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I THINK that so far we have established conclusively the truth of four out of the five propositions outlined in the opening chapters of this book--first, that distribution costs in this country, both for physical distribution and for marketing, have risen out of proportion to production costs; second, that high freight rates and cross hauling and unnecessary transportation are principally responsible for the rise in the cost of physical distribution; third, that one of the most important factors in causing the rise in the cost of marketing, as distinguished from the rise in the cost of physical distribution, is "high pressure" selling, "high pressure" advertising, "high pressure" marketing generally; fourth, that manufacturers engaged in mass production and mass selling have been the active factors in the development of extravagant marketing and unnecessary transportation; that they are responsible for the breaking down of that skillful and skeptical buying by retailers and consumers which tends to raise standards and to lower costs.
I propose now to show that the fifth proposition furnishes a practical and economic technique for eliminating high pressure marketing--that the wastes of high pressure marketing can be eliminated and the cost of distribution lowered if the retailers and wholesalers of the country would, first, accept full responsibility for the task of furnishing to the consumers of the nation the products of our farms and factories; second, buy according to established grades and standards in order to make production subservient to consumption; and third, promote consumer education as to merchandise.
(It is true that these suggestions only offer an indirect solution of the question stated in my second proposition. Transportation and land-tenure play tremendously important parts in the drama of distribution. But the question of the responsibility of our present railroad freight structure for the high cost of physical distribution would require a book of its own, just as the question of the responsibility for the high cost of distribution which may be attributable to our present system of land tenure would justify a volume exclusively devoted to that question. The railroad question and the land question have, however, been treated at great length and by many writers. The phase of the problem to which I have devoted myself has up to the present time been largely neglected.)
1. Retailers and wholesalers should accept full responsibility for the task of furnishing to the consumers of the nation the products of our farms and factories.
Few retailers and wholesalers have any adequate conception of the economic significance of the work they do. The men engaged in retailing and wholesaling have no consciousness of responsibility for distribution which is comparable to the medical profession's consciousness of responsibility for the health of the public. Yet there are reasons for their assuming that responsibility just as important to them and to the public, as there are reasons for the assumption by physicians of responsibility for the public's health.
Today there are two different methods and conceptions of the work of retailing and wholesaling in irrepressible conflict.
By one of the conceptions, the manufacturer is supposed to take full responsibility for the distribution of the products he makes. He is supposed to identify his product, create a demand among consumers for his brand with national advertising, and use wholesalers and retailers merely as agents for distributing his products to customers who have been "sold" by the manufacturer's advertising. The retailer is supposed to be the agent of the manufacturer and the retail store is supposed to function like a slot machine. The retailer is supposed to stock goods in accordance with the demands of his customers for the various brands. He is not supposed to influence his customers to buy merchandise which he selects because in his judgment it meets in price, quality and style the needs of the trade to which he caters. The retail store is supposed to be merely a convenient place in which it is possible to get the particular brand which the customer has been persuaded to ask for by the manufacturer.
By the other method and conception of the retailer's work, the retailer is supposed to act as the purchasing agent for the community he serves. Out of the offerings of all the manufacturers, the retailer is supposed to select those which from the standpoint of quality and price and style will best satisfy the wants of his trade. If his selections are well made, he will have little difficulty in convincing his customers that his judgment was sound and that they should be guided by his experience.
The first of these two methods requires high-pressure marketing by the manufacturer, and results in shifting the burden of leadership in distribution from the distributor to the manufacturer.
Day by day, the direction of distribution becomes more and more the work of manufacturers. They determine arbitrarily how products shall be marketed and through what channels they shall be distributed. Manufacturers create channels of distribution to suit themselves and adopt marketing plans quite without regard to the effect of their plans upon the cost of distribution generally. Each manufacturer seeks to persuade the wholesaler and retailer to stock his brand quite without regard to the fact that the abandonment of existing brands by a distributor or the addition of unnecessary new brands, (if the existing ones are retained), lowers turnover and raises costs by unnecessarily increasing stocks.
If the retailers and wholesalers of the country continue in increasing numbers their acceptance of the place in the scheme of distribution to which these tendencies consign them; if they permit the manufacturers to direct more and more of the work of distribution, then it is only natural that they should receive less and less for the work that they do; that manufacturers should constantly shrink the margin upon which distributors work, and that the total cost of distribution--the combined cost of distribution of both manufacturers and distributors--will cost consumers more and more.
To remedy this state of affairs, retailers and wholesalers must assume the responsibilities of their position in our economic system. They must force the manufacturers of the country to recognize that retailers are better interpreters of the needs of the public than the manufacturers and that manufacturers must distribute their products through those channels of distribution which in the long run are most efficient and economical.
Self interest and public interest both dictate that retailers and wholesalers should perform a selective service for their customers and not an automatic service as distributing agents for the manufacturers.
Retailers and wholesalers should therefore fit themselves to intelligently supply the wants of their customers--to perform the work they have chosen to engage in efficiently and economically. To do this, they must actually make themselves responsible for distribution--individually and as an organized body. The economic function which wholesalers and retailers perform is a vital part of the work of distribution. They must assume the direction of that work if they are to properly serve the public and to deserve and receive an adequate return for the work they do and the capital they invest in their businesses.
2. Retailers and wholesalers should buy according to established grades and standards in order to make production subservient to consumption.
Today the numbers of products purchased by wholesalers and retailers in accordance with recognized grades and standards are few and far between. The retailers' capacity for judging merchandise has been almost entirely destroyed by the widespread habit of buying by brand instead of in accordance with established grades. Yet no other thing would so greatly help in reducing distribution costs: first, by reducing national advertising, eliminating high pressure marketing, and doing away with the confusion of fictitious selling and advertising points; secondly, by reducing the variety of brands retailers and wholesalers would have to carry, thus speeding turnover and reducing mark-downs; and thirdly, by lowering manufacturer's marketing costs, reduce prices, thus making it possible for a greater number of consumers to purchase the product, or for existing consumers of it to purchase the product either in larger quantities or of better qualities than before.
That retailers and wholesalers can well afford to represent the interests of their customers by buying this way, and by promoting standardization, is to understate the situation. They can not only afford to do it without loss, but they can afford to do it because it will add to their own profits.
A grocer located in a section in which consumers earn an average income which enables them to spend $10 per week with him, will sell $10 worth of groceries to each of his customers. From week to week and season to season, the grocer's stock may change. He may sell bulk coffee at low prices per pound or package coffee at higher prices. He may sell cereals as nature made them, or he may sell them transformed into breakfast foods. But in all cases, he will find that his sales to his customers will still average $10 per week per customer. Nothing will change that except a change in his customers' income.
If he sells coffee, cereals, sugar, and canned goods by grade instead of in advertised packages, he will be able to give his customers either more for their money in quantity, or more for it in quality. That ought to be a sufficient incentive to make him really strive to act as their purchasing agent. But if that is insufficient, the fact that he can secure a better margin of profit on the goods which he thus selects for his customers ought to make him anxious to re-orient his buying, his selling, and the arrangement of his stock so as to make this method of operating profitable, economic and hygienic.
What would follow from this is well set forth in the following extract from an article by Stuart Chase and F. J. Schlink in The New Republic, December 30, 1925, pp.154-155:
When goods are bought to specification, quality is set; scientifically defined. The buyer knows exactly what he is getting; the manufacturer knows exactly what he has to produce. Competition must then descend from the cloudy heights of sales appeals and braggadocio generally, to just one factor--price. Who can meet the specification at the lowest price? Quality being predetermined, there is no longer any argument as to who furnishes the "best" product--there isn't any best or worst to furnish except as the product may be better than the required minimum for the grade in question. And down the trapdoor goes all the advertising and all the salesmanship which falls under the general head of persuasion--to use no harsher terms. Down goes the distribution overhead, and with it the cost of the delivered article.
Secondly, when competition is on price only, a battering ram begins to operate on profit margins. The manufacturer who shades his profit per unit the most, is likely to get the order. Down goes the cost to the consumer again--the maker secures large distribution at a small margin of profit per unit--the Ford-Filene idea. Both manufacturer and consumer benefit.
Thirdly, the manufacturing process itself tends to become simplified. It is no longer necessary to make so many styles and variations on the chance of catching the consumer's eye. "Special features," fancy packages, drop out of the picture. One can produce in large units; one has a better chance of "balancing the load" in plant operation. Thus the concern which now makes the government's ink has divested itself of all snappy executives and expensive trappings, and in a plain but well lighted loft in downtown New York, bends all its energies to making good ink, day in day out, with no fear of seasonal variations, fluctuations, or market upsets during the present contract. Less romance, perhaps, but more sound workmanship. With the drop in manufacturing costs, down goes the price again.
Fourthly--and this is a category of the utmost importance--the consumer, buying to specification, is in a position to buy for a specific purpose. If tests have made it clear that a cheaper product or a lower grade or a different product will adequately meet his need, he can buy the cheaper article and save the difference. He no longer has to protect himself b y paying the highest price, fearing that cheaper grades will be adulterated, or go wrong. How often have you and I paid through the nose because our only test of quality was the highest price in sight. For certain uses, the Society of Automobile Engineers reported that lubricating oil costing twenty cents a gallon was as good as oil at $1.35. It met the specifications, and the purpose, at one-seventh the cost. Tests show that certain hardware in ten-cent stores has just as good steel as hardware in stores where the price is two or three times as much. The latter article has a little fancier handle, but for a given use, the tools are identical. Government research finds that for many uses reworked wool has better wearing qualities than all-virgin wool. It finds that certain limestones make better building material for specific uses than sandstones--thus upsetting an ancient dogma. If and when the consumer can be guaranteed by test and specification that the cheaper grade meets his purpose as well or better, down goes the price again.
Fifthly, buying to specification eliminates all possibility of deliberate adulteration. It drives the specious, the jerry-built, the actively hurtful from the market. Such products often represent a dead loss of manpower and raw material in the making, to say nothing of the terrific overhead burden of astute salesmanship which now keeps them on the market. In the aggregate this too will operate to lower prices by eliminating waste.
Let retailers and wholesalers once begin to buy in this way, and we shall see with amazing rapidity that production will become subservient to consumption and that the consumer's best interest, rather than the manufacturer's best interest, will be served by the marketing methods of our manufacturers.
3. Retailers and wholesalers should promote consumer education as to merchandise. To bring about the transformation in buying outlined above, it will obviously be necessary to re-educate consumers. They will have to be taught to buy by grades instead of by brands. They will have to be taught to look to the Bureau of Standards in Washington for information about what to buy instead of the advertising section of their favorite magazine.
The practicality of this is apparent from the following in the article by Stuart Chase and F. J. Schlink, from which I have already quoted:
Each year the government buys some $300,000,000 of products--ranging all the way from thumbtacks to dredging machines; from baseballs to battleships. Nearly every kind of thing the general consumer buys, the government buys--though in not such great quantity--foodstuffs, textiles, clothing, furniture, building materials, office supplies, shaving tackle, sporting goods, toilet articles . . . everything. But in buying much of this material, the several purchasing agents pay no attention to pretty girls or magazine covers, nor yet to super-salesmen with pants like the Prince of Wales. They pay attention to instructions from the Bureau of Standards. Half-way between Washington City and Chevy Chase, these great laboratories and testing rooms rise-- magnificently on guard. Skilled chemists, physicists, engineers, research workers, in a hundred fields are passing continually and relentlessly upon the relative quality of the goods which the purchasing agent proposes to buy. During the last fiscal year, the Bureau made no less than 173,000 tests.
The government alone has developed over 11,000 specifications covering, besides foodstuffs, soaps, denims, metal polishes, hooks and eyes, motor boat engines, shipping cases, and so on indefinitely. The total of specifications available from all sources runs to something like 27,000.
Here are two simple government specifications covering the purchase of foodstuffs
Chocolate--best quality unsweetened: to contain not more than 3 per cent of ash insoluble in water, 3.5 per cent of crude fiber, 9 per cent of cocoa starch, and not less than 45 per cent of cocoa fat per pound. (Such chocolate the government buys for 15.5 cents a pound. We pay around 45 cents, retail distribution costs included.)
Gelatin--granulated in packages: must not contain bacteria in excess of 50,000 per gram, arsenic in excess of 1.4 parts per million, copper in excess of 30 parts per million, and zinc in excess of 100 parts per million.
Unless consumer education as to merchandise is to be a mere pious desideratum, it is necessary to determine whether any instrumentalities for consumer education exist, and if so, whether the available instrumentalities are sufficiently independent of the national advertisers to undertake the task.
Innumerable instrumentalities for consumer education do exist. The schools, women's clubs, labor unions, and farmers' organizations are typical of them. Unfortunately the instrumentality for consumer education which is most important--the newspaper and periodical press--cannot afford to undertake the task. Periodicals are supported either in their entirety or in large part by the national advertising of manufacturers. Instead of educating consumers and teaching them how to discriminate in buying, it is in the interest of the national advertisers that the publications try to blunt the consumer's sense of values. What is worse, since education, and club life, in fact the whole of society in America, takes its tone so largely from newspapers and magazines, important avenues of possible consumer education are unaware of the need of this education and are deprived of the facts upon which it must be based.
One instrumentality does, however, exist which can afford to educate the consumer. That is the retail store itself. And here, fortunately, the education of the consumer can be carried on most effectively. Instead of mechanically handing out the various brands for which consumers ask from day to day, the retailer and his sales clerks can educate them most effectively in the very act of selling them the merchandise which he has in stock and which he has selected as the best in price, quality, and style. In doing so, the retailer will win the respect of his customers, build goodwill for himself, and earn the greater profits which will inevitably come to him.