SOME PROBLEMS IN MARKET DIS

TRIBUTION

SUMMARY

Lack of systematic study of market distribution. Emphasis on production explained by economic causes. Importance of a better organization of market distribution, 703. Complexity of the problem facing the distributer. Consumer's surplus. Bearing on the distributer's problem, 707. Selling at the market minus, selling at the market, and selling at the market plus, 712. · Social justification of the differentiation of commodities: Importance of trade-marking, 718. Methods of sale: sale in bulk; sale by sample; sale by description, 721. — Available agencies for selling: middlemen, producers' salesmen, and advertising, direct and general, 723. — Emergence and rise in importance of the middleman. Modern tendency to decrease number of successive middlemen, 725. — Analysis of the functions of the middleman: sharing the risk, transporting the goods, financing the operations, selling or communication of ideas about the goods, and assembling, assorting, and re-shipping. Development of functional middlemen. Advantages of direct selling in some industries. Present day importance of the direct selling in some industries. Present day importance of the middleman, 731. The producer's salesman as an agency in distribution, 740. — Advertising as an agency in distribution: relation to sale by description; relation to trade-marking; analysis of classes of demand created by advertising, 742.- Social waste in distribution. Practical problem of distributer, 746. Analysis of market into geographic sections and economic and social strata, 749. — Laboratory study of distribution, 754. Wide application of such method of study, 758. Possibility of better organization of distribution, 763.

INTRODUCTION

THE business man is concerned with the production and distribution of goods. Factory production he finds relatively well organized. The era of the rule of thumb is passing, and the progressive business man can call upon the production expert, technically trained, to assist him in solving his problems of pro

duction. But the marketing of the product has received little attention. As yet there has hardly been an attempt even to bring together, describe, and correlate the facts concerning commercial distribution. Selling is on a purely empirical basis.

The progress that has been made in organizing production is the result of systematic study. For centuries attention has been concentrated on the problems of production. Methods of study that have proven fruitful in other fields have been applied to the problems of manufacture and a body of organized knowledge is being built up.

Now the problems of market distribution are no less worthy of systematic study than are the problems of factory production. It is as essential that the finished goods be moved from the stock room of the producer to the hands of the consumer, as it is that operations be performed upon the raw material to produce the finished goods. And the problems of marketing are even more complicated than the problems of manufacturing, because the human factor is of more direct importance. Hence the rule of thumb can be less depended upon in distribution than in production.

Why has not systematic study been given to the problems of distribution? The explanation is found in a glance back in our economic history. Chief among the causes for the industrial changes leading to the establishment of the factory system in England in the eighteenth century was the constant widening of the market. It was a rapidly increasing pressure on the producer for greater quantities of staple articles for mass consumption that gave incentive to the revolution in the method of production. For a century thereafter the necessity of supplying a continually widening market, as means of transportation steadily

improved and the population increased with unprecedented rapidity, made production the dominant problem. Economic conditions have put the emphasis on production.

Where the felt need is greatest, there will the organizing ability of the human race concentrate itself. The problems of production were sensed as the most pressing that faced society. He who improved methods of manufacture to increase output or reduce cost reaped a large reward. Hence the ablest minds were drawn toward the solution of those problems. The business manager gave his best thought to the difficult task of producing more goods at lower cost. The constantly widening market made selling a simple problem.

As a result we have built up a relatively efficient organization of production. While much remains to be done, the resources of modern science are being utilized to improve and organize our agencies of production. The development of producing capacity has been tremendous. New processes have been and are being introduced. New forces have been called into play. Methods are constantly being scrutinized to effect a more economical and efficient organization of production. The recent introduction in many industries of so-called "scientific management" is only a partial crystallization of long years of progress.

While we are but upon the threshold of the possibilities of efficiency in production, the progress thus far made has outstripped the existing system of distribution. If our producing possibilities are to be fully utilized, the problems of distribution must be solved. A market must be found for the goods potentially made available. This means, in the main, a more intensive cultivation of existing markets. The unformulated wants of the individual must be ascertained

and the possibility of gratifying them brought to his attention.

There are some, to be sure, who deplore the increasing complexity of human wants. This is a problem for the philosopher, not for the business man. Our whole civilization has been characterized by an increasing standard of living due to the demand on the part of the individual for more goods and more highly differentiated goods. The business man finds his practical task in searching out human wants and providing the means of gratification.

Not only does the chaotic condition of distribution act as a check upon further development of production, but it also involves a tremendous social waste. The consumer pays for "lost motions" in distribution as surely as he does for "lost motions" in production. Society can no more afford an ill-adjusted system of distribution than it can inefficient and wasteful methods of production. The social cost is no less real.

The most pressing problem of the business man today, therefore, is systematically to study distribution, as production is being studied. In this great task he must enlist the trained minds of the economist and the psychologist. He must apply to his problems the methods of investigation that have proven of use in the more highly developed fields of knowledge. He must introduce the laboratory point of view. To that end, an attempt is here made to outline some of the problems of commercial distribution from the point of view of the business man, to analyze them, and to point out some methods of systematic study of these problems.

PRESENT DAY PROBLEM OF THE DISTRIBUTER

The problem presented by the United States as a consuming market is a complex one. Here are ninetyodd million people distributed over an area of more than 3,000,000 square miles (excluding Alaska). Some are gathered in the large cities, where millions jostle elbows. Some are scattered over great areas with considerable distances between them and their neighbors. Some daily pass hundreds of retail stores; some must ride miles to reach the nearest store. Wide extremes in purchasing power exist. Millions have a purchasing power scarcely sufficient to obtain for themselves the barest necessities of life. A few can satisfy the most extravagant whims of the human imagination. Between these extremes lie all degrees of purchasing power, the number in each class becoming greater as you descend in the scale of purchasing power.

Their wants are as varied as their purchasing power. Environment, education, social custom, individual habits, and all the variations in body and mind tend to render human wants diverse. In each individual there are certain conscious needs being constantly gratified by the purchase of goods produced for such gratification. Then there are the conscious needs which go ungratified because of the limitations upon purchasing power and the existence of other needs of greater felt importance. And then there are the unformulated, subconscious needs which fail of expression because the individual is ignorant of the existence of goods which would gratify them. Twenty years ago, to illustrate this last class, there existed in the farmer, far from a barber shop and clumsy in touch,