidence in periods of widely fluctuating prices.
Within the over-all framework of desirable goals, pricing policies differ widely. Manufacturers seek to make their products different and superior through trade marks. They make different prices through discounts and allowances or special terms. Again, trade practices differ, some sellers guaranteeing buyers against price declines, others giving no such guarantee. Of course, price competition is materially reduced by differences in the quality, styling, or service.
Correct pricing involves finding the best possible exchange value for the product. The modern manufacturer must not only know the worth of his own product, but he must also know what competition offers, what substitutes are available and the relative efficiency of the various channels of distribution. In addition, the manufacturer must have a good understanding of costs and he must understand, or try to understand, what constitutes value in the eyes of the consumer.

Legal considerations in price-making Part II

Obviously, the intent of the amendment was to protect the smaller independent dealer, not in a position to make demands upon the manufacturer. Although it undoubtedly has done some good, it is doubtful whether the Robinson-Patman law or any other law can prevent the natural advantage that comes from size and integrated operations. The economies of large-scale operation can be, and often are, passed on to the consumer, thus attracting customers because of lower prices. No violation of either letter or spirit of the law may be involved.
Another type of legislative approach was the attempt to prevent below-cost selling in order to protect the small middleman against the power of size. There were two forms of laws against below-cost selling. One was the so-called "Fair Trade Law," under which the seller is permitted to set a price below which it is unlawful to resell the merchandise in question. Thus, while the original antitrust laws did not allow price conspiracy, whereby buyers and sellers agree on price, the Resale Price Maintenance laws specifically exempted the seller from the operations of these restrictions in pricing his own branded merchandise.
The aim of such permissive legislation was to pro¬tect the small dealer from price cutting by the larger dealer. It had nothing to do with the ability of the large buyer to buy for less (this was supposedly governed by the Robinson-Patman law). But the law stated that no buyer, large or small, could offer for sale branded goods at prices below those set by the owner of the brand. The seller who fixed such fair trade prices did so in order to protect his smaller customers.
The original Federal Fair Trade Act was the Miller- Tydings Act of 1937. There was immediate demand for "little fair trade laws" in the individual states, since the federal law could only operate in interstate business. Many of the states did pass such laws. Some industries, especially drugs and electrical appliances, embraced resale price maintenance as "the salvation of the small dealer."
In 1950, the law was challenged because, in effect, it forced merchants into price-maintenance contracts to which they had not been parties. The challenge was successful and resulted in pressure for an amendment to the original law, known as the McGuire Act, which specifically declared that, even if the merchant were a "non-signer," the law would apply. This became known as "the non-signer clause." But the McGuire Act, again, was operative only in interstate commerce. Many of the individual states refused to or failed to pass "baby McGuire Acts." The net result was that by 1960, much of the power of the resale price maintenance laws had been dissipated.
Enforcement in the case of fair trade laws was up to the manufacturer or seller. Some manufacturers spent large sums of money attempting to enforce the laws. Probably the last straw came with the discount houses, which offered electrical appliances and many other  items at substantial discounts, in disregard of the fair trade laws.
The laws are still on the books and in some fields - notably the drug industry-are still observed. In many states, however, these laws have been declared uncon¬stitutional. In other states, observance has simply broken down for lack of enforcement on the part of manufacturers. The outlook for this type of legislation is doubtful.
Attempts have been made, especially in the food industry, to prevent below-cost selling through what have become known as "Unfair Sales Acts." An attempt was made to establish a legal price, this being the manufacturer's net invoice price, plus 2 per cent for wholesale and 6 per cent for retail operations. Thus, the lowest legal price at which merchandise could be sold (except for specific situations) would be manufacturer's net in¬voice plus the prescribed wholesale and retail markup, a total of 8 per cent for integrated (chain store) operations.
Enforcement of these acts, which at one time were on the statute books of some twenty-five or more states, proved most difficult. Although most of the acts have not been repealed, they are not enforced.

Legal considerations in price-making

In the United States, the Sherman Antitrust Law was the first major attempt made to prevent monopolies and safeguard freedom of competition. Although not specifically a marketing measure, it is in marketing practices where most of the enforcement has attracted public notice. On the statute books now for more than seventy years, the basic antitrust law has been supplemented by three specific marketing regulations with which every student of marketing should be familiar. A discussion of these regulations follows.
The Clayton Act, passed in 1914, was intended to prevent price discrimination between buyers. The buyer receiving a more favorable price naturally has an advantage. This advantage may give such a buyer the chance to grow into a monopoly. The Clayton Act declared that it was unlawful to give such discriminatory advantages to any buyer "where the effect of such discrimination may be substantially to lessen competition," or where the effect may "tend to create a monopoly."
In order to help enforce this new anti-monopoly law, the Federal Trade Commission was created (also in 1914). The law required a seller to offer the same price to buyers of the same type. It soon became appar¬ent to sellers that some criterion had to be established differentiating "type of buyer." Quantity purchases tended to become this criterion. Thus, impetus was given to the quantity buyer, aiding the development of the integrated (chain store) and large-scale marketing concerns.
An amendment to the Clayton Act, known as the Robinson-Patman Act, was passed in 1936. This act provides that sellers may not give discriminatory discounts or allowances to buyers who are competitors, if such discrimination may lessen competition or tend toward monopoly. Discounts must be justified on the basis of savings in the cost of manufacture, sale or delivery. The burden of proof to show savings was placed on the seller giving the discounts. Thus, quantity discounts were not forbidden, but the seller was obliged to defend himself and justify such discounts and allowances if challenged. Functional discounts were permitted by the law, since wholesalers and retailers are not competitors.
Enforcement of the Robinson-Patman Act has also proved difficult, and has been subject to many administrative regulations. But the intent of Congress was clear. The Act has resulted in many large sellers modifying their discount and allowances practices. By and large, business firms have made determined efforts to comply.
Different interpretations of activities and concessions, hoAvever, often lead to litigation, and the Federal Trade Commission has been active in recent years attempting to enforce the anti-discrimination features of the Clayton Act, as amended by the Robinson-Patman Act.

The influence of discounts and allowances

A very large proportion of sales made in the market are subject to discounts and allowances of one kind or another. The consumer is most familiar, perhaps, with the cash discount. A seller offers 2/10, net 30, which means that if the invoice is paid within 10 days of date, the buyer may take a 2% discount off the face of the invoice; but, in any event, the amount which is owed is due in full within 30 days.
The trade recognizes several other types of discounts and allowances. Probably the most important one is the so-called quantity discount. This is an inducement to purchase in larger quantities. It is usually expressed in percentages of sales price. For example, on the purchase of 100 cases, no discount; 101-500 cases, 1 per cent discount; 501-1,000 cases, 2 per cent; 1,001- 5,000 cases, 3 per cent; 5,001-10,000 cases, 4 per cent, and above 10,000 cases, 5 per cent.
The quantity discount can be either cumulative or non-cumulative. The cumulative discount allows the buyer to accumulate his purchases, for the purpose of computing the discount earned, over a stated and usually limited period of time: three months, six months, sometimes a year. The purpose of the cumulative discount is to permit the small and medium size buyer to earn the maximum discount, or at least a higher discount than would be earned if each individual purchase were taken separately.
Thus, for example, a medium size buyer buying once a month and purchasing only 500 cases each month, might, in the period of six months, accumulate a total of 3,000 cases, entitling him to a discount of 3 per cent, whereas on individual or non-cumulative purchases, he would earn nothing. In recent years, many manufacturers have tended to reduce or eliminate the sliding scale of discounts in favor of one over-all discount: carload (c/1), truckload (t/1), with no discount for less than carload (1/c/l) or less than truck load (1/t/l). However, the sliding scale discounts are still popular in many transactions.
A second type of discount is the so-called functional discount. This is an allowance made for the performance of a specific function in distribution. Thus, the wholesaler, regardless of his size, is entitled to a wholesale discount because he performs the functions of a wholesaler. On the other hand, a direct-buying retailer (supermarket, syndicate store, discount house or department store), although he might purchase a larger quantity than the wholesaler, would not be entitled to the wholesaler's functional discount.
The functional discount was more common in years past when there were fewer direct-buying retailers. With the growth of chains, supermarkets, department stores and discount houses, this type of discount has tended to be reduced or to disappear altogether.
Of growing importance in recent years have been two types of allowances: the advertising allowance and the freight allowance.
As the name implies, the advertising allowance is given by a manufacturer to a distributor in return for advertising support. In theory, this allowance is supposed to be paid only against actual performance, a payment for a service rendered. In practice, the allow¬ance may often exceed the value of the service rendered, thus becoming a price cut to the recipient.
It is very difficult to control the exact value of an advertising service rendered. Certain regulations, aimed at controlling these abuses, have been only partially effective. Since the allowance is usually based on volume of purchases, a large buyer has a natural advantage over a small buyer.
The freight allowance also, as the name implies, is an allowance made to the buyer for part or all of the freight cost of getting the goods into his hands. Some manufacturers sell "f.o.b. mill or factory," the price at the factory door, plus freight to buyer's place of business. Sometimes, manufacturers make a blanket percentage allowance for freight. Sometimes, they pay a definite part of the freight, whatever the cost. Sometimes, they absorb the entire cost of freight, and sell "delivered price."
The method of quoting price, delivered to the customer's place of business, is sometimes called "postage- stamp pricing," since, in sending letters through the mail, the price of the mail delivery is the same whether the letter is delivered locally or three-thousand miles away. Freight allowances can become important price concessions when merchandise is heavy and freight costs large.
Whatever discounts or allowances a manufacturer grants to buyers, they are direct or indirect reductions in price. An accumulation of discounts and allowances can give certain buyers a decided price advantage over competition; hence, such discounts and allowances have, for many years, attracted the attention of regulatory bodies.

The influence of distribution channels

As we have seen, channels are the means by which a manufacturer reaches the market with his products. What channel he chooses will influence the price at which he offers his product. The consumer knows, as a rule, only the retail or ultimate price. But there may be functional and marketing middlemen between the manufacturer and the customer. Each has to be compensated for services rendered. This compensation must be included in the ultimate price the consumer pays.
As we previously pointed out, channels have changed considerably in the past few years. They are expected to change more in the next decade. The use of conventional channels has been seriously challenged in recent years. New types of distribution channels, lower- cost retailers, direct manufacturer branches, distribution centers, all have changed the cost picture. No manufacturer can afford to disregard these changes, which sometimes have cut the cost of distribution by 5 to 10 per cent.
But aside from changes occurring in the channels themselves, manufacturers often change the type of relationship previously maintained. For example, a manu¬facturer may have an exclusive arrangement with a distributor. As we have seen, such arrangements have mutual benefits and advantages. One of these advan¬tages is price stability. There is much less likelihood of price cutting under exclusive distributor contracts. Non-exclusive contracts may call for a more flexible price policy to meet price-cutting tactics either of competitors, who may be other manufacturers, or of distributors, who may be warring among themselves. In price wars of any kind, the manufacturer is almost always forced to participate directly or indirectly.
Similarly, prices may be influenced by whether the important channels carry the manufacturer's full line or only part of it. Also, trade-in practices affect prices. The final price for a new car, for example, may be the same, but the amount of money the buyer parts with will differ according to the trade-in allowance, financing charges, or terms of payment. Finally, many distributors demand concessions from manufacturers, such as promotional allowances. These may not appear on the price list but, in actuality, they become reductions in price.

The influence of cost

We have said that the manufacturer, in the long run, has to recover his costs or he will lose money. And no business will continue losing money indefinitely. Therefore, a manufacturer, in pricing his merchandise, must consider what it costs him to make it and to sell it. The price which the manufacturer eventually gets for his goods must be high enough to recover his costs.
Stress is laid on the word "eventually," because many new products are sold below cost, mostly in the introductory stages.
In calculating costs, a manufacturer has to examine what his costs have been historically, what he anticipates they will be when in full production, what effect these costs will have on the entire product line (product mix), how big a volume he anticipates, the effect a new product will have in eliminating slack periods (idle machinery doesn't earn dividends), the effect the product will have on stable employment, and what, if any, effect the product will have on increasing the size of orders.
It is clear, then, that proper cost accounting has become an important management tool. Cost includes many direct elements and perhaps as many indirect. What might seem to be a profitable price level may not be one at all. Conversely, pricing realistically may often mean probing into indirect ways of saving.
Another influence on pricing is competition. No manufacturer is free to price his goods without considering competition, unless he has a monopoly. It is not often, however, that a manufacturer has a monopoly, but it is possible. It has happened, for example, with rare drugs, and with unique inventions. But, by their nature, such products are rare.
Even the outstanding leaders in their field seldom command as much as half of the market. Usually, it is much less. The share that any one manufacturer has of the total market naturally influences the manufacturer's pricing policies. The greater the share he commands, the more secure he is as the price leader (the one determining the price level which most competitors try to match).
It is obvious that such price leadership is, as a rule, not whatever the market will bear. Generally speaking, price leadership is lower than it would be without a clearly established leader. It is the smaller competitor who has to meet the leader's price, if he wishes to compete.
The market is not a static thing. Prices change frequently as new developments, new inventions, and changes of all kinds influence both supply and demand. Even after price has been established at a competitive level, a manufacturer must constantly watch competition. The competitor may cut prices, offer better terms or service, or redesign the product to give greater customer satisfaction.