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IN 1865, during that period of our industrial era when the demand for manufactured products far exceeded the capacity of the factories to supply it, a partnership under the name of the Moline Plow Company began the manufacture of a line of plows. The first plant of the company consisted of a small frame building. The company prospered from the start. In 1871 it was incorporated. Its profits were amazing. For a long period the dividends to stockholders amounted to 20 per cent a year.
During the early years of the company's history its principal problem was of the same general character as that of most manufacturers of that period. The owners concerned themselves almost exclusively with the work of manufacturing a line of plows by the most efficient methods which the existing state of industry made possible. The marketing of their plows was a comparatively simple process, and the entire "marketing problem" was disposed of by operating on the theory that so long as they produced satisfactory plows at a low enough price to meet all competition, the market for their plows would grow as rapidly as they were able to increase their facilities for manufacturing them.
Then came the era of high pressure marketing; the period, now at its zenith, when selling and advertising and distribution methods sacrifice the general economy of distribution of the products of an industry to the aggrandizement of the individual manufacturer.
The Moline Plow Company, which had been originally an organization for the production of plows and tillage implements, gradually changed from primarily a producing organization to primarily a marketing organization.
In implement manufacturing, high pressure marketing took the form of expansion by the manufacturer so as to sell through one selling organization and under one trade name a full line of agricultural implements. The leading manufacturers in the field set the pace for expansion of all the manufacturers by selling not only the particular implements which they were organized to produce, but full lines of farm implements of all kinds.
The Moline Plow Company followed the trend of the times with an ambitious program of expansion. A factory at Poughkeepsie, New York, was bought; another was acquired near Minneapolis; a third in Freeport, Illinois; and so on. It was no longer a plow company, but a distributing agency for wagons, tractors, and even automobiles, all of which were marketed under the Moline name. P. H. Noland, General Sales Manager of the Moline Implement Company, which is now carrying on the business, describes in considerable detail the methods which were used during the era of high pressure marketing by the company. (From the article in the June 3, 1925, issue of Advertising and Selling Fortnightly. What Mr. Noland has to say is written with such naive disregard of its underlying significance that what he says is much more effective than anything which I might say myself concerning high pressure marketing.)
"The old way," he says in speaking of the methods which were and still are in general use in the marketing of agricultural implements, "was to work through branch houses, each of which maintained an expensive staff of accountants, shippers, laborers, salesmen, canvassers, and collectors; to extend extraordinary long terms; to make the dealers practically agents and to add to an already heavy load almost every 'service' that ingenious minds could think of to attract business--except the fundamental service of economical marketing! Manufacturers had salesmen who called on dealers; canvassers who went out and drummed up business for dealers; experts who helped to install implements and service them; and bill collectors who helped the merchant get his money so that the manufacturer might get his! Altogether an expensive outfit. We used to figure that only about half the time of our salesmen was devoted to selling; the balance was given over to collecting.
"Long terms tied up the manufacturer's money endlessly. An implement sold in the spring was likely to be billed for fall payment; but often it was understood that if the dealer failed to dispose of the implement that season, he would not have to pay the manufacturer until the next fall. This was a survival. In the early days of the industry it was not so bad, because the West--where implements were needed--had no money and few banks, and the manufacturer by extending long terms served as a useful agent in employing the excess capital of the East for the development of the West. But the system remained after the West grew up. It entailed extensive bookkeeping, increased the risks, and resulted in extremely low rates of turnover. For the industry as a whole, the rate of turnover has probably been lower than for any other industry approaching it in size; we figure it runs somewhere between once in eighteen months to two years.
"Another survival was the excessive number of dealers. Manufacturers established agencies at every cross-roads store. When railroads were few and slow and wagon roads were bad, something of this sort had been almost essential. But with the speeding-up of transportation and communication facilities, the system began to weight down the industry with waste. The territories of dealers were so small that few of them could hope to sell much. Their expense percentages accordingly were high. They could not buy in bulk and save money by that means. Retail prices were high. Yet the dealer got very little profit out of it.
"Finally, there was the 'free' service. Of course it was not free--it found its way into the price. It was available for all customers. Those who accepted or demanded it, got it, but at the expense of those who did not need or demand it; the latter paid for something they never received.
"This description of the old method is not overdrawn. It is what we did; what everybody did. On many lines we figured that the factory cost was not fifty per cent of the price the consumer finally paid. The rest was eaten up in distribution costs."
Are the methods of marketing described by Mr. Noland peculiar to the implement industry? No. Instead of being confined to this industry, his description might be applied almost word for word to one industry after another.
Not every industry uses all the methods Mr. Noland describes, but some of them are being used in every industry which indulges in high pressure marketing. The mania for a full line is indulged in by manufacturers who make products ranging all the way from agricultural implements to paint brushes. A manufacturer makes a paint brush; creates a demand for his brand through advertising, and soon he is selling tooth brushes, shaving brushes, and every imaginable kind of brush under his brand, many of them not of his manufacture at all.
The mania for installment selling is a device used not merely by the manufacturers of agricultural implements and productive machinery of an enduring nature, but also by those selling automobiles, phonographs, and radio receivers, and by those selling clothing, paint, ice, and fuel, the installments on which have to be paid long after the commodities have been consumed.
The mania for house to house selling has transformed the peddler of old into the specialty salesmen of to-day. There are concerns selling from door to door articles varying from perfumery to brooms and from raincoats to silk hosiery, who employ thousands of canvassers and whose methods of operating are scientifically regulated.
It is well worth taking time to give consideration in some detail to these methods of marketing and to try to form a true picture of how extensively they have been applied to the distribution of most of the products we are now consuming. In their entirety, these methods represent a complete transformation in the marketing methods which were in general use during the period prior to the expansion of the Moline Plow Company.
In what he says concerning the period in which the Moline Plow Company was indulging in this high pressure marketing, Mr. Noland speaks merely from his own experience. Yet he re-states the gist of my indictment of these methods of marketing in these words: "On many lines," he says, "factory cost was not 50 per cent of the price the consumer eventually paid. The rest was eaten up in distribution costs."
Before we study in some detail these methods of high pressure marketing, it may be of interest to follow the history of the Moline Plow Company and learn how the successors of the original company have managed to make a success out of a return to the methods which preceded the era of high pressure marketing. When the bottom dropped out of the farm market during the period of deflation following the war, the Moline Plow Company failed to weather the storm. Bankers took the company in hand and reorganized it. A new company was formed for the purpose of returning to the manufacturing policy of the original company.
Speaking of the decision of the successors of the company to abandon high pressure methods of marketing, Mr. Noland says:
"Now, it is not easy to buck the established practices of an entire industry with something radically different. Yet that is what we decided to do. In the new merchandising plan we worked out we included these principal features: 1. Sales for cash; 2. A policy designed to make the dealer a real merchant, actually performing the functions for which he is presumed to exist; 3. Bulk shipping from the factory, to the greatest extent possible--shipments from branch warehouses to be discouraged; 4. Service no longer 'free'--to be paid for if and as delivered.
"Under this plan, our branch house organizations became substantially nothing but warehouse stations, with small stocks from which to make emergency shipments when dealers were unable to order a carload from the factory. Our sales force was greatly reduced; we now have forty-six men, no more than formerly might have served a single branch. We do not try to sell to every dealer; our aim is to get fewer and better dealers, making the territory of each one large enough so that he can develop a real volume of business. We have no more factory canvassers.
"Results are apparent in the reduction of expenses. We have done away entirely with costly credit and collection departments, and with many salesmen and branch house employees.
"Our rate of turnover has nearly doubled. We now turn our money about once in ten months, as compared with from eighteen months to two years formerly; and we foresee a time when we shall have two turns a year.
"We are securing a more satisfactory type of dealer; the man who has ready cash and the business acumen to use it for his advantage. We get, too, those desirable and energetic dealers who have bank credit. We miss entirely the risky fellows who have neither cash nor credit nor the energy to get them.
"Finally, there is the test of volume. Naturally, our volume suffered a terrific drop when we cut off all those extra lines. But I think I am safe in saying this: in the lines we retained, we have shown a greater increase in volume in the last year than anybody else in the industry. The plan and the company are no longer experiments. We have pushed our volume well into our area of profit. The company will make good money this year--more than it has made since 1915 and more, we believe, on a $3,000,000 capitalization than formerly with many times that capital.
"To sum up, I think we have learned unforgettably these truths: 1. It is a doubtful blessing to be able to offer customers, regardless of cost, a 'full line'; 2. A 'full line' is no blessing at all when a goodly number of the items have to be sold without profit or at a. loss; 3. A huge volume of sales, by itself, is no measure of the success of a concern's marketing; 4. There may be very serious dangers in giving dealers too much assistance--they may become worthless to themselves and you; 5. When you are able to effect genuine economies in marketing, you will find a host of customers eager to share them.
"It cost us money to learn some of these things. We count the experience worth millions."