ilPl, iiil::^ fljlllllHlllil lllllililiiliWi'i Wmffi llisliiiraiiiiiii!: i^tate (ftoUcgc of Agricttlture JIttjaca. m. ^. Htbratg HF5823.C5""'"""'"'"'"'"-""'"^ 3 1924 013 946 409 Cornell University Library The original of tliis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013946409 ADVERTISING AS A BUSINESS FORCE ADVERTISING AS A BUSINESS FORCE A COMPILATION OF EXPERIENCE RECORDS BY PAUL TERRY CHERINGTON mSTSTTCTOR IN COMMERCIAIi OBGANIZATIOX IK THE GIIADT7ATE ■CHOOL OP BUSINESa ADMINISTRATION, HARVARD DKTVERHITT PUBLISHED BT DOUBLEDAY, PAGE & COMPANY FOR THE ASSOCIATED ADVERTISING CLUBS OF THE WORLD 1919 Copyright, 1913, by The Associated Advebtising Clubs of the World All rights reserved, including that cf translation into foreign languages, including the Scandinavian To HERBERT S. HOUSTON CHAIBMAN OF THE EDUCATIONAL COMMITTEE OF THE ASSOCIATED ADVERTISING ClilTBS OF THE WORLD THIS BOOK IS DEDICATED 'Such earnest natures are the fiery pith. The compact nucleus, 'round which systems growl Mass after mass becomes inspired ihereunth. And whirls impregnate with the central slow." PREFACE THE purpose of this book is to provide a test for the individual instruction work for the Educational Com- mittee of the Associated Advertising Clubs of America. Throughout the work of compilation we shall endeavor to keep strictly to this purpose. In the selection of experience records it will be our aim to make our choices primarily with this object in mind. In a choice between two articles of equal value, the availability of one or the other for individual instruction purposes will lead to its selection. If the book, in addition to being useful for this individual in- struction work, serves to put before advertisers, in a somewhat new light, material with which they are already familiar, we shall be glad that its usefulness may be thus extended. Again, if the compilation of these experience records serves to preserve from disappearance, in the files of the publications in which they appeared, some extremely valuable material covering the development of advertising during the last few years, we shall be glad that its usefulness has been enhanced by that service also. The plan of the book embraces the selection of records of experience showing how advertising activities have been related to the selling results they were designed to produce. These experience records will be compiled under a few general headings corresponding with chapter divisions, and these general headings will be arranged in two main groups. The first of these groups will discuss the organization of the distri- bution system for handling goods sold ultimately at retail, and will discuss the advertising aspects of the successive steps in this system. Some attention also will be given to the changes viii PREFACE— CoMimwed in the distribution system and the advertising aspects of the new conditions resulting from these changes. The second group of chapters will be devoted to a discussion of present-day advertising problems and methods. The plan for the compilation provides for comparatively little constructive interpretation on the part of the compiler of the quotations selected. We shall aim to make the quota- tions tell their own story as far as possible. We believe that what we sacrifice in this way, in the matter of unity, we shall gain in preservation of freshness and variety of viewpoint — to say nothing of the preservation of the air of authority which can only come frorii a imxch wider range of knowledge than any one person can possess. We wish to express our thanks to those who have so liberally assisted us in making this compilation. John Irving Romer, editor of Printers' _ Ink, Le Roy Fairman, editor oi Advertising and Selling, and D. V. Casey, managing editor of System, we wish to especially thank for their cordial co-operation in giving us access to their files, and we wish to thank the proprietors of each of these magazines for permission to use the material which they have published. We wish, also, to acknowledge our appreciation of the extremely cordial co-operation which we have received in all matters from Chairman Herbert S. Houston of the Educational Committee, and from the members of the committee, who have from time to time examined the work while it was in progress and have been of great assistance with their frank criticisms and valuable suggestions. Page CONTENTS PART I ADVERTISING AND DISTRIBUTION CHAPTER I Selling Problbms and the Advehtiseb How one advertiser changed his advertising campaign to fit the results of an analysis of his market — Advertising as a business force — The article, the consumer, and the distribution system and their place in the advertising plan — A method of commercial analysis prepared by an advertising manager — Another method prepared by an advertising agent — How a baker analyzed the bread market of New York City — The facts in production and distribu- tion which govern the advertising. CHAPTER n The Distribution System 29 The main steps in the distribution system for goods finally sold at retail^ — The conflict between the various parts of the system — Manufacturers who avoid jobbing — Jobbers who manufacture — Re- tailers who buy direct — Retailers who cannot buy except through jobbers — The resulting disorder — The effect on advertising — The dilemma of the retailer — The strength of the retailer's position. ix X CONTET>iTS— Continued CHAPTER m The Relation op Advertising to the Distribution System 47 What to do before advertising — Sales possibilities and sales methods — Developing sales possibilities by advertising — EfiFect of advertising on adver- tisability of goods — Effects of advertising on un- advertised goods — Advertising and its effects on demand and distribution — Weak links in big campaigns. CHAPTER IV The Problems of Medium Selection .... 68 Some of the chief mediums — Newspaper, magazine, out-of-door and street-car advertising as illustra- tions of progress in the bettering of mediums — An experience in correlating national and local mediums — The advertiser's ability as a factor in medium selection — Commercial problems and advertising practices — The case of "Carnation Milk." CHAPTER V Advertising and the Consumer 88 The modern consumer — How advertising shapes con- sumer's wants — The strong and the weak points in the consumer's line of defence — Spending power — Saving instincts — Standards of living — Price habits — Buying customs — The effects on the con- sumer of the increased number of appeals — The Encyclopaedia Britannica campaign — Increasing and improving the consumer's wants — The tailor's defence against ready-made clothing — One way to meet substitution. CONTENTS— Continued , xi CHAPTER VI PAGE Advertising Problems of the " Regtjlah " Retailer 119 The process of restandardization in retailing — The value of the small market as a short-cut — The place of the "regular" retailer in national adver- tising plans — Dealer help — The case of Crisco — ■ Dealer literature — Six days in a druggist's mail — Window displays — The Victor Company's use of the dealers' windows — Appeals to the consumer as dealer help — Getting the dealer to work in the selling system — The Sealshipt oyster plan — How the advertiser could help the small retailer run his business. CHAPTER Vn Idvebtising Problems of the New Types of Re- tailer . . 157 The baflBing scarcity of data — Entering the retail trade through the department store — Creating department-store individuality — Advertising as- pects of the chain store — The methods of the United Cigar Stores Company — The spread of the chain-store idea — The chain store in the drug business — Some important chain systems — Mail- order business — Advertising aspects of co-operative enterprises — The United Drug Company — Co- operative retail control of a wholesale house — Retailers co-operate in their common work. CHAPTER Vin Advertising and the Wholesaler .... 206 The disturbed conditions in the wholesale field — The growth of large retailers and the jobbers' work — The appeals to the consumer as they affect the xii CONTENTS— Coreiinwed PACK jobber — Why the jobber is on the defensive — Modern distribution and the place of the middleman — A wholesale grocer's defence of his business — Why jobbers manufacture — The private-brand war — The pros and cons of the private brand — How a roofing concern reclaimed its business from jobbers' brand control — The Steero campaign — The jobber's relations with the manufacturer — How one manufacturer forced the jobbers into line — The Hunt fruit case — The Scott paper case — A manufacturer's defence of the grocery jobbers — Jobbers and price maintenance. CHAPTER IX The Manupactuheb and His Adveetising Peoblems 257 Advertising policy as a part of manufacturing plan — The factory and its place in advertising plans — Advertising uses of the factory — How the National Cash Register sales force worked over a small advertisement — Advertising problems — A new product — Protection of the goods in trade by means of advertising — Fashion as an advertising problem — Selling policy and its advertising effects. PART II ADVERTISING PROBLEMS AND METHODS CHAPTER X Advertising and Selling Co-ordination 291 The problems of production may be standardized — The problems of selling are largely individual — Organization of the selling force — The National Cash Register system — The American Multi- graph Sales Company's advertising and selling ^ CONTE'NTS— Continued xiii rACE plans — The methods of the National White Lead Company — H. J. Heinz Company's appeals to the consumer through the distribution force — "Sell- , ing" advertising plans to the sales force — Getting even the clerk to help — Walker grape juice methods. CHAPTER XI Tbade-mark Phoblems 331 The uses of the trade-mark — Trade-marks as com- mercial autographs — As weapons of offence or defence — Trade-mark families — The Rubberset group and others — Legal aspects of the trade-mark — Trade-marks refused registration — Good marks to use — Trade-mark selection — Wise and foolish advertising names — Trade-mark policy — Selling textiles under trade-mark — The Onyx hosiery ex- perience — Trade-mark problems. CHAPTER Xn Pbice Maintenance 380 What is a fair price? — How is a fair price to be pre- served.'' — Price maintenance and the advertiser — Prices of "restricted" and "unrestricted" goods — A sad-iron maker's experience and views — Argu- ments for price maintenance — Some grocers' views of price maintenance — Hotel Astor coffee — Ar- guments against price maintenance — Duke C. Bower's opinion — The arguments of the Macy Company — The Miles vs. Park decision — The Diek Mimeograph case — The Kodak Company's ,y price policy — Methods of price maintenance — The effects of price maintenance on the volume of trade. xiv CONTENTS— Conimwerf CHAPTER Xm FAGI Disposal of Advertising Costs 429 "Who pays for advertising?" — What is meant by "pays"? — What is meant by "advertising"? — Payment for advertising depends on effect of adver- tising on distribution costs and margin of profit — Profit margins of manufacturer, wholesaler and retailer — Selling cost and the factors that reduce it — When does advertising expense become an investment? — How much to spend for advertising ? — Bookkeeper's disposal of advertising expendi- tures — Educating dealers to know who pays for advertising — Social effects of advertising. CHAPTER XIV The Advertising Manager 461 The work of the advertising manager — What he could learn behind the counter — The real functions of the advertising manager — The services he cannot dele- gate — His relation to the selling policy — Co-opera- tion with the selling force — The scope of the advertising manager — What the advertising mana- ger should be — His duties and training — How some managers got into the business — The need of ability to work with others — The demands of a modem advertising manager's position. CHAPTER XV The Advertising Agency 493 The growth of the agency — The problems of the agency — The work of the agency — Medium selec- tion — Trade aid — Data gathering — The agency and the selling problems — Relations of agencies to CONTENTS— CoTUinued xv PAG« advertisers — The professional character of agency service — The question of compensation — The pres- ent and future of the agency business. CHAPTER XVI Conclusion 537 New uses and new forms of advertising — Legal re- cognition of the dangers of advertising abuses — City boosting — Railroad advertising — The meth- ods of the Harriman Lines — The Hudson-Manhat- tan Railway experience — Legal restraints on advertising — The Printers' Ink statute — State boards of advertising proposed — New demands on advertising — (1) Contact with selling — (2) Accu- rate knowledge — (3) Exacting standards of honor. Index 563 PART I ADVERTISING AND DISTRIBUTION CHAPTER I SELLING PROBLEMS AND THE ADVERTISER ACANNER of baked beans had been advertising for years that his beans were the best canned beans that could be produced. In spite of careful devising and skilful execution of his advertising plans his sales increased only moderately. One day he — or his advertising agent for him — made an analysis of his market. His methods of analysis and his figures are his own secret, but he found something Analysis ^^^ this: About 60 per cent, of the families in "his of the market" did not use baked beans at all, as a regular Showed P^^ °^ their diet. About 20 per cent, preferred to bake their own beans, and about 10 per cent, were using his beans, leaving 10 per cent, of the possible trade in the hands of his competitors. Then he saw a great light. He had been advertising merely to keep the 10 per cent, of the possible bean trade of his region which he already had, and to win from his competitors a share of another 10 per cent., but he was making no effective appeal to 80 per cent, of the possible trade. He had analyzed his product, but he had not made a study of his possible market. The advertising plan was rearranged to appeal to the two great unreached classes — those who did not use baked beans , _,, and those who baked their own — and before lone Another . . , , . , , , Analysis the results were surpnsmgly good. And then the f^"!^ growth slackened. A leak had developed somewhere and only a small part of the expected effects of the advertising came back in the shape of business. Another inves- tigation showed that the advertising appeal was not adequately 4 ADVERTISING AS A BUSINESS FORCE co-ordinated with the distribution system. These beans were not always "present" when consumer-interest became con- sumer-demand — when Mrs. Consumer asked her grocer for a can of Mr. Advertiser's beans. This was a more difficult problem to solve than the other, and the manufacturer is not at all sure that he has it solved even yet. At least he is skeptical about the permanence of his solution. But he is sure that his advertising is giving him results far better than those he secured when he based his plans on one or two instead of all three of the elements of the situation — the goods, the market, and the system of distribution. He now sees advertising in its various aspects as a business force.* Advertising as a business force is the theme of this study. It is our plan to investigate this side of the subject by The Plan examining concrete cases chosen from such records of This as are available. Advertising technique we shall study only incidentally, leaving a detailed discussion to others. Furthermore, we shall seek to simplify our study by confining our attention to the advertising problems connected with the sale of those articles which find their final outlet into consump- tion in small units — goods finally sold at retail. We shall try to find what is true in this field first, rather than to generalize over all the possible fields of advertising activity. If we can find how advertising is tied up with the various steps in distributing hardware, groceries, drygoods, drugs, and the like, we may estabUsh principles which can be traced as working in community publicity, railway advertising, and the other fields where the desired ends are attained by more indirect methods. A good chess player never forgets that he is in the game for one thing. He wants to checkmate his opponent's * This case has been based in part on actual facts. It should not, however, be taken as more than a hypothetical case to emphasize the two points made. SELLING PROBLEMS 5 king. He may be able to do it in two moves, or lie may take a hundred moves to do it. But that one thing is what he is after. And so the good advertiser never loses sight of the fact that he is aiming finally at sales. He may be moving the pawn of general pubUcity, he may be protecting a castle of fixed price, he may be making any one of a thousand advertising moves, but ultimately he expects his advertising by its effects on sales to make his business bigger, or steadier, or more permanent, or more profitable, or all of these together. In the field to which we are confining oiu: attention — merchandise for individual consumption — this ultimate purpose takes the form of a large number of small sales to individual consumers. And the number must not only be large but it must have all the possible elements of permanence and stability. The channels through which these sales are to be executed become an element in every advertising plan in this field. The advertiser, whether he be a producer, a wholesaler or a retailer, is obliged to lay out his attack on the consumer's buying desires with an eye to the means by which those desires are to be con- verted into sales. The article to be sold, the possible consumer, and the means by which the article is brought to the consumer are the three great factors in distribution of goods for retail The consumption which bear on advertising. An analysis Contumer, °^ these factors by some clear, logical method thus and the becomes not merely a valuable adjunct of the adver- Syitem tising plan, but a necessary part of it. We have seen how it changed the advertising methods of the bean-canner. The question is: How is such an analysis to be made ? No plan ever has been devised, and it is a safe prediction that none ever will be, which can be used as a foot rule for measuring all the elements of an advertising campaign. But a number of 6 ADVERTISING AS A BUSINESS FORCE methods have been worked out which contain valuable sug- gestions for analytical studies of this kind. A METHOD OF COMMERCIAL ANALYSIS For instance, R. E. Fowler, advertising manager of the Printz-Biederman Co., of Cleveland, Ohio, is sponsor for an ingenious and suggestive series of charts showing how MeM. an analysis might be imdertaken of goods {Printers' of Ink, February 18, 1912, p. 53), of ike possible market Procedure (p^^^^^^, j^jj.^ Februaiy 22, 1912, p. 20) and of the means of distribution (Priniers' Ink, March 14, 1912, p. 28). These charts, while they cannot of course be taken as a final and accurate working plan for every, or any, advertising cam- paign, do suggest the kind of points every advertiser needs to have in mind. And they are valuable as a suggestion of the point of view an advertiser should cultivate whether he be interested in national, sectional, or local advertisiilg effort. Mr. Fowler's chart is prepared from the standpoint of a manufacturer's advertising manager. And this viewpoint be- comes apparent in many features of the schedule as he has laid it out. This point should be kept in mind when studying the outline. Furthermore, it should be remembered that this is merely a suggestion of analytical method. It is doubtful whether Mr, Fowler even designed it to be used as a scale, or yard- stick, by which every advertising plan could be judged, or tested. If it will help students of advertising to approach their problems with a clearer idea of the complexity of the problems they must solve it will have served its purpose well. This chart and those which follow should not be merely read over or glanced through. If they are to be of real service they must be studied. And the study must be critical, and it must be careful and painstaking. SELLING PROBLEMS Mr. Fowler's chart for analysis of the commodity for sale is as follows: TABULAR ANALYSIS of PRODUCT* Product Demand Serviceability Quality Price to Profit to Competition (By education 1 By necessity rDeveloped I Undeveloped J Forced or ] Natural /Permanent or (^Seasonable Is it a necessity? Is it a luxury? Is it a convenience? Is it durable? Is it economical in use? of raw materials of design ' jHow does it compare with of workmaiiship < competing articles on these of appearance (litems? of finish r Jobber ~) High ) Broker Ifuf .• ( How does it compare with j Retailer j "*" (competing articles? LConsumer J Low ■Manufacturer C-r .1 .• i- InVihor I Larger than on competmg lines s Same as on competing lines (Smaller than on competing lines Officered by old men Officered by young men Aggressive Lax Long established Newly established Wealthy: Limited means Their sales plans Their adv. campaign Their policy toward customers Their sales manager Their sales force Their credit department's attitude toward customers Jobber Broker Retailer An examination of these items will show that each one has some bearing on the selection of the form and method of appeal to the consumer. 'Printers' Ink, February 8, 1912, p. M- 8 ADVERTISING AS A BUSINESS FORCE Mr. Fowler's tabular plan of analyzing the possible market for the commodity suggests a second set of factors bearing on the advertising: TABULAR ANALYSIS OF THE POSSIBLE FIELD OF DEMAND* Location Field Consumers Climate Financial condition depends on Transpor'tion (-City r Wealthy \Town WeU-to-do /Coimtry Poor S Local Married /Territorial Single LNational Young Middle^ged /-Skilled Laborers. . , J .Male Farmers 1 Doctors Mechanics ^Unskilled Lawyers Clerks Mimsters Professions Dentists Business Men Mech. Engr. Elec. Engr. Rich Civil Engr. Medium . Etc. l^Female. ... Poor fFrigid Single Temperate Young \ Tropic Old Length of Middle-aged Seasons. Servants Temperat're FacJab Wbrkera BainfaU Office Workers Vegetation Trade Workers Prof. Workers Mothers Society or Club Women Crops Mimng Manufacturing 5 Transportatioi 1 Lines Speculation Prof. Services Rendered r Railroads Water Routes Trolley Wagons I Pack Trains *PniUers' Ink, February 22, 1912, p. 22. SELLING PROBLEMS 9 TABXJLAB ANALYSIS OF THE POSSIBLE FIELD OF DEMAND — ConL* [Length of Haul Transpor'tion ' Rates [Method of Packing OflBcered by Old Men Officered by Young Men Aggressive Lax Long Established. field i Newly Established Wealthy Competition - Limited Means Their Sales Plans Their Sales Mgr. Their Sales Force Their Policy Toward Customers Their Credit Department's Attitude Toward Customers Their Adv. Campaign The various factors in the distribution system and the available advertising mediums for reaching them are covered by Mr. Fowler in a third chart, and this, like the others, is full of suggestions: ANALYSIS SHOWING SCHEME OF DlSTBIBUTIONt National Publication on Adv. Catalogues National i Mailing Lists Follow-up Letters Direct Local SoUcitors to Mail-order Clubs Con- ^ Special Offers sumer r Newspaper Adv. by Bill Boards Mail Street Cars Order Catalogues Local < Mailing Lists Follow-up Letters Special Offers Local Solicitors Mail-order Clubs 'Printers' Ink, February 22, 1912, p. 22. ^Printers' Ink March 14, 191i^pp. 30 and 32. 10 ADVERTISING AS A BUSINESS FORCE ANALYSIS SHOWING SCHEME OF DisTniBWiON— Continued* f 'Direct to Con- sumer by Order Ter'torial From Factory to Retailer to Con- National Sectional Magazine Adv. Newspaper Adv. BUI Boards Street Cars Catalogues Follow-up Letters Mailing Lists Special OfPers Local Solicitors Mail-order Clubs Branch Offices National Adv. Auxiliary Adv. Salesmen Education of To Dealer To Consu'er Trade Papers Catalogues Follow-up Letters Mailing Lists Posters Street Car Cards Window Cards Win'w Suggest'ns Cuts Copy Pers'l Assistance Education of Sales Force Inquiries Referred Catalogues Follow-up Letters Personal Letters Samples Canvassers Local Dealer Consumer Salesmen Education of Orders from Canvassers Newspaper Adv. Publishing List of Dealers Bill Board Campaign Street Car Adv. Window Displays Education of Sales Force f Catalog's ") Demonstration if possible . FollV-ups ( Adv. sent Consumers Samples if ( on Dealers' Mailing List [ possible J •Newspaper Adv. Bill Board Campaign Street Car Adv. Window Displays Demonstrafions if possible Canvassers Catalogues Follow-ups Samples if possible *Printer»' Ink, March 14, 1912, pp. 30 and 32. SELLING PROBLEMS 11 From Elactory to Retailer to Consumer Terri- torial ANALYSIS SHOWING SCHEME OF DISTRIBUTION — Continued* rSectional Magazines Dealer < Balance same as dealer (. classification above rSectional Magazines Cons'm'r <| Balance same as (_ consimier classification above National Jobbers Magazines Trade Papers National Magazine Adv. Manufactiuers' Salesmen Jobber ■ Personal Letters Pollow-up Propositions Edu. of Jobbers' Salesmen Orders taken by Mfrs. Salesmen given to Jobbers National Mag. Adv. Trade Papers Salesmen Catalogues Follow-up Letters and Folders Bill Board Campaign Street Car Adv. Window Displays Cuts Education of Salespeople Referring of Inquirers Personal Assistance Through Regular Channels Jobber to Retailer - to Consumer Na- tional Dealer Cons'm'r Local Jobber National Mag. Adv. Bill Board Campaign Street Car Adv. Dealers' Window Displays Dealers' Newspaper Adv. Catalogues Follow-up Letters Demonstrations if Canvassers Samples if possible Newspaper Adv. Salesmen Personal Calls Personal Letters Orders taken by Mfrs. Sales> men given to Jobbers Follow-up Propositions Edu. of Jobbers' Salesmen *Privif*' Ink, March 14, 1912, pp. 30 and 32. ADVERTISING AS A BUSINESS FORCE ANALYSIS SHOWING SCHEME OF DISTRIBUTION — CojU* Newspaper Adv. Local Bill Board Campaign Local Street Car Cam- paign Window Displays Canvasser's Orders from Con- Xhrpugh Hegular Clmnnels Jobber to Betailer to Consumer Local Dealer Cons m'r ■ sumers Catalogues Follow-up Letters Publishing List of Dealers Education of Sales Force Adv, sent to Consumers on Dealers Mailing list Den)onstrations if possible Newspaper Adv. Bill Board Campaign Street Car Campaign Dealer's TVindow Displays Demonstrations Canvassers Catalogues Follow-ups ""Samples if possible Ter't'al < Jobber r Dealer < Same as local above Consumer (, ANOTHER ANALYTICAL PLAN Another method of approach to the subject is that worked out by Gerald B. Wadsworth of New York. This method is de- tailed by Mr. Wadsworth in a series of articles appearing under the title "Principles and Practice of Advertising" in Advertising and Selling during 1911^12. (Copyrighted, 1912, by Geral4B. Wadsworth.) In the July, 1912, issue of that paper, Mr. Wadsworth summed up some of his main points in a set of diagrams which it will be found interesting and suggestive to compare with the charts of Mr. Fowler. *Pri7Uers' Ink, March 14, 1912, pp. 30 and 32. SELLING PROBLEMS 13 ANALYTICAL CHART— PRINCIPLES AND PRACTICE OF ADVERTISING Copyrighted loii— By Gerald B. Wadsworth The advertising man has to deal with and consider four important, general factors — Commodities, Conditions, Methods and Results. naST SECTION SECOWD SECTION COMMODITIES CQHSIDEmTlOWS C0NSIDEHATI0W9 Tkt arfiMTtlilac B«B Hni be tbcuM obtain ■art iM ftqiutt ■ ■ kMwMga cl Iht ■ntnl knowMg* el SpfcStMmsiadJtylR TMIRP SEf-TlOW COMSIDEIUTIONS TlwB he will bt lA • TRADE COWSUMER to ill Kbllvc v«h* •ad cbnieqaMI ad vcitisabililr He ibouU nnt find oul Afut Uib be ibouU about Trodccondilion* iludy the us«r ai ■ ■fMrilly, UiM autr- cluu and tM vhal tain ham tbty aBtct tnflufoce) caa b* i^ wle af ibc can- bmu^iiobeuoalbi noditjr lo quailoB. udividoal Dmnbfb ohbal clau to ehaaiw oritimuUtcihccon- muuiy ol vant* rouBTH SECnoM RESULTS COWgTRtJCTlOW oouInKl bii coity gM'KatM thoM b« ^niiScallj eooi- APPUCATIOW UnW ibe advMiiiiAf ■a bra^fbt lo ibc atle» OOD ol Ibc UMT U tb« Best dcctivc oUnncl pduiUe. the ibtal. meal win oot be pn- Stable. SOUGHT Uut ihf campaign bu bna iilaDHd an oumau abouU be Dad« of tb t DuDim uoi and maaimiUD rrtulli anliripaicd. ACWEVEp Wbra ibtcanttalpibw b«a CMBplelcd. *iim. pan *bat lua btra ar- MmpiUbad vitb tba npcHatiMU, and an- FIRST SECTION The advertising man should ascertain the status of a commodity, Iwth as to its intrinsic merit and the relation it bears to commodities in general. This enables bim to judge as to the posisibilities of its development. This may be accomplished by determining to what degree it meets or fails to meet certain requirements. To assist this effort the study of commodities is regarded from three viewpoints: i. e. — Commercial Considerations, Material Considerations, Monetary Considerations. COMMOOmES f^^^SJoWs EFHCIENCV UmdVUiv Ue>itoiU» Hediocn SOURCE CONDITION Umibd UnliiBjlei} Novellk* Liunna Ntonitiis Supl™ MATERIAL W - PROPERTIES DITFERENTIATION Spcdfic Genml ExclusivvDcaa APraARANCB imuTY AttractlWDen Singularity ApprapnairacM AdaoUbaity CONSroERATTONS CoOmUvt Utegral T«D3rWDimnMB8S UiuIonnHy Reliability iBtfiaait ProduetioD coct fhatu DiatributigacMl SalaUitjr EwwtogftwrCT 14 ADVERTISING AS A BUSINESS FORCE £0NDIT10>S JZ ^ SElXERg] |bU0ej» Cftpadlv ntADE CONDiniWs! ICOMPBTinON nm Ouollt]/ iArtual Sulwtltule UnliniM ^Direct PISTRIBUTION Direct lodirpGl £cteiinvd !Di.t«utvo flEERATIQM BerificlaB' lIiireftEict«i| BeUtcd, PBWHANENCE^ IJsreluit}!* ^timulatedi wwMrtionta :SALES POUCV! 'PROCESi-f P)him«f iHapliA^rj IQUAUTS, Smitvtiut iChangeabW. OPJECt Bdueattoiu) AutomfttEO' ft^dslil^ tJEUASG ORGANIZATION ' , ACTiON.t 'METHODS CMBMiye CoBptwltvel Sy.temalic .luonbutive IntIependeB« JJwiyBi«n*Uo m-ttTTY SALABILtrV "Efficient ■ Coimlrued SELLING PROBLEMS CONDITIONS "ZZI 16 JDEM.tND! 1 J NATDSE' lEFKECTi Cunulative iPROCESS( Gemml rstinuihteil tEXTENT! Limited spEcmci Inddeotat lACTION tPuioaic jCastJiiui>u« Nalunl CnaUof, score, NaIuhaI Cofudooi Vnconacioua Clunct«r! Stimuliu ;;mYsiaiix;Teaire '^CtioiL positive ^Negative ^docity' iReflo VSimpk iComplcs '«»KSS9 16 ADVERTISING AS A BUSINESS FORCE A FORM-AND-MOTIVE CHART A third type of analytical method is one which attempts to attach to the analysis a record of the forms of appeal which are called for, thus linking the motive to be stirred with the form of appeal which is to stir it. Under the title "What Makes Men Buy? " this form of chart is described by Carroll D. Murphy of the Systerfi staff as follows: ANALYSIS OF SELLING OR ADVERTISING PROBLEM 1 .s 1 i "S 1 < Buying Action Prospect tncreascd Expenditure facturer's policy in all his various lines of activity. An interesting case of new product problems is to be found in connection with the development of market for vacuum clean- ers as described by Roy B. Simpson, who is now advertising manager of the Roberts, Johnson & Rand Shoe Company, of St. Louis, and who formerly was interested in exploiting vacuum cleaners: *[EmTOBiAL Note: — Any business man who is willing to take the time to think and analyze can get a valuable lesson out qf the vicissitudes which have beset the vacuum cleaner industry. To establish on a sound financial basis a class qf goods for which no previous demand has existed requires the most delicate manipu- lation, an extra-conservative merchandising policy, and a very liberal margin of profit. The typewriter, the piano-player, the talking machine all had hard sledding at the start. Why ? Be- cause out of every dollar spent in promotion ninety cents must go toward creating a demand for that general type of article and only twenty cents are left to bring the demand home to your particular factory. If you start as a manufacturer of clothing or canned goods, your problem is simply that of capturing a part of the floating demand. You do not have to argue that it is a good thing to be clothed or to eat food. People are bound to buy hosiery and crackers — it is simply a question of which brand they will buy. But let a new idea like a vacuum cleaner be launched, and a lot of men dash into it as they would into a bonanza gold field. Instead of nuggets lying around on the surface, killing work is necessary to unearth them. In their efforts to try to make the thing go the different manufojcturers vie with each other in cutting prices, not even knowing thai they are getting far beyond the danger line. Advertising is resorted to as though it were a miracle-worker. It is asked to accomplish the impossible and blamed when it fails to overcome unsound merchandising policies. If the article itself possesses sufficient merit and vitality, the industry will eventually right itself when the rainbow-chasers have been eliminated. Mr. Simpson was advertising manager of a concern making *Printers' Ink, July 18, 1912, p. 34. MANUFACTURERS' PROBLEMS 269 a vacuum cleaner during the "boom" days. He gives an inside view of what may be expected when men rush into a brand new industry without having counted the cost and then try to save themselves by doing business on an impossible price basis coupled with extravagant claims. For obvious reasons, the names given in the following article are fictitious but only the names.\ Three years ago the portable vacuum cleaner business looked so promising that it bid fair to eclipse all other specialties used in home and office. Any mechanical device bearing the name vacuum cleaner was easy to sell. A joint of stove-pipe, with a cleaning nozzle on one end and a plunger handle in lie other end, brought ten dollars. It was a cinch to finance any vacuum cleaner scheme, but there have been so many lamentable failures that the investor now takes an extra grip on his pocket- book when vacuum cleaners are mentioned. That this business has had a fearful set-back no well-informed man will deny. This condition is due to patent Htigation, misrepresentation, and unfair competition. Several large and highly prosperous concerns have passed through a period of storm and only time and carefid management can repair the damage. The portable vacuum cleaner is here to stay — there is no doubt about that. It is a necessity, it makes the home sweeter and cleaner. It eliminates disease dangers and helps people to live longer. Nothing can kill it, but why is it that you do not see the vacuum cleaner advertised to the same extent as three years ago? Let's see how this industry was created and what made it sick. About five years ago there arose a need for a small portable machine at a reasonable price. The intelligent housewife had had a taste of vacuum cleaning by the large wagon ma- chines, but, because of the excessive cost of the service, only the rich could enjoy it. The Peerless was the first portable machine in the field. It was a large, cumbersome affair, operated by a fan. The price of this device ranged from $265 upward. The advertising was strong and the sales plan fundamentally sound. This machine was offered as a labor-saving device. It was sold chiefly to people of wealth. A year later the Nonpareil was developed and placed on the 270 ADVERTISING AS A BUSINESS FORCE market at a price of $20 for the hand-operated machine and $60 for electrical equipment. Within a year agents had been appointed in neariy a thousand towns and cities. The third portable machine of note was the Hygienic. This machine sold for $125, with a complete equip- When ment of tools. It is of the highest eflBciency pos- Competi- gjjjjg jjj ^ portable cleaner and is sold under an lion Urew %• •, -i ^ Sharp unlimited guaranty. Shortly after the appearance of the Hygienic ap- peared the Little Wonder, almost the exact duplicate of the Hygienic. ■ The Little Wonder is made in several sizes, at $65 to $135. The fifth notable success was the Home Helper Suction Sweeper. This is a small machine, weighing about ten pounds and employing a rapidly revolving fan as its cleaning agent. There were numerous other devices at prices ranging from $5 upward, but all of them, save one, were short-Uved. The one exception, the Domestic, was sold at $8.50. Here we have five concerns, which in a short time obtained a tremendous distribution. Their profits were large and during 1910 it is estimated that they spent close to $1,000,000 for advertising in the popular weekly publications, standard maga- zines, and other media, but much of this advertising has disappeared. As one who is in the thick of the fight, I can frankly discuss the reasons why these great advertising propositions were killed. I have no hesitation in giving the reasons, believing that the several promoters now admit their errors. These were errors of judgment in placing too much confidence in the claims of over-enthusiastic inventors. As a rule the several concerns mentioned are headed by men of high character and integrity. The Nonpareil cleaner probably had a larger sale during the first three years than any of the five we have named and the business would be alive and prosperous to-day but for the grevious error in publishing the names and addresses of all of its agents in double-page spreads. Within twenty-four hours after the appearance of this large advertisement competitors were assailing the sales organization with a view to breaking it up. They succeeded. Within a few months this concern went out of existence. The Hygienic is a high-grade machine. Theoretically and practically, it meets all requirements of cleaning in the home. MANUFACTURERS' PROBLEMS 271 The Hygienic people fought its competitors fairly and met the fierce patent litigation honorably. The first advertisement played up the hygienic idea very strongly. This was SeU'n" ^ ^^^ thought and it met with a response so great P^jJ that it brought a large volume of immediate use orders, and guaranteed contracts aggregating over a half million dollars. Competitors who had been featuring the vacuum cleaner as a labor-saving device immediately recognized the value of the sanitary argument. They endeavored to beat the Hygienic advertising by making claims just a little bit stronger, but this did not increase sales to any great extent, although It diverted the attention from the Hygienic campaign. The Home Helper Suction Sweeper, which serves its purpose admirably as an electric carpet sweeper, was advertised to be lighter than an ordinary carpet sweeper, but, as a matter of fact, it was several pounds heavier than the BisseU carpet sweeper. The Home Helper was also advertised "to do all that any vacuum cleaner would do, and more." This overrated the efficiency of the machine, as was proved by practical comparative tests. Many of the prominent magazines carried the Home Helper copy. Other advertisers protested against the unfair claims in the copy, but the publishers refused to eliminate them. Very often a single issue of the popular publications carried the copy of six to ten cleaners, ranging in price from $6 to $125. All of them are represented to be the " best in the world " and some claimed to be "better than the best." The Hygi- enic and the Little Wonder, both of which are vacuum cleaners of high efficiency, were in competition with suction sweeper and the toy hand-power machines. The vacuum cleaner and the suction sweeper are two diflferent propositions. The former is for thorough cleaning and the latter is for surface sweeping. But the public had not learned to discriminate between the two and any mechanical cleaning device was accepted as a "vacuum cleaner." The business suf- fered because of the comparative statements in the advertising. The prospective buyer was not interested in a Hygienic at $125, after reading the Home Helper offer — to put a better machine in their homes for $1 down and $3 per month, until the full instalment price of $73 had been paid. To the general public this proposition seemed reasonable. Why pay $125 272 ADVERTISING AS A BUSINESS FORCE for a cleaner when you can get one for $65 cash or $73 on instalments, that "weighs less than a carpet sweeper and will do all and more than any other vacuum cleaner can do?" A vast number of people who bought the Home Helper and cheaper machines were not satisfied. They based their opinion of the whole vacuum cleaner subject on the results obtained with electric sweepers and cheap hand-power machines. The Home Helper suffered in turn by the advertising of the Domestic vacuum cleaner, at $8.50, and others in the same class. The Domestic machine was a hand-power apparatus of little or no real cleaning efficiency. Tens of thousands of them were sold and they would still be on the market but for the fact that Uncle Sam decided it was wrong to use the mails to sell a "vacuum cleaner without a vacuum." Its promoters were convicted for using the mails to defraud. Another factor in retarding the progress of this great industry was the strenuous efforts of the Little Wonder and Home Helper people to beat each other on the instalment proposition. The Little Wonder concern was struck with the attractiveness of the Home Helper offer, and to divert the attention of the people away from the Home Helper, the public was urged to buy a Little Wonder machine for a small cash payment and let the rentals of it pay the balance. A large instalment business was the natural result and there was nothing to prevent any purchaser from renting his machine every day. An initial payment of $3 secured a cleaner. The purchaser would rent it to his friends and relatives for $2 or more per day. Thus, in a month, the machine would probably be used 260 hours, while in the average family, where the machine was owned outright, it would be used about two hours a week. Therefore, a cleaner bought on the instalment plan would get 130 weeks' family use during the first month. Suppose the purchaser defaulted his first payment and allowed the machine to go back. Many, no doubt, were unscrupulous enough to do this, after having rented it twenty-six days at $2 per day. This plan of selling put a crimp in the Home PtiMino Helper sales plan and it soon became known that the Sales anybody could get a vacuum cleaner for a whole Methods month for $1 for the Home Helper and $3 for the on a New Little Wonder. Under such conditions who but the ^'^ real honorable folks would pay $65, $75 or $115 spot cash for a vacuum cleaner? MANUFACTURERS' PROBLEMS 273 During the first year or so there was a large sale of vacuum cleaners direct to the user by mail. The general public had confidence in the advertising. But, after the circus performance through which the business passed, vacuum cleaner advertising was looked upon with suspicion. The pubUshers are as much to blame as the manufacturers, because nearly all the publishers refused to make a comparative test of the various cleaning devices advertised in their columns. Had they done so, as they were urged to do, business honesty would have compelled them to eliminate all copy containing comparative statements of whatsoever nature. No doubt there are as many vacuum cleaners sold to-day as there were a few years ago, but the volume of business should be much larger. After a while little the general public will forget its experience in buying on advertised claims and the vacuum cleaner will again be a splendid advertising propo- sition, but for the present vacuum cleaners must be sold on their merits — for what they are. Machines of the Home Helper type should be sold as electric carpet sweepers and not as vacuum cleaners, and all machines must be sold on demonstra- tion in the home. The vacuum cleaner is here to stay. It is now a necessity in every well-ordered home, and if promoted in a businesslike manner it will ultimately become greater than sewing machines, cash registers and typewriters combined, because every owner of those devices is a possible purchaser of a vacuum cleaner. MARKET PROBLEMS — PROTECTING THE GOODS An advertiser of branded goods is not merely selling goods, he is planning for future sales. His interest in the goods, then, covers not only their intrinsic value; it involves also the attitude of the market toward the goods. His interest in his product does not end with its sale, it embraces everything which inay help or mar its reputation. He is obliged to protect his own reputation by protecting the reputation of the goods on the market. Roy W. Johnson gives a mmiber of instances of this feature of the manufacturers' advertising activity from which we draw the followini;: 274 ADVERTISING AS A BUSINESS FORCE *It is becoming more clearly recognized every day that the manufacturer of branded goods — whether they be food Protecting products, or jewelry, or packing for steam engines — the Goods does not part with his interest in or responsibility on the for them the moment the goods themselves leave Market Ytis hands. It is getting to be understood that the goods are entitled to protection while they are in the hands of distributors, and that upon the effectiveness and the scope of such protection much of the value of the trade-mark depends. The value of the trade-mark as a guarantee of quality can be very quickly impaired if it is possible for a jobber to sell goods which have grown stale or which have become defec' tive through careless handling. It is incumbent upon the manufacturer to watch all the factors of distribution very closely. Some manufacturers have the ultimate consumer in mind as the most important factor, and overlook the jobber and dealer almost entirely. Still others take the attitude that "we sell only to jobbers," and what becomes of the goods after that is a matter of little consequence. Either extreme is dangerous. The process of selling is of equal importance with the process of manufacturing, and the goods are entitled to as much protection in the various stages of the selling process as they receive in their progress through the factory. Much of the effectiveness of the manu- facturer's chain-store system of distribution is undoubtedly due to the fact that the goods are protected, in price, quality, and everything else, until they are placed in the hands of the actual consumer. Of course, in the end, it comes down to the ultimate con- sumer as judge and jury. He it is who determines the reputa- tion of the brand, and upon the reputation of the brand the business rises or falls. The average manufacturer comes in contact with the ulti- mate consumer in two ways, through his advertising and through the price of his goods, and it is just about as necessary to protect the price as it is to keep the advertising within the bounds of truth. But in the matter of price protection a good many factors enter in which do not appear on the surface. A couple of wholesale grocers in Philadelphia who do business by the catalogue route, employing no salesmen and securing *Printers' Ink, June 13, 1912, p. 20. MANUFACTURERS' PROBLEMS 275 cash in advance, recently sent out to the retail trade a long list of cut prices on diflferent brands of standard, advertised goods. The cut prices were justified on the ground that, since they had no salesmen to hire and no credits to carry, they could do business cheaper than their competitors. The ire of the Tri-State Wholesale Grocers' Association which includes most of the credit jobbers in Philadelphia territory was roused, and resulted in a crop of letters to the manufacturers of the goods which had been cut, demanding either a reduction in the manufacturers' prices sufficient to enable the members of the Association to meet the cut, or the compulsion of the cash jobbers to restore the regular price. Here was a case where, apparently, the ultimate consumer was not involved at all. There was no certainty that the retail grocers who benefited by the cut prices would hand the margin on down to their customers. It was a dispute between jobbers exclusively, and both sides seemed to have considerable justification for their contentions. The attitude of the modern merchandiser is indicated in the action of the Cudahy Packing Company which promptly "cut oflf" the cash jobbers from the supply of Old Dutch Cleanser, preferring to lose a couple of good customers to running the risk of disorganizing the wholfe territory. Moreover it is significant that the Cudahy Packing Company was not one of the manufacturers written to by the Association. Their action was not taken because of a veiled threat on the part of the other jobbers, but because it was good business. Sometimes price cutting results in a trial of strength between the manufacturer and the cutter. The Johnson Chemical Company some time ago inaugurated a UpiuMing campaign of dealer promotion and newspaper adver- PolS^ tising for Johnson's Foot Soap. The plan consisted of a trial order to the dealer which would enable him to make a display of the soap, with the understanding that the company would take it oil his hands if the advertising failed to move it. In Hartford the newspaper advertising was the signal for a cut-price campaign by a local department store. The soap was sold at the rate of 17 cents per cake, though the wholesale price was 16f cents, and the regular price to the consumer 25 cents. The trial orders to dealers had been supplied through the jobber, and the jobber had been stocked in excess of the 276 ADVERTISING AS A BUSINESS FORCE trial order requirements in anticipation of a demand. As a consequence the department store had a substantial source of supply which was augmented from time to time by the small dealer's stocks which were thrown back upon the jobber because there was no sale for the soap at the 25-cent rate. The manufacturer naturally cut off the jobber from further supplies from headquarters, and stopped all newspaper adver- tising in Hartford. The department store maintained the cut price for several months — as long as the soap could be had from the jobber — but was finally forced to restore the price to normal. Of course the cut price on'the soap was used merely as a "bait" to get people into the store and sell them other things at a profit, and as it had got to be an old story the cut was not repeated. Then the manufacturer reaped his profit from the people who had been educated to the soap by the department store's advertising, and were now obliged to pay the full price for it. A good many manufacturers of branded goods refuse to sell department stores at all, for the large department stores demand jobbers' discounts, purchasing direct from ^^^*^'°\the manufacturer. They claim that they are entitled "storeji to t^® discount since they buy in large quantities, but the large margin — approximately 60 per cent, is demanded by most of the largest stores — gives a splen- did opportunity for cutting prices. Of course the manu- facturer of patented goods has some legal recourse when the price is cut (though how long he will have it is a matter of some uncertainty) and he can afford to allow the jobbers' discount for large purchases; but the man whose goods are unpatented frequently cuts the department store out entirely. That simply means, of course, that the store must get the goods from a regular jobber at somewhere near the retailer's price, if it handles them at all, and the danger of cut prices is somewhat minimized. Such a condition, of course, breeds competition in department stores' private brands, but that is much better than a cut price which is bound to depreciate the value of the standard trade-mark in the eyes of consumers. Indeed this matter of price infringement is getting to be more seriously regarded every day, as it becomes more clearly realized that the price standi for something to the consumer, just as the trade-mark stands for something. A price, in the consumer's view", is either fair or unfair, and a cut price indicates MANUFACTURERS' PROBLEMS 277 pretty strongly that tlie regular price is too high. The average consumer does not stop to figure out the policy of selling one thing at a loss for the purpose of selling two other things at a high profit. He does not understand the system, practised by some stores, of under-pricing a small lot of standard goods so that private-brand goods can be unloaded upon those who come after the supply of the standard goods is exhausted: such as, for example, advertising "Big Ben clocks for $1.79" when there are only a couple of dozen in the store, and when those are gone selling unpedigreed cheap clocks for the same money. Instead of blaming the cut-price store for putting up a job on him, the consumer blames the manufacturer for trying to make an exorbitant profit. In consequence of which there is a marked tendency toward abolishing quantity discounts, and giving every dealer and y^g every jobber an equal chance for a profit, whether Quantity he be small or large. A sort of by-product of the Price quantity discount is the free-deal, and that is growing Problem unpopular also. It is coming to be recognized that the quantity discount is a hardship on the small buyer, not only because he makes a smaller margin of profit, but also because it gives the big fellow an opportunity to cut the price and injure the small man's market. Instances of this trend are not far to seek. The Ingersoll Dollar Watch has been on the market some twenty years, beginning its career when the quantity discounts system was the only plan of doing business. Consequently it is sold on a sliding scale of prices to the retailer, ranging from 75 cents to 65 cents according to the quantity purchased at one time. But on the later products of the IngersoU factory the sliding scale has been abandoned, and the $25 watch is sold to the trade at a uniform rate of $16.67, regardless of whether the retailer buys two watches or a thousand. It is quite true that the Ingersoll watch is a patented article upon which the resale price can be legally maintained, thus rielieving the dealer from cut-price competition. For that reason it may be easier to uphold a flat-rate price to the dealer than would be the case with an unpatented article. But as a matter of fact the flat rate can be maintained on articles which are not covered by any patent. . . . Kellogg's Toasted Corn Flakes are sold at an absolutely flat rate to the retailer of $2.80 per case of thirty-six packages. 278 ADVERTISING AS A BUSINESS FOECE The rate is not cut by free deals, rebates or any other subterras nean methods. And there is plenty of competition in the corn- flake business; free-deal competition, private-brand competition, and bag-package competition. Not long ago one of the big mail' order houses advertised Kellogg's in its catalogue at a price which represented an absolute loss. The Kellogg Company, through its house-organ for dealers, absolutely repudiated the sale to the mail-order house, and spent considerable time and money to find out what jobber had sold the goods in question. A threat to cut him off — which he knew would be carried out to the letter — was sufficient to deter him from any future experi- ments in that direction, and the publicity given to the affair in the house-organ had a salutary effect all along the line. . . , 1 The dealers' house-organ, indeed, can be made a very effec- tive means of protecting the goods on the market, not only as a means of educating dealers in the house policy, Educating ]^^^ ^ g^ weapon in dealing with specific cases like Dealers ^he above. Small dealers, particularly in the coun- try towns, are quick to become disgruntled at the advent of the price-cutter, whether it is a mail-6rder house or a big store in the neighboring county-seat. The houscr organ gets to them all at once and quickly, and can explain a situation at greater length and in terms which would be impos- sible in any other way. Some houses, like Colgate for example, place so much importance upon the necessity of protecting the goods that they maintain a more or less elaborate system ot Fraction "catchers," who look out for all sorts of conditions ofivatehers which might injure the goods in the eyes of con- sumers. In addition to this there is a system of rebates or bonuses, whereby the retailer earns a sort of retroactive dis- count if he does not cut the price, maintains his stock at a suitable standard, etc. This system obviates one of the objec- tions to the free deal, inasmuch as the discount applies on the retailer's next order, and there is no temptation for him to overstock — which often means stale goods — to get the discount. Moreover, the rebate applies to all purchases, of whatever size, and is a reward for living up to a certain standard of merchandising, rather than an inducement to purchase goods. Hence the small dealer profits at the same rate as the large dealer, and a good deal of possible ill-feeling is eliminated. MANUFACTURERS' PROBLEMS 279 On some lines of goods which are seasonable — like wearing apparel, for instance — it is necessary to cut the price at certain times to protect the dealer from the necessity of carrying the goods over to the next season, at which time they may not be salable. Some manufacturers protect the reputation of the goods at such times by supervising the cut sales themselves, inserting newspaper advertisements in the names of the dealers, offering the goods at certain uniform reductions. Thus, all dealers cut at the same time, and to the same degree. Moreover, the manufacturer is enabled to explain to the con- sumer the reasons for the reductions. Frequently imperfect goods or "seconds" are sold at reduced prices, but are not allowed to get into dealers' hands indiscriminately. . . . Manufacturers in some lines, like Dunlap hats, Manhattan Protection shirts, etc., protect the goods by appointing exclusive by dealers in towns or certain sections of cities. It is Exclunve a simple matter to take the line elsewhere if the Agencies (jgaler cuts the price, or does not maintain a suitable assortment in stock, or does not keep his stock in proper order, etc. But suppose a dealer has been unintentionally overstocked, or cannot sell the goods in his town, or goes out of business. Suppose he goes into bankruptcy, and a receiver's sale follows. A cut price on the goods is the result, frequently accompanied by the practice of passing off damaged goods as perfect. The Gillette Razor Company and the Columbia Graphophone Com- pany, among others, meet this condition by taking back all goods, which are not salable at the regular price, at the full price paid by the dealer for them. The goods are either taken back through the jobber, or some other dealer is found in the vicinity who will stock the line. In any case the full value is allowed, which means every cent the first dealer paid for the goods. Damaged or shopworn goods, or goods which have become unpopular, in some cases are sold at a reduced price, but there is a growing tendency to exchange them for perfect goods rather than allow them to injure the reputation of the line either for price or quality. Sometimes the dealer is permitted to make an even exchange — one damaged article for one good one — and sometimes he is required to buy new goods to, a certain proportion of his exchanges. The talking machine companies every year issue lists of "cut-out" records; that 280 ADVERTISING AS A BUSINESS FORCE is, records of songs of the day and the like which have lost popularity. These records are made the basis of an exchange proposition, one popular record of the dealer's own selection being given for one record from the cut-out list. Usually there is a provision that dealers purchase at least one record for every exchange made. That is partly for the purpose of making more sales, and partly to minimize transactions at the factory by inducing dealers to make their purchases at the same time with the exchanges. Protecting the goods on the market costs money, and some- times it looks as though it meant the loss of some immediate sales. But it pays dividends in the form of increased loyalty of the dealers and in preventing depreciation of the name value of the product. Twenty years ago it would have been diflScult to find half a dozen concerns who really tried to do it. To-day there are scores who not only try, but in the great majority of cases succeed in keeping the reputation of their goods free from the blemishes which attack them while they are on the road from manufacturer to consumer. Another case of the protection of the goods on the market brings out the similarity between some phases of this problem Ouardina ^^'^ *^® phases of the substitution problem ^rhich Against we have already discussed in various other places. /mi<' Ink, June 27, 1912, p. 3. aso PRICE MAINTENANCE 381 will bear." In other words, the price is made to fit the pur- chasing power of the class of people to be reached. These goods, as a rule, are specialties which represent entirely new inventions, or new combinations for special purposes. They are sold mostly direct to the consumer through house salesmen, though in some cases, like piano-players and phonographs, they are handled by retail dealers, or dealers and jobbers. But even with goods of this class the advertising man has or should have a vital interest in the price. What is the purchas- ing power of the class to be reached? Would a small reduction in the price bring the goods within the purchasing power of enough more people to earn greater aggregate profits? Would a lower price save enough selling expense to pay for itself? Those are some questions — and vitally important questions, too — which the advertising man is best fitted to answer. But the great majority of products are sold by the jobber- retailer route, in competition with other similar products. They must meet the competition of consumer-advertised goods and goods which are not advertised to the consumer, the com- petition of price-restricted goods and goods upon which the price is not maintained. Each form of competition has a direct bearing upon distribution, as well as upon sales to the consumer, and the advertising man cannot afiFord to let somebody fix the price on the goods without considering those factors which belong to his province. One very simple rule — and as dangerous as it is simple — consists in taking the prices of competitors and averaging them, or going a bit below them. It is dangerous „?"*, because the fact that one man can make something ^fg for fifteen cents is no sign that another can do it for the same money. Unless it is possible to duplicate or improve upon the efficiency of rival organizations it is folly to duplicate rival prices. It is the same ditch so many printers have fallen into : " If he can do it for that, I can do it for less." It certainly is necessary to compare prices of competitors, but they are a basis of comparison only. If it is found that a competitor can sell his goods at a lower price than they can profitably be sold by one's self under present conditions, it is necessary to change the condition before meeting the price; that is, unless it is possible to sell the goods at a loss, and make it up on something else. Individual conditions must regulate individual prices; not somebody else's conditions. S82 ADVERTISING AS A BUSINESS FORCE The actual cost of production is, of course, the basis for a price. But it is only a basis. To it must be added the . overhead — depreciation of equipment, interest on the *f ^^ investment, lighting and heating, insurance, etc. — and a tentative profit, the "profit we want to make." Thus far the board of directors or the general manager can safely go by themselves, if they have the figures of a competent cost accountant as a guide. Though even this basis is arbitrary to a large extent it is reasonably accurate. But at that point selling cost steps in, and with it the advertising man. Nobody knows how much it is going to cost to sell the goods, but the advertising man should have a clearer notion than anybody else. In the aggregate, selling cost, in advance of actual sales, must be an estimate, but there are certain fixed factors which enter into it. For example, it costs the jobber 15 to 20 per cent, to do business. It costs the retailer, on the average, 30 per cent. Those percentages represent definite, concrete amounts which must be added to the selling cost of every article which goes through jobbers' and dealers' hands. Some articles are sold on smaller margins than these, but they are commodities which are advertised to such an extent that demand for them is practically automatic, so that they entail no selling effort on the part of the dealer or jobber, and the price is strictly maintained so that the dealer gets the full margin every time and does not have to meet cut prices. As an illustration of this method of price fixing, Daniel Kops, of Kops Bros., makers of Nemo corsets, states that a profit of 7J4 per cent, on the investment according to in- ventory is considered by his firm a good business. The cost of production of the corsets is from sixteen to seventeen dollars per dozen. The dealer (jobbers do not figure in these goods) pays twenty-four dollars a dozen, and sells the corsets for three dollars apiece. The comparatively high rate of dealer profit on a widely advertised line is explained by Mr. Kops as being necessary because the high price of the goods entails a certain risk on the dealer's part for which he must be recompensed. As a general rule, the higher the price of the goods the greater the dealer's margin of profit, but there are exceptions. The Gillette razor is one, which, selling for five dollars to the consumer, brings the dealer only 25 per cent, gross profit, and the jobber gets a discount of but 10 per cent., or 10 and 5 in PRICE MAINTENANCE 383 large quantity orders. The razor costs to manufacture, inclvd' ing selling expense and overhead, approximately $2.25, and the jobber pays $3.10 for it. It should be mentioned, however, that the prices to the jobber are delivered prices, as lie Gillette people pay all carrying charges. The Ingersoll dollar watch is sold to the dealer at a discount ranging from 25 to 35 per cent. The cost of production is from fifty to fifty-five cents, the jobber pays sixty cents and the dealer seventy-five cents. Dealers who buy in large quantities can get a better price — seventy cents and in some cases sixty-five. The Bissell carpet sweeper costs $1.50 to $2.50 to produce, Some according to style. The jobber makes a profit Other of approximately $3.50 per dozen, and the dealer Cases 25 to 35 per cent. The terms on which the goods are sold have considerable effect upon the dealer's profits. For example, fifty-cent hose at $4.15 a dozen, terms 1 per cent, discount for cash in ten days, sixty days net, costs the dealer more than fifty-cent hose at $4.25, 6 per cent., i%, provided he discounts his bills. A good many small dealers do not realize the advantage of getting the cash discount, though most of the large stores understand that it represents an extra profit on the goods. In arranging the matter of terms the class of retailer it is desired to reach is important. The small man who is not in the habit of discounting his bills would beheve that the hose at $4.15 were actually cheaper, and a sale might be lost. As the adver- tising man is to be entrusted with a large share of the task of getting distribution, it is necessary that he have some knowledge of the subject of terms and some voice in their selection. Too high a margin of profit for the dealer is a direct encour- agement to cut the price. The manufacturer may say that he doesn't care how much the price is cut, so long as he gets his. But he does care, because it has a very definite effect upon dis- tribution. The Ingersoll watch, for example, is sold in upward of 60,000 stores, all over the country. That includes a great num- ber of very small country stores, who handle the goods because the price is the same everywhere, and there is no inducement for their customers to go to the city for a watch. The margin of profit for these small stores is not magnificent, but it is absolutely sure, and the goods are so widely advertised and so 384 ADVERTISING AS A BUSINESS FORCE well known that a fifteen-year old girl at three dollars a week can sell them as well as a high-priced salesman. Moreover, the dealer does not have to spend any of his own money adver- tising them. But let a big store cut the price, and inevitably the little fellow must discontinue the line. He can't afford to carry it unless he is willing to meet the prices in the other store. By and by distribution is concentrated in a few of the larger stores, and when they get tired carrying the goods — as they will, because there is no glory in selling goods for long without profit — the distribution is gone;. Not only that, but con- sumers have been educated to expect a lower price, and that handicap must be overcome. So it doesn't pay to offer too much profit, unless one is in the position where a cut price will infringe patent rights. Too small a profit is equally dangerous, for the simple reason that the small dealer cannot afford to carry the goods, and the big dealer and the jobber are afforded an Dangers^ excellent temptation to get out a private brand in "prq/lt which there will be more profit. The advertising man ought to know what profit the dealer makes, and what profit he ought to make, for this reason if for no other. He doesn't want to be placed in a position where he is going ahead creating demand for goods which is being filled with somebody's private brand. In considering selling cost, advertising expense cuts con- siderable figure, and here again the advertising man is inter- ested. It is a mistake, however, to consider advertising expense as a matter wholly separate from dealer and jobber discounts, and as something which must be added to the price. It is part of the seUing cost — true, but it will not only cut down the cost of production by increasing demand, but also make it possible to do business on a smaller margin of profit to dealer and jobber. Take the Big Ben alarm clock, for example. It sells to the retailer for $1.50 and to the consumer for $2.50. It is nationally advertised. Another alarm clock, very similar in appearance, which sells to the consumer at the same price, is sold to the retailer at $1.30. It is not advertised nationally, hence it is necessary to give the retailer a bigger margin to allow him to advertise it himself in his local papers, and to cover the greater effort necessary to sell it. Twenty cents per clock would do PRICE MAINTENANCE 885 a lot of national advertising, and leave a tidy sum to go into profits. Indeed in many lines the saving which may be effected right there will more than pay for the advertising done. And it does not "come out of" the dealer, either. J. P. Archibald, a member of the executive committee of the Pennsyl- vania Retail Jewelers' Association, speaking for the retailers, says: "We favor the fixed price on all standard goods. We can reduce the cost of doing business very materially by selling price-fixed goods. A boy or girl at a salary of $3 or $4 a week can sell advertised, fixed-price goods as well as the high-priced salesman, thus the retailer reduces his cost of doing business. Moreover, it is not necessary for the retailer himself to advertise goods which are nationally advertised." Another instance in which an advertising "expense" proved an actual saving is that of the Dover Manufacturing Company, of Canal Dover, Ohio, makers of asbestos sad-irons. When the asbestos iron was first put on the market it was priced high in order to give the dealer a good margin of profit. It was not nationally advertised, and some dealers pushed the goods, making an exorbitant profit, while others cut the price. Many did not carry the line at all because of the price cutters. Later the average price at which the irons were being sold was taken as the price to be maintained — it was considerably lower than the original price — and advertised to the consumer. Distribu- tion was immediately strengthened, and while some dealers made less profit per set on the irons they made more money in the end because it cost less to sell them. Moreover, dealers who never would touch the goods before now took them on, because the price was protected. The resulting increase in sales more than offset the advertising expense, even though it meant an (apparent) reduction in the dealer's profits. Another instance, which is familiar to everybody. The retail dealer makes from 50 to 100 per cent, gross profit on the old-style, open-blade razor. He makes only 25 per cent, on the Gillette. If the Gillette were not advertised, the retailer wouldn't touch it at a less margin than he is allowed on other razors which are not advertised. The diflFerence between 25 and 50 per cent, on an investment of $3.75 (the amount the dealer pays for the Gillette razor) will pay for a good deal of advertising. There is, moreover, the jobber 386 ADVERTISING AS A BUSINESS FORCE to consider. He could hardly be expected to handle an un^ advertised article on a 10 per cent, margin! The table of prices based upon data collected by William H. Ingersoll, of Robert H. Ingersoll & Brother, is suggestive. It is interesting to note the dealers' profits on the un- advertised articles as compared with that on the advertised goods. There seems to be some ground for the conclusion that the man who will not advertise is paying for it just the same: Table of Phices on Articles Sold With and Without Price Maintenance Representative list of goods sold by various lines of retail stores, some of which have the resale price restricted and some unrestricted. Arranged to show the comparative profits on the restricted and unrestricted articles as they are sold ordinarily by the average stores throughout the country. The percentage of prcfit given are only approximate,^ since the terms oji which the goods are sold vary from time to time, and in different sections of the country. Most manufacturers allow a cash discount off the invoice prices here given. KESTBICTED UNEBSTKICTED Food Products Price Con- Approx. Price Con- Approx. paid by sumers' per cent, paid by sumers' per cent, retailer price profit retailer price profit Beech Nut Bacon (per jar) .25 .30 16| Beech Nut Beef (per jar)... .26 .30 16i Beech Nut Peanut Butter. . .20 .25 20 Beech Nut Chewing Gum . .03 .05 40 Mother's Oats (18 packages $1.46) .081 .10 19 Franco-Amer. Soup, tomato: ipint 075 .10 25 Pints 141 -18 81 Quarts 25 .30 16f Franco-Amer. Plum Pud- dmgNo. Isize 25 .30 16| Campbell's Soups (1 doz. 81 cents) .067 .10 33 Kellogg's Corn Flakes ... (36 to a case^2.80) .077 .10 23 Kellogg's Rice Flakes 076 .10 24 Post Toasties (2 doz. at $2.80) .117 .16 23| Maple Wheat Flakes (36 packages for $2.80) .077 .10 23 Coffee 21 .28 25 Coflfee out of another bin 21 .30 30 Coffee out of another bin 21 .35 40 Cinnamon 28 .60 53-| Brighton Salt, 3 lb. bag . . (100 bags in a barrel) .037 .05 26 Brighton Salt, 2i lb. bag . (115 bags in a barrel $8.76) .033 .05 34 Crosse &Blackwell's Pickles (f pint dozen $2.10 .176 .25 30 Worcestershire sauce 141 .26 43f PRICE MAINTENANCE 387 RESTRICTED TTNRE3TRICTED Food Prodttcts — Conl. Price Con- Approx. Price Con- Approx. paid by sumers' per cenv. paid by sumers' per cent, retailer price profit retailer price profit Royal Baking Powder 071 .10 29 Royal Baking Powder, 1 lb. size 387 .60 36| Another baking powder, similar formula (doz. cans $3.75) .312 .60 48 Dutch Hand Soap (48 lOc.pkg.in case $3.40) .07 .10 30 Dutch Hand Soap, smaller size ' 038 .05 24 Fels-Naptha Soap (100 in box, $4.00) .04 .05 20 West of Mississippi deal- er's price is slightly higher. Can Com, 10c. straight (dozen 80c.) .067 .10 33 Premier Brand Com 096 .15 36 Premier Pineapple No. 2 167 .25 S3| Premira: Lemon Cling Peaches No. 2i 25 .35 28^ Tea 50 .75 33j Toastettes, No. 2 size (2 doz. to the case) 104 .15 30| Cracker Jack (100 packages $3.25) .0325 .05 37 Huyler's Triscuit (doz. 10c. pack. 88c.) .073 .10 27 Walter Baker's Cocoa, J lb. tin (61b. to box) .18 .27 33j Walter Baker's Chocolate, ^Ib (24| lb. to the case) .14 .20 30 Hershey's Milk Chocolate (48 Sc. pack. $1.60) .033 .05 34 Continental Sardines .... (1 doz. to case) .07 .10 30 Salada Tea, J lb 45 .60 25 Postum Cereal No. 1 (24 to case $2.70) .112 .15 25^ Jello (3 doz. to case $2.70) .075 .10 25 Snider's Catsup, § pt (New York City prices) .104 .12-.15 13|-17| Wearing Apparel Beacon Shoe 2.25 Beacon Shoe 2.60 Beacon Shoe 2.85 Cross Gloves 1.18 Cross Gloves 1.24 Warner's Rust Proof Corsets 71 Warner's Rust Proof Corsets 1.00 Silver Brand Collars 09 Silver Brand Shirts 75 Ide Brand Shirts 1.04 Ide Brand Shirts 1 12-J 1.50 25 3.00 25 3.50 25f 4.00 28f 1.50 21i 2.00 38 1.00 29 1.50 33^ .12* 28 1.00 25 1.50 SOS 388 ADVERTISING AS A BUSINESS FORCE Wearing Apparel — Cont. RESTBICTBD tlllBESTBICnCD Price Con- Approx. Price Con- Approx> paid by sumers' per cent, paid by sumers' per cent retailer price profit retailer price profit Ide Brand Shirts 1.37| President Suspenders,. Neckwear .... Paris Garters . Paris Garters. .35| .S7| .33J .15 .71 .75 B.B. Bathrobe 2.50 N. B. Umbrellas , Monarch Belts Monarch Belts Onyx Hosiery Onyx Hosiery Merode Underwear . Merode Underwear . .35 .37J .18 .23^ .35J .70 2.00 .50 .50 .50 .25 1.00 1.00 3.50 .50 .75 .25 .35 .50 1.00 31 29 25 33 40 29 25 28| 30 50 28 33 29 SO Hardware: Gem Jr. Bazor Carborundum Stones Ever-Ready Razor Moore Push Pins Asbestos Sad-irons No. 1.50 Asbestos Sad-irons No. 80.. No. 3 Stanley Plane Starrett Caliper Starrett Micrometer 50 ft. Sted Tape Measure Cotton Waste Dodge Pulley No. 14 Stillson Wrench No. 3 Blount Door Check § in. Manila Rope Fhila. Lawn Mower Rubberset Brushes Atlanta Wash Boilers Three-in-One Oil Major's Cement Liquid Veneer Jap-arlac 27 Yale Night Latch Yale Locks Welsbach Mantles Welsbach Mantles Welsbach Mantles Le Page's Glue Le Page's Glue Le Page's Glue Le Page's Glue .75 1.00 .75 1.25 .75 1.00 .75doz.l.20doz. 1.50 2.25 1.00 1.50 25 40 25 37J 33f 33* .45 40 1.00 .48 4.05 1.87 .071 4.32 .57 3.00 .07i 4.00 1.00 1.00 .15 .10 .33i .92 1.00 .06 .09 .18 .08 .15 .12 .20 1.36 .64 5.00 2.62 .081 6.70 .81 3.75 .12 6.00 1.60 1.50 .25 .15 .50 i.26 1.35 .10 .16 .30 .10 .20 .15 .25 26^ 25 19 28| 14 24 30 20 37i S3J 33i 38i 40 33| 33J 27 23| 40 40 40 20 26 20 20 PRICE MAINTENANCE 389 BESTBICTED TJNRESTBICTED ftice Con- Approx- Price Con- Approx- paid by sumers' per cent, paid by sumers' per cent, retailer price profit retailer price profit Venus Pencils OSf .10 46 E. Faber Mongul 04 .05 20 Spencerian Pens 72gr. 1.00 28 Stafiford Ink 42qt. .60 30 (In the West the price of ink per qtiart is usually 76c.) Simplex Pencil Sharpener .. .06 .10 40 Alexis Bond 15 .19 21* Alexis Ledger 15j .19^ 21 Stratford Cover 3.75 S.OO 25 Y. & E. Cabinets 2.10 3.00 30 Sporting Goods: Spalding League Ball 1.00 1.25 20 Peck & Snyder Skates .... .40 .75 46| Smith & Wesson Revolver. 13.00 15.50 16 8 A. Kodak 13.33 20.00 33 Kodak Films .13^ .20 32; W. & D. Tennis Ball . . . . 4.25doz. 5.00 15 W. & D. Tennis Backet . . 6.00 8.00 25 Edison Phonograph 10.50 15.00 30 Columbia Graphophone . . 15.00 25.00 40 Iver-Johnson Revolver . . . 4.00 6.00 33-J Gillette Razor 3.75 5.00 25 .sddoz. i.io i Seed Dry Plates !7 Stanley Plates .50 .55 9 Photo Albums .60 .85 41 Stereopticons . 3< )00 RR nn m C. C. Tennis Ball ] .SOdoz. 3.60 60 Tennis Racket i L25 7.00 89 Eureka Golf BaU .15 .35 67 Ansco Cameras No. 1 i !.34 6.00 33 Cyko Paper ?0 .30 33J .20 25 Ansco Fi ms 15 Union Hardward Skates... . [.00 1.25 20 Electric Flash Light .21 .30 30 Pishing Bods .86 1.25 32 Thermos Bottles i.50 2.00 is Keen Kutter Knives . 4.00 6.00 33) . . . • • • • • Keen Kutter Camp Axe . . . .33 .60 34 Klaxon Warning Signal . . 26.25 35.00 25 .... . , 15.00 .75 20.00 1.00 26 26 ... IngersoU Watch , . 390 ADVERTISING AS A BUSINESS FORCE RESTEICTED UNBBSTEICTED Price Con- Approx. Price Con- Approx. Drugs paid by sumers' per cent, paid by sumers' per cent, retailer price profit retailer price profit Alcohol Stove 33i. .50 33J Sanatogen 75 1.00 25 ; Miles' Medicine 66 1.00 34 Vinol 70 1.00 SO Williams' Shaving Stick 16 .25 36 Jersey Cream Soap 11 .15 26f Prophylactic Tooth Brush.. .164 .25 34 De Wilbus Atomizer 66 1.00 34 Sanitax Brushes 70 1.00 SO Eskay's Food (Large size — list price 75 cents, but sold in some places as low as 60 cents.) In dozen lots 641 .60-.75 10-28 $12 worth at a time 467 .60-.75 22-88 $25 worth at a time 464 .60-.76 841-40 PalmoKveSoap 07 .10 27 Hot Water Bottles 1.00 1.50 33j Fountain Syringes 1.00 1.60 33| Ice Bags 90 1.35 SSJ Lyon's Toothpowder 15| .25 38 Belladonna Plasters OSJ .16 43i Inf. Syringes 37§ .50 25 Box Paper SO .60 40 PRICE MAINTENANCE AT THE PATENT HEARING During the spring of 1912 the Patents Committee of the House of Representatives held hearings in Washington on various questions involved in a proposed recodification of the United States patent laws. One of the features discussed was th« extent to which a patent carried the right of price control. The "Dick case" decision made this section of the committee's hearings one of the most spirited parts of its work. That decision had confirmed the right of the seller of a patented article to a degree of control over it after sale. This made the committee particularly eager to get from manufacturers definite statements of their views on price maintenance. As a result some new experience records were made public. PRICE MAINTENANCE 391 *0f the business men who have appeared before the House Committee in Washington at its hearings on the proposed new patent legislation none has made a more favorable inlpres- sion than William H. Ingersoll, of the firm of R. H. Ingersoll & Bro., of New York, watch manufacturers. It was intimated to Mr. Ingersoll in the course of his testimony that he had made out a pretty good case and members of the committee said more to the same purport in private conversation following the hearing. Mr. Ingersoll had to stand the rather severe cross-examination that has been the fate of almost every manufacturer who has appeared before the committee and he found the committee characteristically inquisitive regarding the business secrets of the firm. In answer to questions he stated that the dollar watch costs between 50 and 55 cents to produce — a little more than formerly owing to the increased cost of material — and that the retail outlet embraces some- where between 60,000 and 100,000 stores. Conversation on the part of your correspondent with members of the committee following the appearance of Mr. Ingersoll disclosed the fact that there was one feature of his testimony which has aroused the deepest interest as seemingly significant of the business policy of the future — a straw, as it were, that shows the trend of the trade wind. This disclosure was the testimony of Mr. Ingersoll that whereas his firm markets its dollar watch, a long-time, standard article, on the old sliding scale of discounts whereby the small retailer has to pay 75 cents, whereas, the big retailer who buys in quantity can get a price as low as 65 cents, it has, in placing on the market its newer products, adopted an absolutely uniform price pohcy. The instance in point, that particularly impressed the committee as cited by Mr. Ingersoll, was the method employed in the distribution of the watch that retails at $25. Here the jobber is virtually eliminated and the watch is supplied to the retailer at $16.67 net — an absolutely net price that is universal in application no matter whether the retailer buys one watch or a thousand. . . . Charles T. Johnson, president of the Dover Manufacturing Company, of Canal Dover, Ohio, in the course of testimony before the committee outlined step by step the evolution of sad-iron manufacture as developed by his concern which now *Printers' Ink, May 30, 1912, p. 40. 392 ADVERTISING AS A BUSINESS FORCE ranks as the largest exclusive sad-iron concern in the world. He told how, looking about for a business opening, he had been impelled, fifteen years ago, to enter upon his present line because he became convinced that the sad-iron was something that needed evolution and improvement. Sad-irons as a commodity had so degenerated that irons which had once sold for prices ranging from $2 to $5 per set were selling, full nickel-plated, at 50 cents per set and 42 to 45 cents on sale days in the Chicago department stores. Thereupon he con- ceived the idea of bringing out a good, modern sad-iron. It took him six years to get his original basic patent, and that patent, thanks to official red tape, etc., cost between $2,000 and $3,000. This was the "Asbestos sad-iron." Some years ago, in response to popular demand, the concern grappled with the problem of the self-heating iron, and after five years of experimenting brought out the "A-Best-0 automatic, heat-controlled electric iron." These latter retail at $6.50 and are sold to the trade at 27j and 30 per cent, off, the former quotation for lots of one dozen or more. The retail price is fixed under the usual license plan. A representative model of the asbestos sad-irons retail at $1.75 per set and the extreme jobber's price is $11.67 per dozen, while the price to the retailer is $14.40 per dozen. There is a provision in the jobber's agreement under which they agree not to quote or sell catalogue house or department store trade. Asked how he came to adopt the fixed-price policy, Mr. Johnson said: "In the early stage in putting out goods on the market, they were looked upon as high-priced, compared with other commodities of the same type which already dominated the market. After a term of years we found that certain merchants were selling our goods at or below cost, whereas others were making a reasonable profit. Upon investi- gating matters we found that the dealers who were getting a reasonable profit on the goods were meeting with a ready sale, whereas those who were selling them at or about their cost considered them dead stock and were having a hard time to dispose of them at any price. "This not alone confused, but had a tendency to discourage the dealer who was really distributing the goods. We arrived at the fixed price by adopting the average price at which the successful merchants were selling the goods and found that this gave them a reasonable profit. Some of the most successful PRICE MAINTENANCE 39^ merchants were getting considerably more. Our object in adopting the fixed price was to protect the successful distributor and to protect the product from being demoralized in price so that we could continue to make high-grade article. A fixed price means many added burdens to the manufacturer, as we protect the dealer in his profits without getting any additional price from him. At least that is the way it has worked out in our case. After adopting the fixed price, we found that it was obligatory on our part to take back any goods which had become damaged in any way, shopworn, or which a merchant said he could not sell at the fixed price." In response to questions from the chairman of the com- mittee the sad-iron manufacturer said that, after deducting all expenses, including advertising, the manufacturer's p°^, net profit on the asbestos irons averages 5 to 8 F'^urea cents per set. He declared that his company has already expended several times its capital stock of $250,000 in advertising and selling expense. The annual output of irons by the Ohio concern was given as between 300,000 and 500,000, and it was stated that the company has paid 6 per cent, cash dividends and 7 or 8 per cent, stock dividends, say, an average of 12 to 15 per cent., annually since the company was organized. Mr. Johnson was especially interesting whep he took the ground that there are few commodities with which you can go to the consumer direct, and that if you withdraw support from either the jobber or retailer, or both, you might almost as well discontinue manufacturing. While on this topic, he pointed out the advantages of "quality goods" and said: "Beginning in the seventies with the advent of the depart- ment store and catalogue house and ending with the nineties, we had, in this country, what might be termed a The His- 'price market.' That is, quality was sacrificed to lory of the pj.j(.g g^j ^jjg (.jy of the retailer as well as the jobber Market ^^s for something cheap, cheaper, cheapest, and it was a hard matter to get a good article, even though you were willing to pay for it, as the dealers did not dare to carry them for fear they would be called 'high-priced. ' Begin- ning in the nineties, there developed what might be called a 'quality market,' and this has made rapid strides. In fact, the major portion of the consuming public now demands quality and does not haggle on price." 394 ADVERTISING AS A BUSINESS FORCE The sad-iron manufacturer dwelt at some length upon the experience of his firm with the Fair, of Chicago. At the outset, dealings with the Chicago store allowed the store a profit of 40 per cent, and the manufacturer paid the expense of the demonstrator installed at the store. Then the Fair declined to purchase any more goods unless they were granted the jobbers' prices. The manufacturer offered them 50 per cent., but this was not satisfactory, and to bring him to time the Fair adver- tised and sold the goods at a cut price. Later a truce was effected, but after a year or so the same trouble was precipitated and continued until the sad-iron manufacturers sued the Fair and won its suits. In conclusion, Mr. Johnson said: "I am convinced that the Fair buys many of their goods at less than the extreme jobbers' price, as they are in a position to demoralize the market on almost any well-known commodity unless the manufacturer satisfies them. A profit of 50 per cent, on the average commodity does not appeal to the average department store. I understand that many of them have a rule not to advertise an article which does not pay them 60 per cent, or better, unless the advertising is done to attract people to their store, when the article will be sold for considerable less than cost." In marked contrast, naturally, to the views of Mr. Johnson, were those of Walter H. Chamberlin, a Chicago attorney, who appeared on behalf of the Fair, Siegel-Cooper Co., Rothschild Co., the Boston Store and Hillman's — all department stores located in Chicago. He was, of course, against price mainte- nance and the burden of his plaint was that the actions for infringement started by manufacturers to protect and enforce their resale prices were, as he put it, "fake" suits and that there was not enough involved in any particular suit to warrant a department store in expending from $5,000 to $15,000 to contest the case. His plea was that a manufacturer is entitled to only so much protection as a valid contract gives him and not to any protection in his retail prices, and on the score of patent infringement. This, it may be added, is a view of the situation which seems to find favor with some of the more radical members of the Patent Committee. . . . The concern of the retailers of the country for a continuance of the practice of price maintenance has been voiced by several witnesses, prominent among the number being John M. Roberts, president, and J. P. Archibald, member of the executive board PRICE MAINTENANCE 395 of the Pennsylvania Retail Jewelers* Association. The latter brought out the fact that the retailers are partial to the well- known, price-protected articles, even though the margin of profit be narrower, because of the fact that such articles reduce the retailer's advertising expenses. Said he: "We consider it a great advantage to handle those goods that are nationally advertised. We retail jewelers have to spend money adver- tising our goods that are not nationally advertised. We do not have to spend money advertising goods like the Big Ben alarm clock. I never put it in my local advertising because every- body knows it so well." Mr. Noyes, president of the Oneida Community, told, in the course of his testimony before the Committee, of his conver- sation with a groceryman who said: "We have got to get 15 to 18 per cent, on most of the articles that we handle in order to make anything at all, but I would be tickled to death to take every one of the standard, estabhshed lines — we will say Quaker Oats and that class of goods — and do the business for 8 per cent, and make more than I can now with a 15 per cent, margin on goods I have to talk." Having thus presented some of the main features of the questions which are intimately allied with price maintenance we shall divide our discussion of the subject into four main sections : 1. Some arguments for price maintenance by those who have adopted the policy. 2. Some arguments against price maintenance by those who are opposed to it. 3. Some of the legal aspects of the pohcy. 4. Some methods employed in maintaining prices and some of the results secured. AKGUMENTS FOE PRICE MAINTENANCE The Kellogg Toasted Corn Flake Company, of Battle Creek, Mich., has already been mentioned in various places as an advocate not only of price maintenance but of its corollary, the no-quantity price — that is, the principle of maintaining 396 ADVERTISING AS A BUSINESS FORCE one price, without regard to the volume of the purchase. This concern through R. O. Eastman, its advertising manager, has made pubHc the result of a census of dealers taken with a view to ascertaining how many favored the price maintenance pohcy. Mr. Eastman writes of these results as follows : *" Ninety-nine and -^^ per cent. " in favor of price protection. That's the attitude of the dealers handling Kellogg's Toasted Corn Flakes, if the vote which we have taken may be accepted as a criterion. At the request of Printers' Ink I have just made a count of the ballots received on what might be termed a "straw vote" taken by this company. The votes referred to were in the form of coupons taken from a circular which was placed for a time in the cases as they left our factory. We received, all told, 1,405 votes from every state in the Union with the exception of Nevada, ranging from two in Delaware and Alaska to 137 in New York and 146 in Michigan. We received 1,397 favorable votes and only eight against the protected price, a little more than one-half of 1 per cent. Besides these ballots, we received a great many letters from merchants, expressing their views on the subject more or less emphatically. Here are a few of the letters taken almost at random and representing widely scattered sections of the country. Thode Bros., of San Francisco, CaL: "We do not cut anything, and we protect prices wherever we can. Your firm made a good move when they fought Weinstein. S^Med ^ ^^^ them cutting on Royal Baking Powder. It's nJ^ers ti'^^ ^^^ ^^^^ to wake up and start something in the protecting line. We have turned customers away because we wouldn't sell an article three for twenty-five cents." . . . Wright & Weatherly, of Osage, la.: "Replying to your circular, we wish to say that we think that the protected price is the proper thing, inasmuch as there are so many people in business who do not even know they are losing whUe others do so to draw business, as they think, but do not seem to have sense enough to see that if they cut the price the others will be *Pnnters' Ink, March 14, 1912, p. 60. PRICE MAINTENANCE 397 forced to do the same, and they have gained nothing, but have spoiled the profit for themselves and every one else. Therefore, the merchant seeks to find more attractive profits in some other brands which have not been cut. You can count our vote as decidedly YES." H. H. Hill, of Allright, 111.: "We wish to say that we are strongly in favor of the protected price on everything, as that is the only way that the small dealer can survive hiis price- cutting competitor who has the capital to buy in quantity lots and get the benefit of the free goods many concerns are offering. The reason that we are handhng your products is that no one in the county is buying them on free deals and cutting the price. As soon as some one goes to cutting the price on goods of this kind we quit handling it if possible. We only wish we were as well protected on other staples as we are on Kellogg's Corn Flakes." J. L. Anderson, of Galena, Kan.: "As to the enclosed ballot, will say I have three different articles in my store selling under the protected price plan, and have goods of same quality not under protected price plans and am selling 33| per cent, more of protected goods than those that are not." J. C. Bushey, of Lebanon, Pa.: "Just a word about your protected price plan: I would be in favor of such a plan not only in Corn Flakes but in other goods, as I think it would put the small retailer on the same level with the larger retailer." Thomas E. Bawden, of Laurium, Mich.: "Replying to your circular, I beg to say I heartily support the Sticker, especially on the Kellogg Corn Flake. The woods are full of .-so-called Corn Flakes that may be bought in quantity for a punched dime. In my experience the consumer is willing to pay the 'price' for the 'quahty' and as 99 per cent, of my patrons who use Corn Flakes ask for Kellogg's, I am 'sot' enough to believe they know what is good and no chatter about the price. Keep the quality up and your flake is safe." . . . J. M. Holmes, of Kennewick, Wash.: "I want to con- gratulate you on the stand you have taken in protecting your price on your Corn Flakes. This is the only salvation for the small retail dealer. I sell about five cases of your goods every month and will push no other as long as you stand by the price and a square deal." . . . C. M. Underbill, of Lakewood, N. J.: "I think it a wise plan to protect the price of an article of such merit as Kellogg's S98 ADVERTISING AS A BUSINESS FORCE Com Flakes. I have handled the article for a number of years, and take pride in offering it to my trade. I find nothing equal to it among the many imitations. I think it unfair after introducing an article of merit to have some price cutter come in and cut the price until one feels like setting it aside for some- thing else in order to get a living profit. This happened several times with good articles, and it is unfair to the manufacturer, to the grocer, and to the consumer. We cannot work for nothing, and are sometimes compelled to do things which would not be done if we had the protection which some manufacturers give the jobbers." The votes we have thus far received were distributed as follows: STATES • TE8 Alabama 8 Alaska 2 Arkansas II Arizona 5 California 52 Colorado 37 Connecticut 29 Delaware 2 Dist. of Columbia 1 Florida 14 Georgia 4 Idaho 10 Illinois 82 Indiana 46 Iowa 13 Kansas 16 Kentucky 6 Louisiana , . . . 5 Maine 14 Maryland 14 Massachusetts 46 Michigan 146 Minnesota 29 Mississippi II Missouri 16 Montana 10 STATES TBS Nebraska 7 Nevada New Hampshire 20 New Jersey 48 New Mexico 4 New York 137 North Carolina 8 North Dakota 13 Ohio 89 Oklahoma 3 Oregon 20 Pennsylvania 134 Rhode Island 7 South Carolina 6 South Dakota 17 Tennessee 5 Texas 6 Utah : 13 Vermont 10 Virginia 15 Washington 51 West Virginia 12 Wisconsiu 49 Wyoming 5 Scattering 95 Total, .1397 1405 Another case taken from the grocery trade is that of the coffee house of B. Fischer & Company, of New York, exploiters of the Hotel Astor coffee. The advertising manager of this PRICE MAINTENANCE 399 company, Frederick W. Nash, discusses the experience of that company in the following terms: ♦Editobial Note. — B. Fischer & Co.'s retafl price protection policy haa grown out of fifty years of ejqjerieuce as importers, manufactuters and packers for the grocery trade. In view of the increasing agitation the country over to have the next Congress pass a law that shall allow reasonable price main- tenance on advertised brands, the data herewith are valuable. "The very germ of civilized industry is the idea of well- ordered mutual work instead of disordered antagonistc work — a helpful and common-sense co-operation rather than a riotous and haphazard competition." So writes Former United States Senator Albert J. Beveridge, discussing the Sherman law and its misapplication to modern business. He also quotes history as shewing that failures and hard times are unfailing results of unintelhgent, unrestrained competition of hundreds of thousands of little enterprises. W. K. Kellogg, of the Kellogg Toasted Corn Flake Company, confirms this view from practical experience as a manufacturer and distributor of food. He says in Printers' Ink, December 7 issue: "I know of no better way — indeed, I know of no other way — to ensure a living ■proUt to the dealer than to protect the price. . . . The grocery business is a great, big, loosely organized trade. For every one real business man in the trade there are many who do not know their cost of doing business. Nine out of ten want to sell at a fair price, but when one cuts the price of a well-known article the rest feel they must meet the cut and the whole trade on that one item is brought to a no-profit level. Leave it to them to work out their own salvation, and nine times out of ten they will work out their own destruction instead, and while they are doing it they also work out the destruction of the article they are cutting — that's why the manufacturer must protect his goods." He might have gone further and said truly also that the y^ working out of such matters, if left to the dealers, Resulis results in deterioration of quality or substitution of ijf CiOting inferior goods to meet purely price competition, with Prices consequent disadvantage to consumers as well as to retailers and manufacturers of quality products. *Priniers' Ink, Februaiy 1, 1912, p. 56. 400 ADVERTISING AS A BUSINESS FORCE The grocery trade is a typical example of the need for main- taining the principle of legitimate price protection, especially on advertised and trade-marked merchandise. Here are a few facts and figures that are illuminating as to the actual conditions among grocers in the United States: Number having capital of $1,000 to $3,000 56,000 Number having capital of $3,000 to $5,000 28,000 Number having capital of over $5,000 16,000 Total, exclusively grocers (not including stores carrying other lines, such as general stores, department stores, etc.) , 100,000 In addition to these 100,000 which constitute the successful class, there are more than 100,000 additional listed and classified as grocers with less than $1,000 investment or resource. The normal cost of doing a grocery business under modern conditions (now that the housewife must have everything delivered for her on short notice, even to a five-cent box of crackers or a penny yeast cake) varies from 15 to 18 per cent, of gross sales — 17 per cent, is considered a fair average. The grocer's gross profit on all sales averages only 20 per cent, rarely more, often less. Hence he can figure on an actual net profit of only 3 per cent. Let us suppose that the successful 100,000 grocers manage to turn over their entire capital monthly on this basis: Business with $1,000 capital, $12,000 annual sales, earns $ 360 Business with $2,000 capital, $24,000 annual sales, earns 720 Business with $3,000 capital, $36,000 annual sales, earns 1,080 Business with $5,000 capital, $60,000 annual sales, earns 1,800 Contrast these returns for investment, risks, long hours and hard work required in the grocery trade as compared with profits and conditions in other lines of business, and all the talk about the grocer's large profits being a chief cause of the high cost of living seems pure piffle. One can count on two hands' fingers about all the men in the United States who have really gotten rich in the retail grocery business in the last generation But this is not the worst of the grocer's troubles. Consider the army of small, unbusinesslike, unsuccessful grocers, who come and go, in and out of the business annually. There is nearly 20 per cent, change in the personnel of dealers; i.e., including those in the business and those who come in ^PRICE MAINTENANCE 401 and go out within a year. This fearful rate of mortality and change keeps the trade in an unsettled, unorganized condition, and renders next to impossible the working out by retailers themselves of any effective price maintenance reform — ■ especially as they are to run afoul of the Sherman law if they combine to that end. With full realization of these conditions through more than half a century's grocery trade experience, B. Fischer & Co. stand squarely committed to the principle of legitimate and reasonable price protection for the retailer of Hotel Astoir Coffee and other advertised specialties. This policy was adopted in the beginning and has been adhered to as a necessary and "reasonable restraint" of retail price making, both above and below the standard ^^""w* considered fair and most advantageous to all con- qf Prices cerned. Not only is the dealer protected in making a legitimate profit on Hotel Astor Coffee, but he is protected from asking an excessive, unbusinesslike profit — a policy only too common, and one that only increases his competition from special tea stores and the premium coffee schemes which have been the natural outgrowth of the average family grocer's mistaken policy in trying to make up through excessive profits on teas and coffees for lost profits on sugar and similar no-profit lines. B. Fischer & Co. believe in advertising the retail price to the consumer, for this reason (and others), and while there are the usual trade exceptions in the way of "hide-bound private- brand stores," "long-profit, long-credit accounts," etc., that object to this method of regulating their profits, our experience is that the better class grocery trade in general are in sympathy with a policy which provides for a "square deal for everybody." When it was necessary recently to advance the price of Hotel Astor Coffee the dealer was not left to struggle Dealers ^i*^ ^^^ problem of getting the advanced retail Not L^ price alone, but B. Fischer & Co. assumed entire To Struggle responsibility for making the advance to consumer. Alone ^jj^ explained the reasons fully in a series of 140^1ine newspaper advertisements. The writer concurs fully with Mr. Kellogg in his view that "when the principle of price protection is brought into court by a litigant having clean skirts, engaged in a legitimate business and maintaining a schedule of prices solely to ensure a safe 402 ADVERTISING AS A BUSINESS FORCE economic plan of distribution, it will be upheld and vin- dicated." It is alleged that the purpose of the Shennan law is to correct certain abuses growing out of associated effort, but not prevalent in competitive effort. There seems to be general agreement among those who have studied the subject and are in positions which enable them to speak with authority that these abuses are chiefly: 1. Over-capitalization, with its watered stock influences. 2. Arbitrary price raising, and lowering especially to stifle legitimate competition. If this is the correct view, it certainly would require a good deal of stretching to apply the Sherman law to the grocery trade in connection with a co-operative price maintenance policy operated on a fair basis for consumer, retailer, and manu- facturer — especially when there is no monopoly of business on the goods protected. ARGUMENTS AGAINST PRICE MAINTENANCE Duke C. Bowers, of Memphis, Term., is among the earnest and outspoken opponents of price maintenance. Mr. Bow- ers has established a chain of grocery stores in Memphis in which he has attempted to work out a policy of uniform rate of profit on all lines of goods which he handles. This he does without regard to the effect which this policy might have upon the prices to the consumer of goods on which the manufac- turers attempt to maintain the price. Mr. Bowers takes the ground that, as far as possible, sugar, tea and every other line handled in his store ought to bear an equal share of the cost of doing business. This makes him necessarily a very active opponent of price maintenance plans. He expresses his views in the following terms: *I take it for granted that Printers' Ink readers are posted as to the growing tendency of manufacturers to fix, not only the jobbing, but the retail price as well, on articles of their manufacture. Hence, I shall try to confine my talk *Pnnterti' Ink, January 5, 1911, p. 42. « « PRICE MAINTENANCE 40S to the, what I believe to be, unfair, unjust and selfish price maintenance plan. As I see it, it is selfish because the retailer wants it because it keeps his competitor from underselling him and the manufac- turer adopts it because it is a fine bait to get the retailer to push his goods. As I see it, it is unfair for the reason that it prevents a mer- chant from giving his customers advantage of his money- saving system. It is a plan to put more money in the coflFers of the merchant, hence, squeezing more money out of the customers. A man's customers are his best friends, hence, when he joins in the price maintenance plan and agrees to not sell to his customers for less than a certain fixed price, then, to my mind, he makes a mistake. A merchant's ideal should be, always "looking out for the interest of his customers." You think such an idea siUy? What would be your opinion of the physician who thought more of the fee that he would get out of you for an operation than he would of performing the operation with the hope of benefiting you? What would be your opinion of the minister of the gospel, who was preaching for the money there was in it instead of the saving of souls? Isn't it reasonable to suppose that the merchant owes a duty to his customers; just as much as does a physician to his patients, or the preacher to his flock? If you will agree with me that he does, then how can you disagree with me when I say that when a merchant joins any kind of a combination that prevents him from guarding the interests of his customers, he is most likely thinking of his own selfish greed, thereby letting Avarice instead of Duty be his master. The manufacturer may feel that the merchant is his customer, therefore he should look out for his interest. In one sense of the word, the manufacturer is right, yet, he should stop to consider that the user of his product is the one that is his best friend, hence he should never lose sight of his (the user's) interest, and when he (the manufacturer) dictates to a retailer that he shall not sell his product to the consumer for less than a certain price, he, the manufacturer, has undoubtedly in this instance lost sight of the interest of the users of his product. . . . 404 ADVERTISING AS A BUSINESS FORCE Mr. Bowers, in this discussion, does not cover more than the single argument against price maintenance — the cost to the consumer. But that is the one argument which still resists the logic and the skill of the fixed-price advocates. Many wholesalers have given their approval to the price- maintenance principle, and we have already seen how retailers regard the plan as it is operated by the Kellogg Company. Many consumers, too, may be persuaded that their interests might be served better in the long run if everybody in the selling system were satisfied with fixed terms and profits for buying and selling. But when a 25-cent tooth powder of guaranteed quality can be bought for 19 cents, or when a 15-cent breakfast food can be bought for 10 cents, the consumer is prone to forget his logic and buy where the prices are low. He is very apt to feel that if the price cutter is so clever that he can profitably deliver the goods at a lower price, or so stupid that he is willing to sell them at a loss, the result to hiin, as a consumer, is much the same. And thoughtful, indeed, is the consumer who turns his back on these savings, taxing himself, by that much, to save his less able, or less foolish, local storekeeper from anni- hilation. Whether this position of the consumer be sound or not, it is surprisingly general, and it has split more than one very stanch price-niaintenance craft. Thus far, practically all of the illustrations which we have employed in the price-maintenance field have been confined to the grocery business, but the same problems are met in virtually every line of trade going out into consumption through the retailer. The attitude of large department stores finds typical illustration in the views of R. H. Macy Company, of New York : *0f all the rebels among retailers who have seceded from the manufacturer's policy of price protection, R. H. Macy & Co., New York, are, perhaps, the most rebellious. Ask any *Printers' Ink, August 4, 1910, p. 8. PRICE MAINTENANCE 405 manufacturer who has been trying to maintain his prices what success he has met with, and, in a goodly number of cases, if he has experienced difficulty in any direction, it has vartmmt ^^^ ^^ t^s well-known department store. Store's Scores of manufacturers have refused to sell it any View of more of their goods. But that has only proved the Price beginning of their troubles. As likely as not, the temnce ^°^^^ °^ Macy has apparently managed to get in- directly, by some devious and inexplicable manner, the goods which have been refused it directly. Complicated business ramifications and connections have made this possible. The manufacturers have been quite in the dark as to how it has been managed. Only those of them whose products have been of such a nature that they could be serially numbered (a big expense at best) or who have sold their goods direct, and not through the jobbers, have had any certain means of insuring their position, as a rule. There was a time, when the Macy store was located farther downtown, when it was much smaller and much less preten- tious. Whether it has been due to the removal uptown to Thirty-fourth Street and into a new and large building, or to the proverbial Macy attitude toward prices, or to something else, the fact remains that R. H. Macy & Co. has prospered rapidly. The concern's monumental instance of opposition to the wishes of the producers in the matter of prices has been in the book department. Admittedly, this concern plans to carry the matter of book prices to a final conclusion in and out of the courts. When it is once disposed of, the officials of the store propose to concentrate their efforts along other lines, where the manufacturers have also been particularly insistent as to price standards. In drug lines, now, Macy is a persistent and bold opponent of price maintenance. In order to give its readers an authoritative idea of the point of view of a retail concern which is such a leading dyed-in-the- wool opponent of price maintenance, Printers' Ink has obtained some pertinent statements from one of the men who formulate the Macy policies, who has good-naturedly explained the price-maintenance idea as it looks from the Macy perspective, the other side of the fence. "In the first place," he said, "let me explain that we do not look upon ourselves as price cutters. We are not that, we 406 ADVERTISING AS A BUSINESS FORCE believe. To our point of view, we are rather opponents qf price boosting. Take our book prices, for example, which are so often referred to. We were selling current fiction at 98 cents regularly before the book people made a combine and tried to force us to boost our prices to $1.08, the price other dealers regularly ask for new copyright fiction. This we have refused to do. We have gone to every possible extreme to get books, when they have been refused us directly, which, we believe, we have been perfectly justified in doing. We have obtained our books and have sold them as we have seen fit. That is all there is to it. "What the book people have tried to do is only an example of the situation as regards practically all the self-styled 'price- maintainers. ' These manufacturers trade-mark their goods; then they advertise the trade-mark and finally they attempt to boost the prices, when the public has learned to want what they make, asking the retailer to combine with them in their schemes to squeeze the purses. "There is one thing which should be especially kept in mind in connection with the Macy establishment," he continued. "It is the fact that we sell here on a cash basis strictly. In every instance we have the buyer's money before the buyer gets our goods. This means that we have no charge accounts, and that we are unable to offer to the public those facilities which go hand-in-hand with the credit privilege. Without these, we must offer some substitute inducement to bring the public to us. Otherwise the pubhc would not come. That 'something' must be even more attractive than the credit privilege. Years ago we decided that it should be price inducements. "It is our business working-principle to sell everything lower than it can be bought for elsewhere in any other compet- ing retail establishment. We have a corps of workers, I may add, who make it their constant endeavor to go into our com- petitor's stores and learn what prices are being asked. We won't sign price-maintenance agreements. And, as far as that goes, I may say that, loo^ng at the matter broadly, we much prefer not to sell an article at all if we cannot sell it at a lower price than others. It was on this basis, for example^ that we sold Cuticura soap at a big loss for a long period of time. "And there is another important point which should be kept in mind in connection with Macy's. We are a one-price house. PRICE MAINTENANCE 407 By that we mean that we sell all-comers at the same price. You may think that that is only to be expected, that the day of the store of many prices has long since passed. But it has not. The fact is, and our investigations have gone to prove it in any number of cases, that most of our competitors, whose reputation for maintaining prices is generally established more illustrious than ours, make a practice of selling price-restricted articles at a considerable discount to clergymen, dressmakers and a host of others who make up a number of special classes. Claims to membership in these privileged classes need not be proven. The Macy authority was asked if he did not consider that a progressive retailer owed something to the progressi'^e manu- facturer in the matter of protecting prices. "Let me answer that question," he replied, "by asking a question in return. Do your readers who are enthusiastic believers in price maintenance feel that they are oSaHon ^^^^ ^^^ obligation, moral or legal, to Macy's after Ceases ^^Y have bought something here and have paid for it? Wouldn't they feel that we were presuming upon our prerogatives if we attempted to instruct them as to how they should use, or on what basis they should resell, whatever they have bought of us? There is really nothing different, from our point of view, in our relation with, and our obligations to, the manufacturers. "The manufacturer gets from us the prices they ask of us, and we certainly consider our obligations to them ended when we make financial settlement with them." The Macy head was asked whether, inasmuch as he claims to be a friend of the consumer, he considers it for the best interest of the consumer for prices to be maintained; whether, if prices are not maintained by Macy's and other big retailers, the ultimate result is not that thousands of small dealers refuse to handle the goods in question at all, because they cannot sell them in competition, all of which means smaller aggregate sales for the manufacturers, necessitating that they, in turn, either cheapen quaUty or go out of business, a (fisastrous outcome from an economic standpoint, in either event. "But is this the case?" he asked in way of reply. "I have one proprietary article in mind — I'll tell you its name, Listeriue — wMch has not been price-maintained and which 408 , ADVERTISING AS A BUSINESS FORCE has been cut and cut by the retail dealers. Yet I have heard that the sales of Listerine have been going up and up, all the time the cutting has continued. These manufacturers have always got the price they have asked. They have had no reason for complaint. It hasn't been poor econsmics. "But, while we are on the general subject of quahty in relation to price maintenance," he continued, "isn't quality really a relative matter at best? I can grant you, Pnee perhaps, that advertised goods are high in quality, anc"!^ even that they could not be successfully advertised Quality if they were not so. But we beUeve that advertised goods are not, as a rule, better in quality than it is imperative they should be in order to make them a paying proposition. "It has been our experience that most manufacturers who advertise attempt, in one way or another, to boost prices higher than they normally shoidd, in order to meet the cost of their advertising. Because of a certain false pride, we buy a lady a box of 80-cent candy of one of two or three widely advertised brands. Yet I am positive that there is candy selling at 59 cents which is the equal of any 80-cent variety ever made. The difference in price goes toward paying for the advertising." The Macy head was asked if there were not instances of advertised goods which are sold at prices as low or lower than those asked for any unadvertised goods. A certain widely advertised cracker was mentioned as an instance which, without a doubt, is well worth the five cents asked for it. It was pointed out that Macy's frequently sold this cracker and other like goods at less than the advertised prices. He was asked for an explanation of such merchandising. . "I cannot say with certainty as regards the goods referred to," was the reply. "But I do know of a number of instances where manufacturers of price-advertised goods have come to us and requested that we sell their goods at whatever price we wish if only we will give publicity to the fact that we are handling them. This is particularly often the case with manufacturers of new products for which they are striving to get a first market. Manufacturers appreciate that when a store such as Macy's advertises their articles it means an immense amount of free and authoritative publicity for them. When the public comes to J'^arn the mere fact that a store like ours is carrying certain PRICE MAINTENANCE 409 new products, that fact helps the sale of those products every- where to a material degree. "And, in general," he concluded, "we believe that the tendency of the times, or rather the tendency of the courts which reflect the tendencies of the times, is away from price« maintenance and toward free, unrestricted merchandising and retailing. LEGAL ASPECTS OF PRICE-MAINTENANCE The advocates of price-maintenance have been obliged to revise some of their accepted methods as a result of the deci- sion rendered by the Supreme Court of the United jlf^eg States April 3, 1911, in the case of Dr. Miles w. Medical Company vs. John D. Park & Sons Company, Decision '^^ Cincinnati, Ohio. The Miles company are makers of proprietary medicines prepared under secret for- mulas but sold in packages identified by a trade-mark. They alleged that their trade had been interfered with and their profits reduced by price cutting by the Park company. The Miles company method of sale was an ingenious one, the sale to the wholesale trade being conducted on an agency basis. The goods by the terms of the agency contract did not belong to the wholesaler and were sent to him only on \ consignment. Title did not pass from the manufacturer until \ the goods were sold to the retailer. This was believed to Wake it possible for the manufacturer to dictate the price at 'which the goods should be consigned to the wholesaler and blso the price at which he was to convey them to the retailer. The wholesale contract further stipulated that the goods were to be released by the wholesaler only to designated retail agents of the manufacturer. There was also a retail agency contract which similarly tied up the retailer and stipulated wholesale price, quantity dis- counts and retail price, and provided for penalties for violations. The Miles company was selling its goods under the terms of these contracts through 400 jobbers and 25,000 retailers. 410 ADVERTISING AS A BUSINESS FORCE When the Park company cut the retail price on some of the goods in violation of the term of the contract, the Miles company asked for an injunction restraining them from at- tempting to induce any of the wholesale or retail agencies, under contract, to violate the terms of their contract agreement. Justice Hughes prepared the opinion of the Court. Justice Holmes dissented, and Justice Lurton did not sit in the case. Otherwise the Court agreed with Justice Hughes. The decision first analyzed the two contracts and takes the ground that the "agency" terms in them were only a subterfuge, and that they were in restraint of trade. It further declared that even the secret processes of the company did not give it a right to fix the price. The decision then simis up the case as follows: The present case is not analogous to that of a sale of good will, or of an interest in a business, or of the grant of a right Part of ^ ^^^ ^ process of manufacture. The complainant the has not parted with any interest in its business or Supreme instrumentalities of production. It has conferred no Corures right by virtue of which purchasers of its products vecmon ^^^^ compete with it. It retains complete control over the business in which it is engaged, manufacturing what it pleases and fixing such prices for its own sales as it may desire. Nor are we dealing with a single transaction, conceiv- ably unrelated to the public interest. The agreements are de- signed to maintain prices, after the complainant has parted with the title to the articles, and to prevent competition among those who trade in them. The bill asserts the importance of a standard retail price and alleges generally that confusion and damage have resulted from the sales at less than the prices fixed. But the advantage of estabUshed retail prices primarily concerns the dealers. The enlarged profits which would result from adherence to the established rates would go to them and not to the com- plainant. It is through the inabihty of the favored dealers to realize these profits, on account of the described competition, that the complainant works out its alleged injury. If there be any advantage to a manufacturer in the maintenance of fixed retail prices, the question remains whether it is one PRICE MAINTENANCE 411 which he is entitled to secure by agreements restricting the freedom of trade on the part of dealers who own what they sell. As to this, the complainant can fare no better with its plan of identical contracts than could the dealers them- selves if they formed a combination and endeavored to establish the same restrictions, and thus to achieve the same result, by agreement with each other. If the immediate advantage they would thus obtain would not be sufficient to sustain such a direct agreement, the asserted ulterior benefit to the complainant cannot be regarded as sufficient to support its system. But agreements or combinations between dealers, having for their sole purpose the destruction of competition and the fixing of prices, are injurious to the public interest and void. They are not saved by the advantages which the participants expect to derive from the enhanced price to the consumer. People V. Sheldon, 139 N. Y., 251; JvM v. Harrington, 139 N. Y. 105; People v. Milk Exchange, 145 N. Y. 267; United States v. Addyston Pipe tSc Steel Co., 85 Fed. 271; on app. 175 U. S. 211; Montague & Co. v. Lawry, 193 U. S. 38: Chapin v. Brovm, 83 Iowa, 156; Crajt v. McConoughy, 79 HI. 346; W. H. Hill Co. v. Gray & Worcester, 127 N. W. Rep. (Mich.) 803. The complainant's plan falls within the principle which condemns contracts of this class. It, in eflFect, creates a com- bination for the prohibited purposes. No distinction can properly be made by reason of the particular character of the commodity in question. It is not entitled to special privilege or immunity. It is an article of commerce and the rules concerning the freedom of trade must be held to apply to it. Nor does the fact that the margin of freedom is reduced by the control of production make the protection of what remains, in such a case, a negligible mattex. And where coipmodities have passed into the channels of trade and are owned by dealers, the validity of agreements to prevent competition and to maintain prices is not to be determined by the circum- stance whether they were produced by several manufacturers or by one, or whether they were previously owned by one or by many. The complainant having sold its product at prices satisfactory to itself, the public is entitled to whatever advantage may be derived from competition in the subsequent traffic. 412 ADVERTISING AS A BUSINESS FORCE On March 11, 1912, the Supreme Court of the United State? handed down its decision in the case of Sydney Henry vs. A. B. Dick Co., which served to further establish the ac- teraince on cepted ideas of price-controlling power of makers of Patented patented articles. This decision, in brief, took the ^^"^ ground that the monopoly power granted by the patent gave the patentee the right to enforce restrictions covering the article subsequent to sale. This decision has led the makers of patented articles to feel much freer to enforce price-restrictions than they were between the time of the Miles vs. Park decision and the date of this new de- cision — which is commonly referred to as the Dick case, or the Rotary Mimeograph case. This decision was reached by a 4 to 3 vote, there being one vacancy on the Bench, and Justice Day not participating in the case on account of illness. An ineffectual effort was made to have the case given a re- hearing, and the House Committee on Patents has submitted to Congress, (largely as a result of this case) the Oldfield Bill defining the limits of control over an article after it is sold — even if it is sold under a patent monopoly. This bill is against the trend of previous decisions; if it is passed the price- controlling power of the seller of a patented article will not long enjoy its present degree of freedom from legal restric- tion.* The Miles vs. Park decision necessarily upset the selling arrangements of many manufacturers, and the question as to how far a manufacturer of unpatented articles can go in the matter of maintaining his price and still keep within the law is by no means settled even yet. An illustration of what took place in many concerns is found in the following letter which was sent out by the Eastman Kodak Company to its retailers, and the announcement which followed it: *The "Bath-Tub Case" decision rendered November 18, 1912, denies the right to restrict the terms of sale of unpatented articles produced on patented machinery. PRICE MAINTJENANCE 413 Eastman Kodak Company, Rochester, N. Y., Nov.15, 1911. *To the Trade New Terms of Sale Until recently it has been our belief that any manufacturer had the right to control the merchandising of his goods con-" taining secret compositions, as well as his patented The goods. It was also our opinion, and for that matter Kodak ^* ''^ ®*^^ ^^"^ opinion, that such control works to the PoUey ultimate advantage of all concerned ■ — consumer, dealer, and manufacturer — because it means that the manufacturer puts his whole endeavor into making his goods better in order to meet competition instead of attempting to meet it by cutting the cost, generally at the expense of quality. However, the Supreme Court of the United States has recently decided that a manufacturer cannot enforce a contract by which he attempts to control the retail selling price of his goods made by secret processes, but not patented. Desiring to conform to the spirit as well as the letter of the law, we shall from this date remove all restrictions which have heretofore prevailed in connection with non-patented goods. We are sending herewith our new Terms of Sale, showing the changes that have been made. With the restrictions removed from our unpatented goods we fear that there will be a tendency in some quarters to reduce, by price cutting, the dealers' profits. Desiring to do what we can to offset the loss from such price cutting, and thus help the dealer to a reasonable profit, we have detided to increase the discount of Kodak film from 25 per cent, to 25 and 10 per cent. Our business has been built up on a quality basis. Making goods just as well as we know how has become a fixed habit. We shall continue to serve our customers with the best photo- graphic goods that are made, shall continue to help our con- sumer customers with our schools and our demonstrating force, and our dealer customers with even bigger and broader advertising than we have done before. *Printer3' Ink, November 23, 1911, p. 24. 414 ADVERTISING AS A BUSINESS FORCE Our change in sales policy is simply liiade in order that we may conform with the recent decision of the Supreme Court of the United States. We consider this an opportune time to obtain an expression from the trade as to the desirability, from its standpoint, of our continuing our price-restriction and exclusive sale policy so far as patented goods are concerned. We are, therefore, enclosing herewith a post-card which we ask that you use in recording your view of the matter. If, as a result of the vote of the trade, we do not find a strong sentiment in favor of a maintenance of these restrictions on patented goods, we shall remove them without delay. We ask the favor of a prompt reply. The Eastman company's Trade Circular for January, 1912, contained the following announcement of the results of this appeal to its dealers: * Terms Upheld DEALERS PHACTICALLT UNANIMOUS FOE OUR PRICE MAINTENANCE AND EXCLU- SIVE SALE POLICY There is to be no change in our sales policy as to patented goods. Our dealers, by their recent vote, have gone on record as almost unanimously in favor of a continuation of our sales policy. Recent decisions of the United States courts have confirmed a number of similar decisions made during the past ten years, upholding the right of a manufacturer to control the resale price on patented goods. With our dealers strongly in favor of our policy, with recent decisions upholding the legality of the price maintenance policy on patented goods, and with our own beUef that such policy is fairest for all concerned — consumer, dealer, and manufac- turer — the course to pursue is plain: Oiu- patented goods are to be handled only upon the conditions given in our Terms of Sale, dated November 15, 1911. We have been confident all along that the general attitude of the trade was favorable to our policy. Had we not believed ourselves to be acting in harmony with our dealers, om* policy would have been discontinued long ago, but even so we were *Printers' Ink, January 4, 1912, p. 55. PRICE MAINTENANCE 415 gratified at the almost unanimous support received in the recent referendum. Up to date 90f per cent, of our dealers have voted, and of the votes received, over 98 per cent, are in favor of a continuation of our price restriction and exclusive sale policy. METHODS OF MAINTAINING PRICE All plans for price maintenance in the case of unpatented articles are more or less affected by the Miles vs. Park decision. Many are still engaged in readjusting themselves to the decision. The various bonus plans which provided for an extra discount to be given to those who could show that they had maintained prices on a given lot of goods were most common. Then there was the "Freeman" plan which did legally and actually what the Miles plan did nominally — put out the goods on consign- ment. These and various other methods attempted to secure legal sanction to the idea of control over the price of the goods as long as they were in process of distribution. Throughout the rearrangement of price maintenance plans which has followed the Miles vs. Park decision there has run one general principle, and that is, to substitute for any attempt at legal restraint, an appeal to the sense of honor and personal interest in the various features of the selling system. This substitutes for the legal restrictions of the contracts the moral restrictions based on the personal interests of the distributor. This seems to be the only feasible solution of the difficulty under the present legal conditions in the United States. If any law should be passed more clearly defining the limits of price maintenance, and the rights of the producer and seller to place restrictions on the handling of his goods, of course the situation would be modified; but as it now stands about the only feas- ible price maintenance system is one which substitutes for legal restraint some effective appeal to the distributor's self- interest and his moral obligation to protect those who are at- tempting to protect him. 416 ADVERTISING AS A BUSINESS FORCE A suggestive case showing how this was done by one manufac- turer even before the Miles vs. Park decision is told by Frank H. Hobnan: *A white-haired, grizzled veteran of business not long ago smiled philosophically at a square-jawed young manufacturer who was exhibiting with great satisfaction a bunch of contracts for price maintenance with dealers and jobbers. "Your contracts," said the old man, with an air of wisdom, "aren't worth the paper they're written on." The young manufacturer snorted dissent. "Every honest man whose name you've got signed to those contracts," continued the old man unabashed, "would maintain prices if he promised to do so, contract or no contract; while the crooks and the wishy-washies will break your prices, con- tract or no contract. Personal honor is a stronger force than imposing contracts, legal seals, and foxy clauses. There has never yet been written a contract that couldn't be broken by legal quibble and dishonorable intent. The law is not as omnipotent as you think — and personal honor is a practical business factor that has as yet to get its full share of credit." And then that philosopher-manufacturer quietly pulled out some card index drawers which were simply overflowing with cards containing the names of many thousands of retailers throughout this country, many of them the same as had signed price-maintenance contracts with the young manufacturer. "With every one of these dealers," said the elder manufac- turer, "I have a gentleman's understanding that they will not cut prices, and by far the greater part of them stand by their word — I've tested them for years. I've never asked them to sign their name to a thing." This is no tale from Arcadia — the firm in question is world- renowned and does a tremendous annual volume of business in a wide variety of lines of goods. One of these is ^PMaia ^^^^ — ^ ^^® ^^ which price cutting is usually especi- of Honor ^^Y acute; yet so effectual is the system that the company's Eastern manager states that in the course of years of experience he has never met with a single failure to finally line up the dealers upon a strict price-maintenance policy based solely upon spoken pledges. *Printers' Ink, June 16, 1910, p. 50. PRICE MAINTENANCE 417 The men who would admit that they are wilfully dishonest or that their spoken word is not to be trusted are few and far between, if really they are ever to be met with among prospering business men. In that fact lies the secret of the success of the policy of this soap house. When one of the latter's salesmen closes with a dealer for the initial order, the interview invariably ends with the salesman explaining that it is the established policy of his house to insist upon strict price maintenance and asking the dealer point-blank if he pledges, upon his honor, not to cut prices. Sometimes, indeed very often, such a dealer will haughtily answer that he is not a "price cutter" and "never has cut prices." But such an answer is not accepted as final. Every salesman is explicitly instructed to insist upon a firm "Yes-or- No" answer to his question. If it is "Yes," all right; if it is "No," the salesman's line-o'-talk runs something like this: "Well, Mr. Dealer, I am sorry you cannot see it as we do, and realize that it is to your own advantage not to cut prices. But, if you persist in your refusal, I am going to ask you not to order any of our goods. In that event, we don't want your order, and really you don't want our goods, for, if you began cutting, all your competitors would have to do the same thing, and there would be no end to it. You are selling enough soap, as it is, upon which you are not meeting selling expenses or are even losing money." It is to be noted that goods are not directly refused the man. The proposition is thus never taken off the personal basis, it being up to the personal integrity of the dealer to do The Square Thing. And it may overjoy the optimist and the believer in the sense of integrity of average humanity to learn that, in the case of this soap house, it is said that not one dealer in the course of years of experience has failed to come to the chalk-mark when the matter has been put to him on this personal basis. This is not saying that there have not been violations, how- ever, and instances of price cutting. Such instances have been easily detected, as a rule; and have even been antici- Stronger p^^ed. The reputation of a dealer who is known as CmUrw^ a price cutter usually goes before him. His contem- poraries will give him away. "Are you selling goods to Jones?" is the question asked by Price-cutter Jones's com- petitor. "Then we don't want any, because there can't be 418 ADVERTISING AS A BUSINESS FORCE any question what he will do." Such an argument is met with the proposition that, if the competitor will telegraph, charges reversed, to the soap house the first time Jones is caught cutting prices, and agree not to cut in the interim himself, the soap house will hustle a salesman to the spot by the very next train to bring Jones to terms. Being a liberal proposal, the suggestion is usually accepted, and thereupon the detective work begins and continues automatically. When a specific instance of price cutting, contrary to the spoken-word agreement, is shown, the first possible moment for a personal interview is seized. In many cases the man detected in the act of cutting prices is found in a rather pug- nacious mood at the time of such an interview. In not a small percentage of cases he will stoutly deny having ever agreed to maintain prices anyway. He is then never allowed to believe that his bluff will pass for an instant. "I can see how it may be possible, Mr. Dealer," says the salesman, "that you may really believe you never made an agreement not to cut prices, but I am absolutely positive that you did give your word in the matter — I have not the least shadow of a doubt." Not having been called a liar in so many words, the dealer will then usually come down from his "high-horse," it is found, and meekly admit that "the matter may have slipped his mind." Then the whole proposition is approached anew, and a second spoken pledge, as between two gentlemen, is asked. In case it is refused, which is not often, a little "heavy tragedy" is brought to bear — even a cuss word or two and a show of valor on the part of the salesman. "Oh, well," says the latter, "if that is the kind of a business man you are, sir, and if that is all your word is worth, why, all right. But we took you for a gentleman." It is the Bullet that Hits the Invulnerable Spot. Even the grimmest dealer has a sort of commercial Tendon of Achilles where he is sensitive. It is self-respect, his pride in his personal reputation for honesty and for being a man of his word and an honorable man among men. Sneer as the pessimist may at this manner of approach, and this way of doing business, yet the fact remains, and it is testified to by the commercial philosopher referred to, that this appeal has never yet failed to reach its mark. And every new success naturally makes the succeeding one the easier. In some instances a slightly different angle of approach is PRICE MAINTENANCE 419 taken in case of a point-blank refusal to maintain price. This manager tells the story of how he lately went to Pittsfield, Mass., to see a recreant dealer, and sat in his oflBce, in company with one of his under-salesmen, during business hours, from 11 o'clock one morning until the next noon in a successful effort to bring the man to terms. It did the trick. "Sometimes it is better to besiege the enemy and starve them into submission," he says with a smile of reminiscence, "than it is to attempt to attack them directly and blow them to smithereens. That fellow agreed to get rid of us. I'd have camped out there a month otherwise." This same personal appeal to a dealer's sense of right actions has been extensively used by this same soap house along a little different line in the matter of sampling, too. One of its recent big moves was a monster appeal through the mails to the consumer whose names were provided by the dealers. Along with the letter to them went a coupon redeemable at their dealer's store for a regulation-sized cake of soap, the dealer having been provided in advance with the latter in the necessary quantities. It was cheaper to provide a regulation-sized cake than to make up a special smaller one. As is always the case, the great temptation was for the dealer to steal these sample- cakes, assert that he had not received them from the manufac- turer when coupon-holders came, and add them to his regular stock of salable soap. "But a little careful argument on our part," says the manager, "and a little more manipulation of the Appeal- Personal, sufficed to offset this dealer's temptation. The Effects gy personal interviews and by mail we explained AjmeSs ^°^ ^® fully appreciated that the dealer in question 'was personally above any such practices,' even if it were not for the fact that it was for his best interests in the end that the soap should be given out as originally intended, as samples. We explained that for him not to give out the soap as samples would mean but to ciu"tail the growth of his ultimate sales just so much in proportion and to miss the Golden Opportunity. And the appeal struck home and, as far as I know, the sample-cakes were used as originally intended in every case." In this, too, too legal age when lawyers in grim battalions and safes loaded with parchments bearing doubly witnessed signatures are so frequently relied upon to push through price 420 ADVERTISING AS A BUSINESS FORCE protection and other sales policies, it seems as if the harking back to the fundamental, personal, and moral appieal is both better business and more agreeable and optimistic. It is cer- tainly true that a better feeling must exist between a retailer and a manufacturer whose relations are put on the plane of pure loyalty and honor than between the manufacturer who hand cuflPs dealers with steel chains of legal documents. Long ago, in pedagogy, it has been established that you build morality quicker by putting questions up to the per- sonal honor of pupils than by any grim systems of punish- ment and rules. Evidently business can make use of the same principle. The final word which will decide whether price maintenance is to continue as a trade policy or whether it must be aban- Tke doned will, in the long run, come from the con- Cmsumer gumer. The maker of breakfast foods may convince Final the wholesaler and the retailer that maintained Decision prices are good business, but as long as the con- sumer feels no effective moral obligation in the matter, and is ready to buy his goods where he can secure them at the lowext price, any price-maintenance plan is bound to have elements of serious weakness. Louis Kaminsky, president of the Make-Man Tablet Company, describes his experience in attempting to influence the consumer in this matter in the following terms: *Our direct appeal to the public to assist us in maintaining our fixed selling price on Make-Man Tablets will, we believe meet with their hearty approval. The congratulatory ex- pressions which have reached us from the tra^e convince us that they are in perfect accord with us on this point. These expressions show to our satisfaction that we are on the right track, and strengthen our determination to continue our policy of strict price protection. If all manufacturers who have ♦ a fixed price on their products should follow the same course of reasoning in their advertisements, and show that the price fixed by them on their goods affords the retailer only fair 'Printers' Ink, January o, 19X1, p. 40. I PRICE MAINTENANCE 421 living profits, it would undoubtedly result in obtaining more readily full price protection on all articles sold by drug- gists. It n^ust not be overlooked that nearly all users of proprietary medicines belong to that class to whom protection is constantly preached. As members of labor organizations they seek to protect the price of labor, and they are taught that it is both unwise and wrong to patronize the dealer who carries and sells unprotected products in which labor enters to any extent. A direct appeal to them cannot fail of results, and these results should be beneficial. It is our intention to follow up this direct appeal to the public in all our future general advertising. While this may not bring immediate results we believe its moral eflFect will be lasting. It appears that the public has a mistaken idea, which has grown with the years of ignorance and misrepresentation, that the retail druggist is the only man in any branch of business who always makes a thousand per cent, on everything he handles; and quite naturally the public felt in sympathy with the movement of price cutting on proprietary articles, for they reasoned no matter what a druggist sold an article for, he was still making his enormous profit, and this prevailing idea, in the minds of so many, is what really gave price demoral- izers the support which they have received, for it has been their object to leave the impression with the public that they had been robbed by the retail druggists in the past, and that they had come as a savior to rescue them from exorbitant prices. The first great effort that the retailer should aim at ought to be a general appeal to the public, through newspapers and otherwise, that the average profit in a retail drug store is not as large as it is in the average retail store in other lines of busi- ness: . . THE EFFECTS OF PRICE MAINTENANCE The question as to the effect on the volume of sales, produced by the arbitrary maintenance of a price, is one which has never ceased to offer a field for speculation. The following discussion of this subject gives the views of " The Advertising Manager of a Widely-known Toilet Specialty " whose name is not given: 422 ADVERTISING AS A BUSINESS FORCE *In a recent issue of rrinters' Ink Jesse Straus, of Macy's, gave your readers a most interesting article concerning price cutting from the standpoint of the big department store using price as its principle argument to win trade. Most of our readers will probably disagree with Mr. Straus in many particulars, assuming that a price-protected article gains the closer co-operation of the dealers as a whole because of the assured profit. But let us consider this matter now from the standpoint of the manufacturer of an article simply protected by trade- mark, and not by patent, and, therefore, exposed to the army of imitators who are always ready to step in and take advantage of a demand created by some one else. There are many manu- facturers of trade-marked goods in the drug, food, and other fields who do not believe in forcing the consumer to pay the big dealer what amounts in his case to an abnormal profit simply that the little dealer may make what for him is a normal profit. The theorist says, "The manufacturer ought to protect the little fellow, otherwise he cannot exist." But from a practical standpoint does the manufacturer want the httle fellow to exist? Aren't there hundreds and thousands of small retail stores in every class of business which have no reason for existence? Wouldn't the manufacturers, the dealers themselves, and the consumers all be better off if all retail merchandising could be concentrated in one half or one quarter the number of stores now struggling to make both ends meet? The manufacturer's problems of distribution and of selling would be simplified, the retailers left in business would, by their increased volume of trade, be able to reduce selling expense and be able to give better service than it is possible for the small store to give. It is a noticeable fact that in all lines the small dealer is the one who talks most about the advantage of price protection; the dealers with the really "worth while" business t^^SmM ^^^^ *^^^ ^^^y^ are able to conduct their own affairs Dealer and make their own prices without dictation or ad- vice from outside sources. The small dealer, on theT other hand, isn't strong enough to bear the brunt of the battle for business alone; he not only lacks output, but he lacks capitai! *Pnnters' Ink, August 25, 1910, p. 8. PRICE MAINTENANCE 423 and, as a rule, lacks business acumen. He is not the man the manufacturer must look to for a really profitable business. By protecting his prices, the manufacturer may get the good- will of trade of this class but it won't help him with the big dealer, who in most cases opposes any plan that puts him on an equal footing with the little dealer with his small capital, his imperfect organization, and his general business incom- petency. Then, too, there is the public's side of it. Most advertised specialties are in a certain sense luxuries. Luxuries are largely purchased by those who can afford them, and the lower the price of the luxury to the consumer the wider its field of sale. It is a case of "the higher, the fewer." Nearly every advertised, trade-marked specialty has its unadvertised, untrade-marked imitators selling at lower prices than the original. If the advertised article is price protected, and the imitation is sold for considerably less, price protection makes the difference in the cost to the consumer between the original and the imitation a pretty strong factor. In proof of the writer's opinion that price maintenance by raising thfe cost to the consumer tends to decrease the con- sumption of an advertised specialty, I have only The to state the actual experience of the trade-marked Belgian toilet specialty advertised by my firm. In those cities totf^^ where price agreements exist between dealers them- Volume selves — where all are getting " full prices " — our per of Sales capita sales without exception are the smallest. In the cities and towns where cut prices are in vogue our per capita sale is the largest, though concentrated in fewer stores. In the full-price town the rank and file of small dealers are, indeed, "more friendly," but this friendship doesn't show up in their sides. In the cut-price town the rank and file are "un- friendly" — all advocating and advising "price protection" — but in those towns the sales of the few big dealers selling our product on a comparatively small margin are so large and so satisfactory as to make us almost willing to forget that the small dealers are there at all. Another thing which makes "price protection " a poor business policy for the advertised specialty — that is the unpatented specialty — is the opportunity it affords the dealer to make an abnormal profit on the imitations. For example, suppose 424 ADVERTISING AS A BUSINESS FORCE "Mrs. Blank's Face Cream" is a widely advertised, price- protected article, and suppose the retail selling price is fixed and advertised at 50 cents. The dealer with his cheap and inferior "own label" face cream sees a chance to make a harvest by just under-selling Mrs. Blank's cream a trifle or even getting the same price for both. How can he do it? The druggists, and dealers in other lines to a lesser degree, located in residential districts or in small towns, have enough personal influence with at least 50 per cent, of their trade to divert a considerable demand for Mrs. Blank's cream to their own kind. The dealer has a big incentive to do this because Mrs. Blank's advertised and protected price has established a face cream value which enables him to sell his own label product for possibly 300 per cent, profit as compared with 75 per cent, on Mrs. Blank's. In other words price protection is more than likely to defeat its own object and increase rather than decrease attempts at substitution. It enables the dealer to charge much higher prices for the imitation than we would charge or could get were it not for the known price of the original. I am aware of the fact that these ideas are radical in the extreme, and some of your readers will probably say that the principles advocated give the small dealer little chance to make a living. I admit that my facts — for they are facts and not theories — make no allowance for sentiment. Business under present-day conditions is a "cold-blooded" proposition, and price protection for the trade-marked but not patented specialty is pure sentiment, a positive handicap in creating a maximum sale of such products. After this presentation of some of the main arguments for and against the price-maintenance policy, it may be only fair to give the advocates of the policy one final word " in rebuttal." L. B. Jones, advertising manager of the Eastman Kodak Company, of Rochester, N. Y., sums up the arguments in favor of price maintenance from the standpoint of manufacturers, retailer, and consumer, as follows: *Does the restriction of retail prices benefit or injure the public? *Printer9' Ink, May 4, 1911, p. 2. »»tat»t.bt PRICE MAINTENANCE 425 The right of the manufacturer to maintain a restricted price policy must, in the last analysis, depend upon the answer to that question. If such price restriction actually ^^^'^" throttles competition, it is a bad thing — if, on the ihe Public other hand, it encourages competition in quality and in service, it is a good thing. There is more than one kind of commercial competition. There is competition in price, with its ever attendant danger of loss in quality. There is, where established, maintained, and published prices prevail, a healthy competition in quality. The former is sometimes and the latter almost universally to the benefit of the ultimate consumer. The manufacturer, who restricts the prices at which his goods are to be retailed to a certain figure, is just as much in competition with other manufacturers of similar goods as are those who do not restrict prices — but in a more healthful way. Bear in mind, however, that this discussion refers only to an individual concern or corporation — not to a combination between natural competitors to create an artificial price. That's another and quite foreign subject, though, unfortunately, likely to be confused by some people with the real question at issue. The manufacturer who publishes a price list on his goods, allows a certain discount to the dealer in those goods and then insists on that dealer selling his goods at the list pricie, is by no means free from competition. If he sells wisely, he has familiarized himself with the average percentage that it costs the dealer to handle his goods, and he makes his discount large enough to pay the dealer a normal profit — a profit that will be satisfactory to him, but not big enough to prove a constant temptation to cut prices. In making his list price, this wise manufacturer will put it at a figure that will pay him a normal profit, after giving a discount to the dealer that will likewise pay him his normal profit. Such manufacturer is as much in competition with other makers of goods as though he had no established price — but his consumer customers get a square deal; they all buy his goods at the same price. The retailer must make a certain percentage of profit over and above the cost of doing business or go into bankruptcy. Isn't it manifestly fairer to the consumer, if the dealer nets 5 per cent, on what he sells to Smith and 5 per cent, on what he sells to Brown than it is for him to lose 5 per cent. 426 ADVERTISING AS A BUSINESS FORCE on what he sells Brown and make it up by netting 10 per cent, on what he sells Smith? And that's just what happens every day where retail prices are restricted. Every ^^'^^^^ retailer knows this, though the buying public does ^sed. Price ^o*' ^^^ restricted price plan is, in fact, particu- larly favorable to the small consumer, the man whom the courts are ostensibly trying to protect. It has been decreed that the railroads shall not discriminate against the small shipper by giving a lower rate, whether directly or by rebate, to the big shipper than the small shipper enjoys. Carried to its logical conclusion, the price restriction policy means the same thing. All retail purchasers are treated alike. It means the square deal. And how is the manufacturer affected. He has a widely advertised article at, say, ten dollars. It is generally known that his goods are sold at list price only. The dealer From the is already receiving a normal discount. This manu- Manufac- facturer usually keeps ahead in improvements in his Stan^)oint li^^^' t)ut, for the sake of argunxent, we will admit that a competitor announces an important and genuine improvement. What happens? One of three things: An improvement in the article in question to meet the competi- tion, a cut price in order to pick up the cheaper trade in this line, or, if the margin of profit will not admit this, an entire abandonment of the manufacture of such article. In cutting the price, if that method be followed, the price at which the goods are to be retailed may still be restricted at whatever lower level may be decided upon as a normal price at the new level forced by the competing improved product. Price restriction has in no way prevented a general lowering of price; it has simply maintained a uniform price. A restricted price means that the goods are to be sold at a certain price, that the retailer is not to go either above or below that price; but if the established price is abnormally high for the quality of the goods, it cannot live. No mere restricting of price can annul the laws of supply and demand or of com- mercial competition. Indeed, goods that are sold at known prices offer themselves to the keenest competition because it is so easy for the manufacturers of competing articles to figure just what can and must be done. The result is that the manufacturer of restricted price goods is alive to the fact that he must constantly back up his prices PRICE MAINTENANCE 427 with quality. He is averse to changing his methods or permit- ting the retailers to change their methods of handling his goods, because he takes an honest pride in his one-price-to-all policy. The result is a constant effort to better his products, a constant effort to give his customers more for their money. It is a competition just as keen and far-reaching, as bitter if you like, as a competition in price-cutting. Because one manufacturer of automobiles restricts the retail price of his car to $4,000, another to $3,000, another to $2,000, and another to $1,000 does any one maintain that there is no competition in auto- mobiles? And similarly there is competition between dealers even though they maintain prices — a competition in service to their customers that makes or ruins their business, and, locally, the business of the concerns whose cars they handle. Take hats. Dunlap and Knox derbies are restricted at five dollars. You can't buy one for less, yet you can buy a pretty good-looking derby for a dollar and a better one for two dollars, and sometimes really good for three. But Dunlap and Knox are by no means free from competition. It's a competition of quality. They just put style and goodness into their hats, else men would buy the cheaper ones. They compete with each other and with the imported hats and with, perhaps, come other five-dollar hats. They compete with the cheaper hats by offering better style and quality. But it would be absurd to say that hats cost more because Knox and Dunlap don't permit the retailer to cut prices on their goods until the season is over. • To the careful observer there can be but one conclusion as to the merits of the poHcy of price restriction. That policy means a square deal to the ultimate consumer. It means that one man's money is as good as another's. It means that those manufacturers who adopt the policy must make good goods in order to maintain their prestige, must be ever on their mettle to anticipate competition, must forestall it by making improvements and making them before the other man does. The market is still open for those who do business on the other basis, but if their goods do not equal or better the restricted price goods the public will buy the restricted price goods. Competition began with commerce. Competition must continue to exist so long as there are two or more separate concerns manufacturing similar goods for the same market. If one of these concerns makes highly superior goods and is 428 ADVERTISING AS A BUSINESS FORCE equally alert in its selling methods, it will, by reason of the law of the survival of the fittest, get the big share of the trade. Whether prices are restricted or not has Uothing to do with the case further than the fact that the concern that makes the goods of known quality is in a position to make its prices known and stick to them. Having quality, it can afford to compete on a quality basis. No underhanded methods by which one customer is gained at the expense of another need be resorted to. The price restriction policy means a square deal for the consumer, a reasonable profit to the dealer, and a constant effort toward betterment of the product on the part of the manufacturer. REVIEW QUESTIONS — CHAPTER XU 1. How does price maintenance affect the advertising man? 2. What is the basis of price? What part does distribution cost play? 3. What are the dangers from bad choice of price policy? 4. What are the best arguments for price maintenance: (1) From the standpoint of the manufacturer? (2) The jobber? (3) The retailer? (4) The consumer? 5. What are the strongest arguments against it in each case? 6. How does price maintenance affect the volume of sales? CHAPTER Xm mSPOSAL OF ADVERTISING COSTS THE question, "Who pays for advertising?" is often discussed and seldom with any profit. The fruitlessness of these discussions is more often due to lack of a clear statement of the problem than to any other single cause. Before any such discussion has gone far it often becomes clear that neither the term "pays" nor the term "advertising" represents identical ideas in the minds of the disputants. It is generally agreed that the direct outlay for advertising the United States runs far over $600,000,000 a year, and there is a very strong temptation to undertake to say WlmPays categorically that that amount comes directly out Advertising of the pockets of some one element of the distribution system. We have been told many times that this bill is paid by the consumer. Somewhat less frequently, but with equal emphasis, it has been declared that the com- petitor who does not advertise foots the advertising bill of the man who does. And these are only two of many ex- planations. It will not be the purpose of this chapter to undertake to close this interesting question. The most that will be under- taken will be a suggestion as to what ought to be clearly under- stood by "paying" and by "advertising" before any attempt to answer the question is made. WHAT IS MEANT BY " PAYING" Let us take the hypothetical case of a hardware manufacturer wifh a going plant and an established distribution, having (29 430 ADVERTISING AS A BUSINESS FORCE among his products a patented stove-cover lifter retailing at 25 cents. This specialty never has been specially advertised, and it has been handled as a side line, sold in connection with other products of the concern. The output is 100,000 a year. The price to the retailer is 15 cents, and to the wholesaler 10 cents, and the actual cost of production based on an out- put of 100,000 is 7 cents each. The elenients of production and distribution cost could then be represented roughly by Fig. A. Now suppose the manufacturer, who has been figuring on a net profit of 3 cents on each lifter decides to spend two thirds of this profit in advertising this Ufter. Until Business ^^^* advertising produces some kind of a tangible and result we can represent it as coming entirely out ^'"c^te^" of the manufacturer's profits (Fig. B). But suppose this outlay has been so judicious as to double the original demand and raise the output to 200,000 lifteri instead of 100,000. By doubling his output the manufacturer can produce each lifter at a reduced cost. If we call this new cost 5 cents, instead of the original 7 cents, we see that the net profit on each lifter after paying for the advertising is restored to 3 cents (Fig. C) as it was before the advertising. But with the same net profit on each lifter and a doubled output the manufacturer's total profit is doubled. At the same time the doubled business due to the adver- tising has produced similar effects in the distribution system. The wholesaler's expense of doing business on each ^ectson lifter on a basis of 100,000 produced was 2 cents. But tion Costs if the volume of the business be doubled (supposing the increase to be distributed proportionately among the wholesalers) each wholesaler handling the hfter will find some reduction in his cost of doing business on each lifter sold. His saving will not be as large as that of the manu- facturer, but his expense will be reduced. And the same is tfue of the retailer (Fig. D). DISPOSAL OF ADVERTISING COSTS 431 Price to Congumer 25 Price to Wholesaler 10 Price to Retailer IS P.C. s B. 1 s. 2 G. 1 P. 3 E.' 2 P.' 3 E." 6 1 P." 4 Figure j A.- - Before advertising. A P B 2 1 Figure B — Advertising cost taken from manufacturer's profit. P.C. 2J B Figure C — Increased production lowers production costs, absorbing adver- tising cost. D E.^ E." p." 5f Figure D — Increased production lowers distribution costs. Price to Coammer 18 Price to Retailer llj Price to Wholesaler 8i E P.C. B S. G A. P. E.' P.' E." P." %\ f li f 2 H H 1^ 4^ 2 Figure E — Effect of lowered price on costs and profits. 432 ADVERTISING AS A BUSINESS FORCE OUTPUT 100,000 OUTPUT 200,000 Kg. 1 Fig. 2 Kg. 3 Kg. 4 Kg. 5 P.C. Manufacturer 3 1 2 1 S S 1 2 1 2 1 li 2 3 li 1 2 3 -4 B. S. Burden Special selling . . 4 G. A. P. General Advertising Profit 2 Price to wholesaler 10 10 10 10 8i E' F Wholesaler Cost Expense of doing business . Profit 10 i 3 10 2 3 10 10 n 3J n Price to retailer 15 15 15 m E" F' Retailer Cost Expense of doing business. Profit 15 6 4 15 6 i 15 Bi iij Price to consumer 25 25 iS 18 Each of these cases, so far, presupposes that all prices are to be maintained — 10 cents to the wholesaler, 15 cents to the retailer, and 25 cents to the consumer. So long as the prices are main- tained and demand is not weakened each handler of the goods makes more total profit when the output is increased. Some of this increase is due to decreased selling expense per lifter, and some to the greater volume of sales. In the case of the whole- salers we see that the actual profit margin has increased from 3 to Sj cents on each lifter, and, with the number of sales doubled it appears that the wholesaler is making 7 cents out of this lifter trade where he formerly made 3 cents. By the same process the retailer's total profit has increased from 4 cents to two times 5| cents, or 11 cents. Thus the manufacturer is making as much as he did, before DISPOSAL OF ADVERTISING COSTS 433 adrertisiQg, on each lifter, and twice as much on the entire business. And the wholesaler and retailer are each making more on each article and are seUing twice as many. The consumer, on the other hand, is paying no more than he did before. Now the question is, who is "paying" for the adver- tising in this case? And now suppose that, through one cause or another, the prices are reduced (Fig. E) to 18 cents to the consumer, 11| cents to the retailer and 8| cents to the wholesaler. ^^W^r '^^'^ output now being at 2OO,O0O with corresponding Seduced costs, the price reduction leaves to each of these handlers of the goods, and to the manufacturer, only one half of the profits they originally made on each piece. But each is selling twice as many as he did originally and hence is making total profits which are exactly the same as those they were making before the advertising. The consumer, however, is now paying 7 cents less for lifters than he did originally. The question as to who "pays" now takes on an entirely different aspect. We now see that the problem of "paying" for the advertising has to do, not only with the actual outlay for advertising, but also with the relation between that outlay and the reduction in manufacturing and distribution costs coming from the increased demand which that outlay produces. And this case takes no account of the potential future re- ductions of the same kind which may follow from new demand which has been aroused by the advertising but which is not yet converted into .sales. Nor has any account been taken of the effect of this stimulation of demand for one single manu- facturer's output upon the trade of his competitors. And these are only two out of many other factors which have been left out of this case for the sake of making this one point clear.* "Throughout this case we have given attention only to advertising by the producer. It will make profitable exercise work to develop similar diagrams ahowing the effects of advertising hf wholesalers and retailers. 434 ADVERTISING AS A BUSINESS FORCE No one can say who has paid for any piece of advertising outlay until he knows what has been its effect on demand — and consequently on production and distribution costs, and on production and distribution profits. George Frank Lord, writing under the title "Manufacturer's and Dealer's Margins of Profit," brings out some of these points quite conclusively. He makes it perfectly clear how, in concrete cases, effective advertising has brought about an actual reduction in manufacturing and distribution costs: *This is a subject of vital interest to every advertising man, manufacturer, and merchant. In order to consider it with a clear mind it is first necessary to realize the Manufac- difference between "margin of profit" and "margin 'Xifer'^ for profit." Margins Margin of profit is the net percentage or portion of Profit of the selling price pf an article that accrues to the seller, after all his selling expense has been deducted. Margin for profit is the gross difference between the selling price and the cost price. One of the chief reasons for the "substitution evil" is the failure of the average dealer to appreciate the above distinction. One of 'the chief reasons why some manufacturers do not advertise is because they do not appreciate the difference. A manufacturer of a patent medicine costing 10 cents a bottle, wholesaling at 67 cents and retailing for $1, has a gross margin for profit of 57 cents. If he spends 50 cents per bottle for advertising and all other selling expenses, his net margin of profit is 7 cents a bottle. The dealer or druggist buys at 67 cents. If he maintains the list price of $1 his margin for profit is 33 cents. His net margin of profit is 33 cents less any variation from list price, less the proportionate charge against this sale for store rent, clerk hire, and miscellaneous expenses. Therefore, his net margin may be 15 cents, or nothing, or a minus quantity, depending entirely on how much it costs to sell the medicine. It is obvious that the sale of any article involves a selling expense. The difference between the manufacturing cost of an article *Printers' Ink, October 20, 1910, p: 28. DISPOSAL OF ADVERTISING COSTS 435 and its retail price is what the consumer pays for the cost of selling and delivering the article to him, and the profits of the manufacturer, dealer, and any other middlemen involved. No scheme of trading has ever been devised that eliminates the important item of selling cost. Various schemes have been used to reduce it to a minimum. The one great advantage of advertising is that it reduces selling cost by creating an increased demand without propor- tionate increase in aimual or total selling expense. The selling expense per sale may be, and frequently is, greater, but not on the total volume of business done per year. Suppose a dealer sells a non-advertised article for $1 at a gross margin of 33 cents profit, and he sells 500 a year. Then his aimual gross profit on this article is $165. But his net profit may be only $65 owing to the proportion of rent, insur- ance, local advertising, etc., that must be charged against this article, plus the cost of the amount and quality of salesmanship required to sell it. Now, if this article is well advertised by the manufacturer, and the wholesale price raised to 75 cents, it is a fallacy for the dealer to figure that his profits on this article are If the reduced. He will probably sell 1,000 at an annual jjj^' gross profit of $250 and a possible expense of $100, Raiaed leaving $150 net profit as against $65 of the year before. The same argument applies to the manufacturer. If, during the first year, the article cost to manufacture 50 cents, and wholesaled for 67 cents, his gross profit per article would be 17 cents. And if he sold 100,000, his gross annual profit would be $17,000. If his salesmen's and shipping cost amounted to $12,000 his net profit would be only $5,000. If, in the second year, he spends $20,000 in advertising, and sells 200,000 instead of 100,000, his gross margin of profit at the new wholesale price will be $50,000, provided he has saved nothing in manufacturing cost. But as is well known, doubling the output of a factory largely reduces manufacturing cost, and it is probable that his would be reduced to at most 40 cents. Hence his annual gross profit would be $70,000 and his net profit $70,000 less $20,000 advertising, less perhaps $20,000 salesmen's and shipping cost, or $30,000 net profit as against $5,000 the first year. Note that in the first year his net profit was $5,000 or 5 cents 436 ADVERTISING AS A BUSINESS FORCE per article, and that in the second year he spends 10 cents an article for advertising, or twice the amount of the previous year's net profit per article. Yet he winds up the second year with $15,000 more profit than the first year. It is the failure, in many cases, of both dealer and manufac- turer to understand the seeming paradox indicated by the foregoing figures that causes the former to be a substituter and a "knocker" of advertised goods, and the latter to hesitate about becoming an advertiser. The point for both to keep in mind is that dividends depend not so much on profits per sale as the net annual profits of the business as a whole. J. George Frederick, in a discussion of selling cost and the factors that reduce it, gives some concrete cases of the effect of advertising upon the costs of distributing goods : *If the muckrakers ever stumble on to the facts about the, selling expense of some concerns, there will be a series of sharp literary explosions. There is a manufacturing concern in New York whose product is enjoying an international market, and is regarded as having achieved success in every way — yet its selling cost is still five times its manufacturing cost! Now if this product were a luxury, or even a specialty or novelty as yet not universally used, there would conceivably be some justification for this selling cost; but the article referred to is a typewriter, which has come to be practically a staple. There is another highly successful typewriter whose selling cost is stiU four times manufacturing cost. There are several other very successful typewriters which have selling expense down to three times cost of manufacture, which may be regarded as fairly normal for typewriters or any well-known semi-staple mechanical device where repair and service after purchase is an additional factor. But, gazing generally over the field of manufacture, selling cost in a surprising number of cases is excessively high. Only in the most staple of staple lines does it come down to a more sane proposition. One or one and a half times the cost of manufacture is a general average for selling staples, while *Printers' Ink, August 4, 1910, p. 3. DISPOSAL OF ADVERTISING COSTS 437 m the drug lines, and specialties in all lines, grocery, textile, hardware, etc., the selling cost rises to four, five, and six times the cost of manufacture. Sometimes, for some articles (and not all of them like Col. Sellers' Eyewash, either), the cost of manufacture is a mere nothing, and almost the only expense is selling expense! The estimates of selling expense just made include oflSce and overhead expense and everything else chargeable fslr^ to the "selling end." To examine selling cost more Expe^f in single detail, let us take purely the cost of sales- men and sales departments, exclusive of whatever else might be chargeable to selling. In hosiery and underwear lines this selling expense (frequently the only kind there is) runs to 6 and 10 per cent, of net return. In men's clothing it runs from 4 to 7 per cent. In office equip- ment lines it runs to 25 and 33 per cent., and in drug and hardware lines it runs up from 25 to 40 and 60 per cent, and higher. In purely luxury lines seUing cost has no roof at all — it is as expansive as the empyrean blue — according to the article, competition and method of distribution. The branch agency is mighty expensive machinery of sales, but it produces volume and keeps sales contact with consumers keyed up (things which are vital in competition). It frequently costs $500 to sell an auto, and the average is $100 to sell a piano. In many cases, especially in the piano business, there is precious little profit left after this high selling cost is expended. This matter of increasing selling cost is becoming more and more vital all the time, because of two things, the widening of markets and the growth of competition. The bigger a manufacturing concern becomes, the greater usually does the seUing cost become. This may seem paradoxical, but public accountants will testify to its almost invariable truth. A selling organization adequate to the territory, the policies and the product of a large concern increases selling cost considerably over that of a smaller manufacturer, chiefly because the large manufacturer needs more executives and must meet competition at more points. He has more baskets of eggs to be watched than the small manufacturer. In the last decade or two, therefore — ever since the begin- ning of big markets and big enterprises — selling cost has been rising steadily and become a problem with manufacturers. Some have agreeably deluded themselves about the true state 438 ADVERTISING AS A BUSINESS FORCE of affairs by figuring loosely that reduction of cost of production was "helping" to lessen selling cost. But inquisitive modern cost accounting turns the light on such delusions for those manufacturers (none too many) who are modern enough to have thoroughgoing cost systems. The one significant thing about selling costs is still blindly overlooked by many manufacturers, while, meantime, those keener ones who do understand it, and have applied it long ago, are the big gainers. Selling cost goes dovm in proportion to the reputation of the goods, and the favorable conviction in the mind of the buyer. You don't have to work nearly so hard to sell me Baker's chocolate as you do to sell me Jones's choco- late. Neither do you have to work so hard to. sell dealers and jobbers. In fact, in such exceptional cases, hke Baker's and a few others, you could shut down on all selling expense for a time and make a lot of money nevertheless. The very best proof in the land that advertising decreases selling cost is contained in the situation of Hart, Schaffner Effects of ^ Marx, the famous clothing house, as compared Aeheriis- with other clothing houses. Hart, Schaffner & Marx tny on are authoritatively reputed to do an annual volume Setting of business of about $15,000,000. ... *** Good advertising has been their keynote all this time; and to-day their salesmen (who are on salary, not commis- sion) talk Uttle else but advertising to dealers. It is related how one dealer who listened to a long and interesting delineation of what the house of Hart, Schaffner & Marx had done, was doing and would do in the way of advertising, suddenly said, "Yes, that's fine, but what about the clothes ?" The salesman dismissed this subject with few words. "Ask those who know, or demand any test you choose — the clothes are right. What concerns you most is how those clothes are advertised." And Hart, Schaffner & Marx are so beautifully intrenched in their position that they can demand that the dealer who holds the line must increase sales every year or make way for some one who will. In magazine advertising alone this spring and last fall Hart, Schaffner & Marx spent $85,000 — . about twice what its nearest competitor spent. This figure is not a guess, it is checked up from the magazines. One hundred and twenty-five thousand dollars would probably cover the total advertising expenditure, newspaper adver- tising and ah. DISPOSAL OF ADVERTISING COSTS 439 Now let us measure up selling costs. For the sales depart- ment expense (everything but advertising), I learn from inside sources. Hart, SchafiPner & Marx spend only 2\ to 3 per cent. See how this measures up beside other clothing houses: Selling Advertising Cost 1910-11 Hart, SchaSner & Marx ". . . $85,000 2j-8% B. Kuppenheimer & Co 49,000 4% Samuel W. Peck & Co 29,000 6% Alfred Benjamin 24,000 7% Here is one of the most powerful object lessons ever tabulated regarding the relation of advertising to sales policies. In almost perfect proportion to the expenditure for ad- Cost Com- vertising, the selling cost has decreased and volume ^^Q^ of sales increased. Those clothing manufacturers Firms named above are all advertisers — there is an end- less number of other clothing manufacturers whose names are little known to consumers, and whose selling cost ranges all the way from 6 to 9 per cent. They are getting neither the reduced cost of manufacture which comes with larger volume of sales nor the decreased selling cost which comes with trade-marking and consumer advertising. As the selling cost named above is that of sales department alone, it wUl be well to examine how much advertising adds to it. An advertising appropriation of $125,000 is but .83 per cent, of a volume of business of fifteen million. Even supposing that the advertising is underestimated and the volume of business overestimated, the difEerence could not be larger than 1 per cent. The total Hart, SchaflEner & Marx selling cost would then stand at 3| to 4 per cent. — which is unques- tionably tremendously low. There still remains a large gap between the low selling cost achieved by the two clothing firms advertising most extensively and the higher cost necessary now to non-advertising firms. A most interesting thing about this relation of advertising to selling cost is that it is cumulative in its effect. The table of figures quoted shows how the selling costs of clothing firms varied in proportion to the double ratio of amount spent and length of time since first consumer advertising began. When you get right down to it, the division of selling cost 440 ADVERTISING AS A BUSINESS FORCE into a separate advertising classification is pretty diflBcult. The average accountant in manufacturing concerns is more or less at sea, and there has not yet been worked out much uniformity of cost accounting on this subject. Live sales forces have men who travel with the purely secondary object of taking orders. They are out on the road to suggest a new sign, a rearrangement of a dealer's store, or anything to clinch the dealer's good-will and advertise the house. Now, is this selling or is it advertising? Likewise, when a special catalogue or folder, enclosing order blanks, etc., is sent from the advertising department, and orders come in as a result, is that advertising or selling? How can the two possibly be separated? They can't — the produc- tive result of the two working together must be measured in contrast with a similar concern where one works alone. And that contrast is strikingly afforded in the clothing figures quoted. As a matter of fact, the entire "selling expense" for any specialty or novelty is advertising expense. It must be adver- tised in some way before it can be sold at all, for it Selling must educate its prospective buyers and create a foTo** demand which has not before existed. Any trade- Novelty marked staple which sells on individual merit has the same road before it. If it would rise above the dead level distinctions of quantity and common name, it has to turn its selling expense into advertising channels. It must sell not to buyers of a generic commodity but to buyers of a marked quality. And the selling expense of doing this has a "come-back" action like insurance renewal commissions — it compounds itself without effort as time goes on — making the cost of selling per unit less and less. The selling cost per unit of Ivory soap must be pretty nearly infinitesimal by tiiis time, else the size of the cake and the retail price would have been changed to conform to the increased cost of raw materials, labor, advertising, salesmen, etc. — which is making it practi- cally impossible for any other soap concern to give consumers as much per cake for their money as Ivory. The serious problem now before the large company of manu- facturers who comprehend the economies of advertising is to so study advertising methods as to decrease selling costs still further, and achieve in the shortest time and for the smallest sum, the largest volume of business. Without the slightest DISPOSAL OF ADVERTISING COSTS 441 doubt, there is a greater waste of wealth and "natural resources" through unduly high selling costs than all the Pinchots and Garfields and Brandeis ever painted on their imaginations. From a careful average of selling costs in many lines of manu- facture, I think it would be conservative to say that selling cost averages in general twice the cost of manufacture, staples included; which means that America spends annually at present forty billion dollars on selling, based on census estimates of $21,000,000,000 now expended for wages, salaries, raw mate- rials, etc. Clean-cut, well-considered, and closely-adapted advertising is bound in the future to cut this enormous selling expense very materially, and put manufacturing on a more stable and effective plane. From these discussions of the costs and profits in the distri- bution of merchandise there stands out clearly one point. It is that the definition of the word "pays" in the question "Who pays for advertising?" depends very largely on the effects of the advertising. A statement made concerning advertising outlay which produces absolutely no results would not hold at all for advertising expense which brought in mod- erate returns, nor would a statement made for advertising outlay which brought in moderate returns hold for a similar outlay which resulted in the creation of a wide, permanent market for a new product. WHAT IS ADVEHTISING? The term "advertising" in the sense in which it is used in the larger question, "Who pays for advertising?" requires analysis just as does the term "pays." Here, again, we find that our definition depends almost entirely on the character of that which passes under the name. If the advertising takes the form of publicity which yields neither actual nor future increase in market, then we are talking about one thing, but if it takes the form of an intelligent outlay for securing definite. 442 ADVERTISING AS A BUSINESS FORCE valuable resxilts, then we are talking about something entirely different. In either case, the question as to the source of the payment must depend on the desirability of the results aimed at and the effectiveness with which the advertising secures them. It is a recognition of the distinction between the reasoning which can be applied to effective advertising compared with that which will hold in the case of unsuccessful adver- IsMver- rising that lies under much of the discussion of the tiaing an question: "When is advertising an investment and ^^ when is it an expense?" This question, of course, is merely a corollary of the major problem, "Who pays for advertising?" It is this question of how advertising ought to be treated on the books of a company that lies back of any attempt to reach conclusions as to what constitutes good-will. If good- will depends largely on the earning capacity of a company, and if the earning capacity depends upon the attitude of the market toward the concern's product, and if this attitude, in turn, is largely influenced by the character of advertising appeal, it at once becomes clear that the question of " How much to spend for advertising?" is very closely associated with the question, "How much to spend for securing good-will?" HOW MUCH TO SPEND FOR ADVEHTI8ING The law of diminishing returns works as plainly through the problems of the manufacturer as in any field of production. And in no place is the operation of this law more clearly defined than it is in the matter of advertising outlay. Nearly every manufacturer recognizes that there is a point up to whiti increased advertising expense will yield, and beyond which it will not yield, adequate returns. This may not be merely the point at which the immediately resulting sales will yield a profit greater than the advertising outlay. Tt may be that point far beyond this, where all of the elements which go to make DISPOSAL OF ADVERTISING COSTS 443 good-will cease adding value. This point may be far beyond the present limits of the business and it may be even a movable point. That depends on individual conditions. But every manufacturer realizes that since all of his return from adver- tising must come either out of increased volume or increased profitability of sales there is a point in his advertising outlay beyond which he cannot go with any reasonable expectation of success. This feature of the interrelation between advertising outlay ^g^ and the possibilities of return is brought out in the Muck following discussion of the question, "How much BeSpmt shall we spend for advertising?" This question is for Good- discussed in the light of the problems it presents "** ■ to a new concern, which depends in a large part for its answer on the ability of the advertising to secure "good-will." In this article it is taken for granted that the immediate effect on sales cannot yield the amount of the outlay and that, consequently, the return from the advertising must come in the form of "good-will," or, in other words, the possibilities of future earnings for the concern. *An advertising man who had been reared in the close- paring, department store school where the advertising expen- diture was fixed at 3 per cent, of the total sales, was called into a newly established manufacturing business. Upon being given access to the books, he was appalled to find that, whereas, the total sales for the previous year — the fourth of the com- pany's existence — were not quite a quarter of a million dollars, the advertising appropriation for the current year was $50,000 — just 21 per cent, of the sales. His first thought was that he had been called to assist at an autopsy, for these figures would spell ruin with a capital "R" to the depart- ment store, and he made remarks to that effect at his first conference with the president. The latter reassured him with a smile. "We are investing *Printers' Ink, July 18, 1912, p. 3. 444 ADVERTISING AS A BUSINESS FORCE our money," he said. "Remember, this is a comparatively new concern and among other things it must have to succeed is good-will. It must buy that just the same as if it were buying bonds — to return not to-day or to-morrow, but years hence. Good-will to us is even more important than machinery and raw material, for it would profit us nothing to make goods Intinglbto ftcion Canenl repuiatioii 1. Aga - 2. Slic of biulnew 3. Sundlntf & Buka b.Muket Product 1. Quality 2. PlKalnTnrf* 3. A* • prallt prodvMT fw thorn buidliDa K SubjcciWe value I 0wUt7 AdipuUUry A^« BapuutioH Btralii« poMJblUil« fttunl (Diricer ToMibic nurkei SlM SIm Sktn Stuf CipKlty of ptodiict Total caaMmpHoa Relative Goanroptiiw EHect oo. profit Hargim 5l«Ullt7 |_ Pn'ftrtjfn Pnikii:!!* In* ly PMt T. CktrTt'—- ittO' 0| compel. Bt which price* arc artida eeiiUishEd and noiffltaJned i lUIaiioa to coata AMUty to adluat priea to rialBt coau and pnaervt price In IkaoI Absolute— Complete ncM of control over Rcliilve— CharKtar dl ■ctoal and cbanccatil (uiure compcIltlOB which we could not sell. So just as we invest a part of our capital in machinery, tools and material with which to make a product, we put part of it into good-will to help sell the product. "You would not exclaim if we put the fifty thousand into salesmen. Yet they might pay a very small return in good- will, comparatively speaking, because they might force the sale of the goods upon many an unwilling purchaser, and we might DISPOSAL OF ADVERTISING COSTS 445 have to spend more in proportion to the sales as time went on. In this case, however, you will see the ratio gradually decline. With reasonable ejQficiency in our general management, in five years I expect to see the advertising appropriation re- duced to 10 per cent, or possibly a little lower. In this line of business it can hardly be expected to fall be low 8 or 10 per cent." The view expressed above is the new view — a way of looking at things which would have caused apoplexy some twenty years ago. Even to-day it is heresy in some places. A writer in one of the current magazines — supposed to be a high authority on financial subjects — strongly advises intending investors against buying the securities of any indus- trial "greatly dependent upon patents in its manufacturing end, or advertising in its selling end." The assumption is, of course, that just as patents may be rendered obsolete by new inventions and will go out of existence anyway in seven- teen years or less, the effect of advertising may be overcome by rival advertising, and the advertising of yesterday is as dead as an expired patent. That it is very much alive, a glance at the good-will columns in the footnote at the bottom of this page will show. A goodly portion of those vast amounts* set down Some there under the head of good-will are the results of the „ 'f^ advertising which has been done — the mill still Placed on grinding with the water that is past. Thirteen mil- GoodrwUl lion dollars of Woolworth's money invested in the highest oflSce building in the world is a stupendous advertisement of his good-will account. The B. F. Goodrich Company, recently consolidated with the Diamond Rubber *THE BELATION OF THE CAPITAL, ASSETS AND GOOD-WILL OF SOME LEADING INDUSTEIAL CORPOBATIONS AS HBPOETED BT BOSTON NEWS BUREAU Name Capital Assets Good-will Assets Per Cent. Goodrich $90,000,000 $100,877,604 *$57,000,000 56.5 Woolworth 65,000,000 65,157,155 50,075,000 76.8 Sears-Roebuck 48,500,000 60,768,949 30,000,000 49.3 Studebaker 43,500,000 56,476,143 19,807,277 35.0 MayDept 20,000,000 21,377,229 14,343,95'' 67.0 Underwood 13.500,000 15,476,785 7,995,720 52.2 Loose-Wiles 13,000,000 16,247,162 7.970,543 61 . 6 ''Estimated. 446 ADVERTISING AS A BUSINESS FORCE Company, capitalizes a cool $57,000,000 of good-will ! What does that represent? Patents are of mighty little importance in the rubber business, secret processes of manufacture are practically common property, location cuts very little figure, proprietorship has changed a dozen times, the Goodrich who founded the busi- ness having been dead for many years, and no one bearing the name figures in the management. That " good- will ' ' represents advertising, practically entirely. It is the result — or rather one of the results — from the constant repetition of "Best in the Long Run." It is summed up in the attitude of the young lady whom the writer asked to name the make of tires her father used on his car. She didn't know, it happened, but she said "Goodrich, I suppose, the same as they all do." That's good-will, and that is what it pays to spend a mighty substantial proportion of the first few years' sales to get. With the object of ascertaining whether this new attitude toward good-will (which includes, of course, the recognition of advertising as an investment) had been assumed ^J^.ji by any of the more conservative financial institutions. Means ai, ■P'^^'*^^*' ^'^^ sent a letter to 250 banks, members of the Bank the American Bankers' Association, asking whether there is in financial circles, "a growing disposition to regard with favor an aggressive advertising policy when linked up with a successfully conducted business." The case of the Royal Baking Powder Company was cited, which began with a small capital and "invested" the profits in advertising for a number of years. Eventually this business, which was almost wholly a good-will proposition, was capitalized for $20,000,000, and the common stock has paid for some years 12-per-cent. dividends. The list of bankers addressed were asked if they would consider that sound financing, and were requested to state how a man could determine what proportion of money spent for advertising could be considered a legitimate invest- ment. Of those bankers who answered, 33 per cent, state that money spent for advertising should be charged to "expense" in toto, and, by inference if not by direct statement, that there is no tendency to regard an advertising policy as anything but running expense. The resulting good-will, they aflSrm, is not to be considered in conservative financing, and has on place on a statement of assets. DISPOSAL OF ADVERTISING COSTS 447 Twenty-eight per cent, of the bankers who answered the letter say that good-will secured through an aggressive adver- tising policy should be given "due consideration" when it came to lending money or financing an enterprise. None of these bankers would go so far as to say that good-will has any place in a financial statement, or that it can be charged to anything except expense, but they all asserted what the 33 per cent, denied — namely, that the good-will of a concern has to be considered very frequently. Fourteen per cent, of the whole number came out flat-f ootedly with the assertion that there undoubtedly is a tendency in conservative financial circles to regard advertising as an invest- ment. With one exception they agree that it would be poor bookkeeping to list advertising as an "investment," but they admit that it should be given full consideration in extending credit. The one exception states that a certain portion of the advertising expenditure should be shown on the books as investment, the portion to be determined by a comparison of the results which had been obtained witii the reasonable expectation of results to come in the future. The other 25 per cent, of replies were absolutely non- committal, some stating that they did not care to discuss the question, and others taking refuge in generalities such as " advertising is a necessity to most concerns," etc. That showing is to be considered nothing short of remarkable, when it is remembered that ten years ago the average banker would have scoffed at the idea of advertising at all. Goodwin He didn't believe in it so far as his own business was of Credit concerned, and he was rather inclined to look upon it with suspicion when it was indulged in by other people. When 42 per cent, of a list of bankers can be per- suaded to say that good-will secured by advertising should be given at least "due consideration" when determining a line of credit, it shows that the status of advertising in the financial world is rapidly changing. And the wording of the replies shows pretty conclusively that the bankers regard advertising as the chief promoter of good-will. Those who do not side-step the question entirely meet the issue squarely upon that basis. It is not the money spent for patents or for trade-mark rights that they are talking about, but the money spent for advertising the goods. Thus the man who is facing the question, "How much shall 448 ADVERTISING AS A BUSINESS FORCE I spend for advertising?" has better and higher authority than ever before for regarding the appropriation as an invest- ment, paying dividends in good-will. It is true that it figures in the books as "advertising expense," but it goes to make up "demonstrated earning power" whenever it is necessary to re-finance or extend the credit of the business. It is reported on the best authority that the National Biscuit Company had been advertising Uneeda Biscuit for three years before the sales of that commodity paid a profit, yet no one in his senses would maintain that it was "merely an expense." Of course the company was selling other crackers at a profit big enough to more than ofFset the deficit, but even if that were not the case the advertising of Uneeda would have been an investment just the same, and future events have shown that the company could have afforded to pay for that advertising out of the capital of the concern if no other source were available. Since 1905 the dividends paid on the common stock have risen form 4 to 9 per cent, while the physical assets have increased only from sixty-two to sixty-six million dollars. While there are only four million dollars more physical assets than there were in 1905, nobody would be likely to accuse the National Biscuit Company of frenzied finance if it should increase its capitalization ten to fifteen millions. Yet the greater part of the increased capital would be represented by nothing tangible. It is simply the demonstrated earning power, much of which is the result of the advertising expense of last year and the year before. It is eAddent, then, that it is not wise to limit the advertising appropriation to aU amount which seems likely to "come back" the first year. In other words the money spent for advertising cannot be expected to return at once with a profit in its hand. But it is not wise to plunge so heavily as to endanger the credit of the business, for be it understood, good- will is a fine thing is connection with a going business, while the good- will of a bankrupt concern isn't worth a cent. In a sense good-will is a sort of business momentum. As long as the concern keeps going, last year's advertising helps _ . keep up the speed just as the momentum of the last Mom^um ^^^ °^ ^ locomotive's drive wheels helps send them around the next time: but after the concern has once stopped, the good-will it used to have will not help start it again any more than the locomotive's momentum on its last DISPOSAL OF ADVERTISING COSTS 449 run will help overcome its inertia as it stands in the round- house. That fact, by the way, makes the new attitude of the bankers all the more striking, since the banker always looks at a financial statement from the standpoint of what the assets would be worth in case of failure — not considering at all what they are worth under an aggressive sales policy. No less an authority than Elijah W. SeUs. of Haskins & Sells, Certified Public Ac6ountants of New York, says that "such advertising which has a direct effect in creating or measurably increasing the good-will of a business may be considered as an investment, while that which is done to maintain a normal distribution or call attention to special temporary prices should be considered an expense." In other words, the advertising which goes directly to the promotion of the good-will of a new concern can properly be capitalized, and paid for out of money received for stock, while that advertising which is done simply to maintain something already secured should come out of profits. Hence it is evident that the answer to the question "How much shall we spend for advertising?" is "Enough to secure a demonstrated earning power (good- will), which will produce profits suflBcient to pay for the advertising necessary to maintain distribution of the goods." That, of course, is the minimum amount. Conditions in different businesses vary so greatly that no exact percentages can be given. But the analysis of good- will on page 445 which was prepared for Printers' Ink by Paul T. Cherington, instructor in the Graduate School of Business Administration, Harvard University, gives some clues as to the conditions which determine whethw the amount spent for advertising at the start shall be a greater or a less part of the capital. Since we are discussing an entirely new business, none of the "Intangible Factors" wiU affect the advertising invest- ments, except the product and the trade-mark. The lower the quality of the product, the harder to create good-will, and the more money must be spent. The smaller the profit it pays those handling it, the easier it must be made for them to sell, which of course means more advertising. The quality and adaptability of the trade-mark will affect the advertising in the same manner, though not to the same extent. Of course, being a new trade-mark, its age and reputation are negligible. 450 ADVERTISING AS A BUSINESS FORCE When we come to the "tangible factors," under "increased sales" we find the item "possible market." Being a new concern the "actual market" may be assumed Good-wUl to be non-existent. The size of the possible market, T to °^ course, affects the size of the appropriation, since Earning "^^^ wider the field the more it costs to cover it. Capaeity But there is another important consideration right here, and that is the number of possible individual buyers in the market. The business with 500 customers is less valuable than the business with 5,000 customers, if the gross sales of both are the same. Thus the good-will of a chewing-gum concern would be worth more than that of a piano house doing the same amount of annual business. The reason for this is that it is easier to lose a substantial percentage of 500 customers than it is to do the same thing with 5,000. So to make the good- will of the piano house equal in value with that of the chewing- gum concern will require more money and more effort. Hence, the new piano concern can afford to spend more money than the new chewing-gum company — more, of course, in proportion to the capital, not necessarily a larger integral amount. With regard to the share of the possible market, the following is quoted from L. R. Dicksee, professor of Accounting at the University of Birmingham, England, probably the The Good- leading authority on the subject of good-will: "In- wm of a j.jj- 1 • 1 Monopoly come derived from a monopoly or quasi-monopoly will command a higher rate of good-will than one derived from an industry in which competition is keen." The application, of course, is evident. The monopoly of quasi- monopoly need not spend so much money in advertising as the business in a competitive line. The above, however, does not apply with full force to monopolies granted by patent rights, since at any time it is possible that subsequent inventions may depreciate the value of the patents. The heading "capacity of product" refers to the frequency of purchase. If the product is one which is totally consumed — like soap, shoes, food-products, etc., the customer will be again in the market for similar goods before long. If, however, it is a product which is only partially consumed — like articles of hardware, furniture, utensils, etc., the same customer may not buy more than twice or three times in x lifetime. DISPOSAL OF ADVERTISING COSTS 451 In the former case the good-will is worth more than in the latter, and it is easier to get because there is often an argument in the quality of the goods themselves which, makes future sales. In considering the amount to be spent for advertising, this factor is relatively imimportant when compared with the size of the market, and the quantity of competition. As a general rule, however, distribution is more important than good-will (at the start) for goods which are bought only once or twice in a hfetime. For if your competitor gets the one sale, you caimot hope to reach that particular person for years if you can reach her at aU, whereas if the goods are totally con- sumed with reasonable quickness a second sale will be ripe for picking shortly which your advertising may land. The goods which are totally consumed need more good-will advertising at the start, to secure the second sale if the first goes elsewhere. Under the head of "Increased profits," the subject of costs has a bearing on good-will only when the business is to be sold. It is quite true that selling costs have an influence upon prices which in turn affect the consumer, but they have little bearing upon the subject of how much to spend for advertising. In fact the amount spent for advertising (with due regard, of course, for the way in which it is spent) will have more effect upon selling costs than the other way around. And, as a matter of fact, the selling cost for any article cannot be determined in advance anyway. The better the maintenance of prices ("standardization" in the table) the greater the good-will — because everybody GoodrwiU ^ treated alike, and nobody has a chance to feel and Price disgruntled. Hence, other things being equal, the Mainte- concern which is selling at "any old price" will be nance obliged to spend more money in advertising to get the same result. There are two other considerations which enter into the good-will analysis, and which have a particular bearing upon the advertising investment. The first is the kind of business engaged in. Does it supply a need which is readily recognized by the public, or must consumers be educated to the use of the product? It is evident that a concern in the latter class will have to spend much more for its good-will than one in the former, other things being equal of course. Just as an example of what is meant, the man who put the first rubber hot water bottle on the market coidd have piled up good-will at a com- 452 ADVERTISING AS A BUSINESS FORCE paratively small outlay, while the first adding machine was a good many years getting any good-will to speak of. Good- will comes easier in the line of business which is established and recognized than in the new field. And second is the amount of dependence the public places upon the services of the proprietor or founder of the business. This factor is rarely, if ever, met with in an ordinary mer- chandizing business, but it is frequent in publishing businesses where the editor or star writer keeps a large portion of the subscription list together. In such a case, unless the business were to be allowed to slump with the death or retirement of the individual, it would be necessary to spend a comparatively large sum in advertising for good-will. When the good-will of a business is appraised for purposes of sale, it is customary to deduct a sum which represents the estimated cost of replacing the services of the proprietor. Of course in case of death or retirement this amount would automatically deduct itself from the good-will, speaking in terms of dollars and cents. In brief, the money that is spent for advertising at the start of a new business should be put in as an investment by the persons interested in the business, and should not be taken out of profits. Its exact amount depends upon conditions in the individual business which must be carefully studied, not only as they affect sales conditions but in their relationship to good-will. With this discussion in mind of the relation between adver- tising outlay and its possible value in the creation of good-will, it is interesting to see the great variety of opinion expressed by accountants as to the soundest methods of taking care of advertising expenditures on the books of a "going" concern. At one extreme we have concerns which contend that since advertising results cannot be separately shown on the books the only safe treatment is to handle all advertising outlay as if it were a dead loss. Again, we find those who contend that an advertised product is already partly sold, and, that therefore advertising outlay should be treated as selling expense. " DISPOSAL OF ADVERTISING COSTS 453 And yet again we find those who believe that the eflPects of advertising are mainly on the value of the product in trade, and that therefore these expenses belong among production costs. And still others believe in treating these outlays as of the nature of an investment. The following discussions show some of the types of opinion in this matter: *How do leading concerns actually enter advertising expen- „ ditures on their books; as expense or investment? Some ^ correspondent of Printers' Ink writes that an Account- answer to this question would help him more than ants Treat many reams of theory. "What is done when the ^^^OhMa expenditures get into the hands of the bookkeeper? *"9 y ^i^at ledger does he open? I am a manufacturer and specific information will help me in appraising the earnings of my advertising expenditure." Printers' Ink requested the ^^ews of some of the well-known advertisers. Following is the reply of Lewis E. Kingman, advertising manager of the Florence Manufacturing Company, making the Prophylactic tooth brush : " Our advertising expenditures are charged as an expense. We do not see how this could be otherwise handled. " As a matter of fact, we have a realizable asset in our trade- mark names, brought about by long continued publicity, but it does not seem to us good business to carry this on our books as an actual dollars-and-cents asset." William H. IngersoU, advertising manager of Robert H. IngersoU & Bro. ("IngersoU Dollar Watch" and "IngersoU Trenton Watch"), New York, agrees with Mr. Kingman in believing that advertising should not be represented entirely as an operating expense. Mr. IngersoU says: " In response to your favor of the 18th, inquiring as to how we charge our advertising, we would say that it is our custom to charge it as an expense. We do not do this because we believe that advertising ought to be charged entirely to expense for we are well aware that our factories and offices could be destroyed completely by fire and yet the biggest asset of our business 'Printers' Ink, November 30, 1911, p. 3. 454 ADVERTISING AS A BUSINESS FORCE would remain, namely, the good-will, and that this is largely due to the advertising which we have done and charged as an expense. " Our method is due no doubt to the custom of some time ago and probably the prevailing custom now to consider advertising only an expense. We know of no definite way of determining how much of it should be charged to expense and how much as an asset, and we are aware of no house having solved this problem satisfactorily, but it is something that will no doubt receive the attention of the efficiency men and the enlightened accountants in the early future." E. T. Welch, of the Welch Grape Juice Company, writes as follows: " To a somewhat similar question that was put to us a short time ago, we replied that we considered advertising partly an expense, partly an investment. So far as the bookkeeping is concerned, we do not see how any concern can do otherwise than charge advertising up to expense for each year. We suppose some concerns carry an amount on their books for good-will, but it has been some years since we took good-will into consideration in our yearly statements." H. K. McCann, advertising manager of the Standard Oil Company, is of the opinion that practically aU advertising, "probably 99 per cent of it," he says, should be charged as an operating expense. He goes on to say: " Certainly all continuous advertising campaigns that run on from year to year must be considered as such, and I can conceive of but very few instances where it would appear to me to be legitimate to charge advertising into capital account. " I realize that there are two sides to this question and that exponents of the other side can make out quite a strong argu- ment in favor of capitalizing advertising expense. In my opinion, however, this is a dangerous thing to do." G. H. Page, advertising manager of The W. N. Lowney Company, of Boston, contends that there should be some systematic attempt to educate the various factors in the distri- bution system, and particularly the retailers, as to the ways in which advertising outlay is paid for by a reduction in other expense in distribution: DISPOSAL OF ADVERTISING COSTS 455 *That we should be willing to write on so personal a subject may surprise some advertisers who play the game as secretly as possible. We believe that it will only do us good if our com- petitors begin to advertise on account of our experience. Any advertising will be welcomed that increases the consumption of chocolate products and with our quality and price we shall more than get out share. Mr. Lowney always says, as any broad gauge man who really believes in advertising woxild say, "the more the merrier." We live under a competitive system. If we lived under a socialistic or co-operative system there is no doubt that the Who Pays hundreds of millions spent in advertising yearly Sor the might be saved to the consumer, but if so it would Adyertia- be at a heavy cost to civilization which I can only '"*• hint at here. The cessation of advertising under a co-operative system would deprive us by bankruptcy of most magazines and newspapers and it would lower the standard of living and the volume of business because consumers would not know what there is in life to enjoy. But we must adjust ourselves, for the present anyway, to the prevailing competitive system of distribution wherein the fittest survive. One characteristic of fitness is the ability to increase the sale of a fit commodity from year to year to such an extent as to make the growing profit by lessened cost absorb the advertising bills. That this can be done and is being done in not a few instances I am sure. I take pleasure in amplifying a little the idea behind our trade paper advertising carrying the headline, "Who Pays for Our Advertising?" A warning or confession is in order, how- ever, lest you be misled into supposing that our statements in that advertisement are based on elaborate analyses of costs for the last twenty years. This is not the case. How- ever much this admission may undermine confidence in our conclusions in your mind, we ourselves think we know that our customers and dealers do not pay for our adver- tising. Some years ago at one of the few meetings of the lamented I. A. A., at the Waldorf, the writer lifted up his voice to protest against the dictum that the consumer always pays for the advertising. Jeers and incredulity were the only *Pnntera' Ink, October 6, 1910, p. 24. 456 ADVERTISING AS A BUSINESS FORCE answers he got, but since then there has been a noticeable change amongst writers on advertising and the light seems to be breaking. Twenty years ago Lowney's Chocolates sold for sixty cents a pound in sealed packages and were not advertised. The average cost of labor and materials has not been reduced in any way suflScient to account for the fact that there is still a little profit in spite of the expense of advertising. There is but one obvious conclusion. Growth, increase of quick capital and ownership of all means of production have reduced costs. Those blessings are the results of advertising for the most part. Superintendence, clerk hire and accounting cost more in pro- portion for a small output than for a large one. The buyer with his own capital at hand can buy in larger quantities and on better terms than the small man. There is no need to detail the many ways in which savings are efiEected by the growth of output stimulated by advertising. One that will appeal strongly to every manufacturer who studies his problem is the fact that sustained intelligent advertising will make his machinery more uniformly busy. Think of the saving in costs if every machine can be provided with orders for its product to keep it working every hour of the day year in and year out. This is the ideal situation for the manufacturer, and there is no one thing that comes so near bringing about this happy situation as advertising does. Naturally the propor- tion of advertising expense paid by the public differs with different commodities. With breakfast foods it is probably large; with patent medicines still larger, amounting no doubt to 100 per cent. Consumers buy these things, however, with open eyes, knowing that the cost of distribution is large. From tJiis extreme there are all sorts of variations amongst articles in the FW^ T Particular of what proportion of advertising the ^^£^^^ consumer pays. At the other extreme I have no on Price doubt that there are goods which have actually been cheapened to the consumer by advertising, but in the absence of facts it is hazardous to guess. To give you something to think of let me ask whether telephone and telegraph service would not have been cheapened sooner if they had been advertised sooner? How about the advertising of fifty-word night letters.? Will not that advertising by keeping an idle plant busy at night have the effect of reducing DISPOSAL OF ADVERTISING COSTS 457 tolls ultimately? I will venture the guess that the consumers of Ivory soap have paid a negligible part of the advertising bills. To be sure there is the manufacturer who puts his price up after effecting distribution and demand by advertising. The goods are apt, however, to be a patented article or otherwise not subject to competition. In such case the consumer pays the advertising cost and more. Advertising failures have to be paid for by some one, and although the angel who provides the capital is probably the chief loser, no doubt the limited number of consumers pay a good share in some cases. But it is not my duty to speak for any but ourselves, and I claim that we can truthfully assure our dealers and customers that the advertising expense does not come out of them, but out of the savings in cost owing to growth produced by adver- tising. If an objector asks, "Why don't you reduce your price then?" he is entirely beside the mark. We cannot reduce the price by dropping publicity without having to increase the price again because of increased cost arising from decreased demand. Finally I want to say that I am not confusing the cost of salesmanship by advertising with the cost of ordinary salesmanship. It is true that advertising reduces the cost of salesmanship, but I am not hiding behind the fact. I claim that in our business, at least, the record of all costs and the record of our prices will convincingly show that our advertising bills are absorbed in the saving "in cost of salesmen, superin- tendence, rent, interest and use of our plant," and in cost of materials. As to our use of this argument in trade journals to put the retailer in better mood to buy, I have no excuses to offer. The average grocer misses the point of advertising. He thinks that the money spent in advertising might better be his in the form of a larger profit or a deal so dear to his heart. He does not realize that the disorganized competition of his form of business would not permit him to enjoy a larger profit if it were given to him — at least on package goods. If he is becoming more and more a mere filler of baskets he has his fellow grocers chiefly to thank for it. No manufacturer can permanently effect distribution through the grocer, but must make his appeal direct to the consumer. By the rigid laws of trade as they exist under present conditions he has done all he can do when he insures the retailer a fair profit which does not admit of much cutting and then further insures a steady 458 ADVERTISING AS A BUSINESS FORCE demand by advertising to keep his goods moving and maintain a steady profit for the handling. To the salesman the complaint is familiar that the cost of advertising comes out of the retailer and the consumer. The salesman, of course, uses the perfectly valid argument that there is a saving of time and in the end a greater profit in selling goods that are easy to sell because they are advertised, rather than in wasting time by trying to push the unadvertised. But the salesman is not in the position to say with the authority with which we can say it that the cost of advertising is absorbed in the growth of the business and does not come out of the grocer. Why, then, is it not, good trade advertising to try to educate the retailer out of a mistaken notion that he is being bxmcoed? By all means let us appeal to the retailer in the most effective way we can and let us join hands in making a better business man out of him. A somewhat broad discussion of the question of payment of advertising costs is that written by C. L. Grigg of the Norvell- Shapleigh Hardware Company, of St. Louis. It is a question whether all of Mr. Grigg's illustrations are well drawn, but his discussion is extremely suggestive. Among the suggestions contained in it none is more important than the implication which he makes that part of the cost of advertising appeal is taken care of by the social advantage inhering in new wants. This recalls us to the point made in our discussion on the Effects of Advertising on the Consumer. This point is the fact that the really important question in regard to advertising is not: "Who finally pays the $600,000,000 spent in adver- tising?" but "What is the economic effect upon the community of all of these appeals designed to stimulate wants? " Mr. Grigg says *"Who pays for advertising?" Let this question read, "Who pays for creative advertising?" and the answer is simple. All who benefit by creative adver- tising pay for it. "PiiTUers' Ink, July 27. 1911, p. 30. DISPOSAL OF ADVERTISING COSTS 459 While the benefit may be direct to the individual consumer in the way of quality, style, service and the resulting satis- faction derived from the article advertised, society _«°^, at large benefits by the improved social conditions. AABtrtiting The safety razor advertising has made us a nation of clean faces; of daily shaving. Society as a whole has benefited. A clean-shaven man becomes a better man — a better man to see at least, and is usually more likable. Creative advertising made the market for safety razors. The advertising of safety razors should not be charged to the razors nor to the individual, but to social uplift. The demand for clean faces had been latent in the public for years. The cost in money, time and trouble of visiting the barber daily prevented the early realization. Advertising made the market and by educating society to the safe, pleasant, and economical shaving process, made the safety razor. Advertising not only awakened the latent desire, but so cheapened the process as to make the one-time luxury a common necessity. Creative advertising is telling the public of a thing good for society as a whole. Competitive advertising, on the other hand, tells the public, after the desire is created, "This is just as good," then faUs to deliver the goods. It benefits no one. It causes the novice in the use of the thing advertised to lose faith, and is a danger to society as it deceives, discourages and destroys the educa- tional work of creative advertising. This sort of advertising is economical waste. The high cost of living is the result of businesslike readjust- ment of distribution. For years the rule was to make luxuries bear the cost of distributing necessities. As luxuries grew into necessities, the price was lowered by competition and other luxuries were expected to provide the net profit. Advertising has converted so many of the former luxuries into necessities that the readjustment of distributing cost becomes necessary. Business resolved to make everything carry its own cost and in the readjustment staples were put on their cost, resulting in high prices on the unadvertised staples. Of all the articles that have advanced in price, adver- tised articles show the least advance, while the unadvertised staples show the greatest advance. That creative advertis- 460 ADVERTISING AS A BUSINESS FORCE ing does not cost society a penny is conclusively proven by this one fact. Last spring the packers took a four-million-dollar loss on eggs. Had they organized and spent one million dollars in making a market; in telHng the public that eggs at the price were yet the most economical food; telling them how to use eggs in new ways and educating the pubUc, they would have saved three milUon dollars and at the same time have estab- lished a staple market. The residt of that break in prices has been a general demor- alization of all factors identified with the production and distribution of eggs. Instead of four million dollars loss, several times four millions dollars has been lost this season by the men who own the chickens. A million-dollar campaign would have made a market, not only for the stored goods but for all that have followed. BEVIEW QUESTIONS CHAPTER XIH 1. How is advertising outlay covered by reduction in pro- duction and selling costs? 2. How is advertising outlay treated by accountants? Which theory about this do you consider safest? 3. When does advertising outlay cease to be an expense and become an investment? PROBLEM QUESTIONS CHAPTER XHI 1. One big electric manufacturing concern figures its "good- will" at $6,000,000 among its assets, another with patents quite as valuable figures its good will at $1. Which would you con- sider to be the better policy if all other conditions were equal? 2. If advertising, by increasing output, brings- down produc- tion and distribution expenses and increases total profits of makers and distributors, is the consumer "paying" for the advertising because the price to him is not reduced? If the quality of the goods is bettered, or the quality of sales-service is improved can these be considered as part of the consumer's return for the maintained price? CHAPTER XIV THE ADVERTISING StANAGER IN the case of the Multigraph Sales Company we saw the advertising manager working side by side with the sales manager. While this degree of emphasis on the adver- tising manager's importance may not be feasible in all lines of business, its success in the case of this company shows something of its possibilities. Whether the advertising manager is ranked as one of the planning heads of the concern or not, it is becoming increas- ingly evident that his work no longer can be regarded as a mere incident in the selling plans of most companies. This means, of course, that there is coming to be a much better under- standing than has prevailed of the uses and possibilities of advertising on the part of the sales manager, and at the same time it means that the advertising manager is going to find increasing need for a proper understanding of selling problems. THE WORK OF THE ADVERTISING MANAGER Myrtle Tower Snell, who is on the staff of George B. Spencer, in New York City, has the following to say about what an advertising manager ought to know about selling conditions: This is told under the title: "What a Woman Saw from Behind the Counter." *The letter from Mr. Judson in your October 19th issue interested me. Mr. Judson's idea that advertising managers should go behind the counter in search of light on their sales *Pnraeri' Ink, November 9, 1911, p. 44. 461 462 ADVERTISING AS A BUSINESS FORCE and distribution problems has been acted upon, I imagine, more times than he happens to have a record of. I don't know at aU if you want to hear from a woman on this subject, but the fact remains that I have had some rather illuminating experiences along the line suggested by Mr. Judson. For example, in my capacity as advertising counsel, I have been called upon to diagnose and prescribe for sick store departments, upon many occasions. In such cases it is a part of my plan to hang up my hat and go on the floor or behind the counter as a saleswoman in the department needing help. In this way I get at the actual facts from every view-point, including my own. I am able to suggest to the merchant what I believe to be best from actual experience in his own store. I fully agree with Mr. Johns in his article [see p. 465] on "The Real Functions of an Advertising Manager." " Show me an ad- vertising manager who cannot take a sample case and go out on the road and personally sell a bill of goods, and I wiU show you one who is superficial in practically everything else he does, except split infinitives, or the proportion of top and side margins on a two-color mailing card." And, by the same unfailing token, show me an advertising manager who cannot go on tiie floor of a store or behind the counter and seU to the consumer the goods manufactured by his house^ and I will show you an advertising manager who has no business to attempt to formulate the selling policy for the merchant who buys his goods, or to suggest selling plans for him. Such an advertising manager is not even capable of writing newspaper copy for his merchants. His efforts are at best only theories, he doesn't know what he knows, and his guess- work makes his experiments expensive, both for his house and its customers. If I had space I could tell you the actual vital facts brought to lijght through my experiences behind the counter while makmg these investigations. I could tell you of the infinite possibilities which that method has revealed for the sort of co-operation that means a Ericeless gain to both merchant and manufacturer, and of ow tremendously it eliminates friction and promotes good feeling. . . . THE ADVERTISING MANAGER 463 In some instances the man behind the gun, who, in large measure, controls the buying in these stores, is not familiar enough with the conditions surrounding his own business. He will often accept the judgment of the outside counsel, when the opinions of his own people would be ignored. This happens in 'the smaller cities where the merchant is the nominal head of all departments. In one instance, I found this most interesting phase of the problem: A member of the firm, who has died within the past few years, had influenced and attracted to his store a large foreign trade. Since his death, the patronage of the store had been undergoing a sort of transformation. When I went on the floor, I found we were serving the wives of professional and political men — members of the best families of the town. The merchant was on the ground all the time, day after day and week after week, and was scarcely conscious of the change .that was gradually taking place in his business. He "^^fw^ realized dimly that the stock they used to carry to the didn't seem to be so readily disposed of as in other Market years — and he wondered why. He was trying to fit a medium and low grade stock to a high class trade, and it was distinctly a misfit. The change was vital, both to him and his buyers, and even more vital to the manufacturers selling him his stock. How could the manufacturer or his advertising manager know such conditions without getting directly into the fray and digging them up for himself? True enough, the manufacturer's salesman goes to the town probably four times a year or more. But he opens up his samples down at the Dingley House or up on the top floor of the building, and he carries away what information the proprietor and his buyers choose to give him. If he chance to be very wide awake he'll make some observa- tions for himself while he's waiting for the department head to get through with one of his personal friends. But even then he's an aliens he doesn't belong. And, on the other side of the question, when he goes back to the house, loaded to the guards with information that he swears the house has got to Usten to — what happens? The advertising manager is generally pretty busy and he asks the salesman to please put his information in writing. By the time the salesman has floundered through the un- 464 ADVERTISING AS A BUSINESS FORCE accustomed task of writing out his ideas, when his stock in trade is his winning way of talking — well, you can imagine the result when it reaches the advertising manager's desk. Its very brightest chance for life is to be filed away in a pigeon- hole under "Suggestions from House Salesmen," to be taken up when there is nothing immediate pressing; which heavenly state, by the way, the ordinary advertising manager seldom arrives at this side the little door. And yiet, these small-town conditions constitute an issue which must be met and reckoned with in almost every sales- and-distribution problem. In one* instance, a brief stay on the ground of one of our merchants brought to light friction between our rather tactless salesman and the woman head of the stock. ' What then.'' We might have wasted tons of advertising matter trying to cram our goods down the throats of that house all to no purpose. Some other method must be applied. Again, one manufacturing concern had been working for years to induce merchants to handle its product exclusively, in that line. A few trips among the stores of the merchants, a few hours sometimes on the floor, convinced me that one merchant in ten could make a success of a department con- fined to that one line. And if the department was not a success, what use could the store be to the manufacturer? It meant simply one of two things — increasing the manu- facturer's line to give it greater variety, or specializing on their present line and pushing it as "a specialty." Such information as this, I consider, is necessary for the advertising manager to have as a foundation upon which to _,, build practical plans and campaigns. And I do not Informa- believe his department will ever reach its fullest turn the efficiency until he is in possession of just such .idiierimns" information, gained through his own experience. ^NeedT Even his light upon the subject gained through his national advertising will be clearing and more searching, his appeal will be more direct, his argument more convincing, because he has faced his customers with his product in his hands. , Somehow this direct personal contact with actual sales sweeps dwai/ all the advertising manager's fine literary illusions, pricks the bubble of his impractical theories and clears his vision. In his pldns and his copy he has deduced, or better, has elevated. THE ADVERTISING MANAGER 465 himself to fundamentals, to first principles, to true salesman- ship, which is all advertising is or ever can be. Let the advertising manager get out and seU goods on the road and behind the counter. If it doesn't accomplish another earthly thing, he will find that it will lessen the friction between himself and the sales force, both wholesale and retail, for- evermore. And his understanding of their problems, trans- formed from fairy tales to everyday facts, will make a mighty sight better advertising manager of him and an infinitely broader and more helpful man, both commercially and per- sonally. William H. Johns, vice-president of the George Batten Company, in discussing what he calls the "real function of an advertising manager," gives one or two illustrations of what the advertising manager's services are coming to include under present-day selling conditions. *The advertising manager of a nationally advertised propo- sition, placing his business through a responsible advertising agency, is in a position to further or hinder a success, according to his conception of his proper function. It is true that a success is sometimes made by sheer force of other influences, in spite of the advertising manager, who, in such cases, bears the title without fulfilling the real functions which might be reasonably assumed as belonging to the office. And, again, the advertising man stands as a connecting link between conflicting forces, and by acting as a deciding vote can often swing policies and plans in the direction of success, in spite of other influences that otherwise woiJd hamper the business. I recently had occasion to give considerable thought to the question, "What part of an advertising manager's work should be personally performed by him? " — that being the subject under discussion before the Technical Publicity Association of New York in which discussion I was asked to participate. In this connection I had occasion to consider in writing, in a general way, what his proper functions are, how he should co- operate with the sales department, and how his work should fit in with the work of the advertising agency. 'Printers' Ink, October 19, 1911, p. 3. 466 ADVERTISING AS A BUSINESS FORCE Of course, in the last analysis, it all depends on the maa and the proposition and the agency, and the temperament of the principles of the business advertised; and yet, within the limits of the typical advertised proposition, and the typical advertising manager, there are certain general observations that may be worth noting. The advertising manager soon discovers that there are but twenty-four hours in a day, and that even if he uses all of them, he can't do everything personally, and the question comes up: "What part of the work should he do himself?" It is the privilege of any man in such a position to experiment a little before finally adjusting himself, and in fact nothing but experiment and experience can show him where he can apply his personal efforts with the assurance that they will count for the most. ; With all these and similar modifying considerations out of the way, he finds, if he rises to the proper conception of What the ^® position, that there are certain things which Advertis- ^^ simply cannot delegate, and yet retain the inner iTig conviction that he reaUy is what his title proclaims Manager bim to be. E'^le^ In the first place he must have the "vision" * * * of the proposition and its relation to the public. Without it he is sure to be a hinderance rather than a help to the business. But to. get it he must study the business in all its phase^, talking with the factory fore- man, the salesman on the road, the sales manager, the president, the comptroller, and wherever possible with typ- ical consumers. He must know as nearly as possible what the dealer thinks, and how much inertia tjefe is to overcome in getting the dealer to give distinctive attention to his gOods. He must certainly know something of competitive products, and what is being done with them. He must work hard for this because truly vital information doesn't lie on the surface to be scooped up with a spoon in passing. Without this con- ception of the proposition his judgment is warped and ineffi- cient, and is more likely to put the emphasis in the wrong place than it is to hit upon the right idea. And yet, having the title of an advertising manager, his opinions are apt to be given fuller credit, both by his principles, and his agency, than his actual knowledge warrants. Now, if he sets himself to get this adequate conception of the THE ADVERTISING MANAGER 467 propositionj as a basis for sound judgment, he simply cannot and must not spend all his time at his desk mulling over papers. And yet there are always papers that must be mulled over, and it becomes his problem to know where to draw the line. He will find that certain kinds of papers give vital information, that go to develop sound judgment, and these he certainly cannot afford to pass over. And certain other papers need his attention because they afford an opportunity to utilize his judgment at a vital point, and that being the main reason for acquiring that judgment, it follows that this is certainly a part of his work. But show me an advertising manager who cannot take a sample case and go out on the road and personally sell a bill of his goods, and I will show you one who is superficial on practically everything else he does, except perhaps the question of split infinitives, or the proportion of top and side margins on a two-color mailing card. Somebody has got to stand pat on the question of policy. When a plan has been agreed upon, somebody has to see to it that it is carried out, and that it is not deflected Carrying jjy clever advertising solicitation, nor by the chance SelliTw suggestions of some one who either hasn't thought Policy deeply into the matter, or who has another way of doing it that may be no better. And somebody has to know when a plan has been tried out enough to change, or go ahead with on a bigger scale. If it is the province of an advertising agency to keep one eye open for the time to change a plan, it is the rightful duty of the advertising manager to keep both eyes open, and both ears open, and his finger on the pulse of the consumer, with an occasional look at his tongue. Somebody has got to outKne the campaign. But as this involves so much more than the average advertising mana- ger has ever personally had an opportunity to learn, it can be done best only through coiJerences. The advertising manager should have enough of that vision to make tentative plans, as a basis for discussion, and yet enough good judgment to understand that his vision cannot cover the whole thing. Here is where the sales manager needs to be brought into the advertising. And it is where the advertising manager has that much-talked-of chance to co-operate with the sales manager. And, again, here is where an agency, by reason of its accumulated experience in hundreds of campaigns, is 468 ADVERTISING AS A BUSINESS FORCE entitled to a thorough hearing. And yet a sound campaigi> must be based on facts such as can be known only to men of long experience on the inside of business. Hence, the logic of a conference in which the president, the advertising man- ager, the sales manager, and the advertising agent all have a part. Using mere authority to enforce decisions, regardless of the judgment involved, is the bane of business procedure. Here is where one type of advertising manager is in danger Tubing of being a stumbling block instead of a progressive WM^^ ^°^^^- ^^^°g ^ "buyer" in fact, and yet a "seller" Others in theory, heis prone to take on the typical "buyer" attitude and get dictatorial, pompous, self-centred. I ascribe true greatness to the advertising manager who knows when he is a help and when he is a hinderance to the success of his own proposition. It is easy enough for the advertising manager to see when the sales manager, or the president, or the Board of Directors, are blocking the progress of the business by mistaken policy. It is contrary to human nature that he should be able to be a hinderance and know it at the same time. It is often possible for an agency man to see this as clearly as the advertising manager can see how Others are blocking him. Not to have backbone enough to take direct issue with the opinions of "the man higher up" occasionally may often mean disaster; and the advertising manager who can't do a little fighting now and then to defend his honest convictions is a poor guardian of the pricekss opportunities of a business. Some one asked me recently if I did not believe that an agency should have its fundamental dealings with the officers of the concern, and only its detail dealings with the advertising manager. My answer was that the agency should deal in the basic things with the principals as well as with the advertis- ing manager. Some advertising managers change jobs without any pangs of conscience, and yet the business and the adver- tising must go on. It involves the fortunes and the lives of many people. Its roots should certainly go deeper than the tempbrary interests of any one man. Any advertising man who is willing to face these facts, and put the success of the business before what may seem to be (at first glance) his own personal glory and achievement, will admit that this is so, and will take his rank accordingly. And that will rank Him THE ADVERTISING MANAGER 469 higher — make him a bigger man whether he remains "with the same concern or advances to another. When it comes to selecting mediums the advertising manager should have a hand in it, but to attempt to settle such matters without utilizing the preponderant information on Medium the subject which a real service ageicy should have Selection is to invite defeat. But the agency should be able to satisfy his reason that the list selected is the most expedient, so that in the end the list is as much approved by him, and his principals, as it is by the agency, so there is no come back. Whenever an advertising manager, by virtue of definite experience, or even of opinion based on sound judgment i and knowledge of his own proposition, favors and disfavors certain mediums, there can be little question that his ideas would be given due weight by responsible agency men in making up a Ust. It is the function of an agency to know as many f kct^ as possible before deciding, and on every proposition the adver- tising manager should be able to supplement the facts already in hand. Whether the copy should be written by the advertising man or by the agency depends largely on circumstances. If the advertising manager can always write better cc^y than the agency he ought to do it, or change his agency. But in any event, the actual writing of copy is secondary to the deci- sion as to what points shall bear die emphasis, what appeal shall be used, and what method there shall be of connecting up the advertising with the trade. In this decision the " vision " of the advertising manager, his accumulated experience, and his more intimate knowledge of the real selling problem should all have an important place, as also should the experience and judgment of agency men. Copy should ernbody the best judgment of all concerned, no matter who pens the text. Ninety-nine out of every one hundred good advertisements are an evolution and not an inspiration. So my word to the advertising manager on this point is that he should take hold where he can lift the most, and keep out of the way of men who might be able to Uft more than he can. As much credit is due to an advertising manager for knowing when to step out of the way and let a big thing go past him as there is due for starting a big thing himself. Much is said about the co-operation of the advertising and selling forces. In certain directions there is a tendency to 470 ADVERTISING AS A BUSINESS FORCE combine the two positions into one. But in any event there is a great need, and an adequate tendency, for the two depa;rt- ments to work hand in glovfe. But it takes a differ- Ang with detail that might be delegated to subordinates, then it is only a question of time till he losesi interest and decides he would rather adver- tise breakfast foods than automobiles, and so it doesn't matter to him who is the real fountain of interest in making the advertising utilize its full opportunity. One thing is certain, and that is that the follow-up system which coins advertising ore into dollars should be in the hands of the man who really cares. If that is the advertising manager, all right. If it isn't, why let it be done by some one who does care. If I were to gather up all my impressions as to the proper function of an advertising manager, within the limits above agreed upon, I should say that he should partake something of the nature of a barometer, something of the dynamo, something of the pilot on the ship, something of the governor on an engine, something of the orchestra conductor, something of the editor of a newspaper, something of the detective, some- thing of the promoter, and something of the bystander. The conception of the function of an advertising manager is rising in the scale. It means more to be a real advertising manager to-day than it did ten years ago. And it will mean THE ADVERTISING MANAGER 471 more the next few years than it does now. The question is, are the men in positions of advertising managers rising to the occasion, and growing as fast as the business and its needs are growing. For to be an advertising manager certainly means to keep pace with the needs and opportunities of the business. This idea of the broadening scope of the advertising manager is carried out somewhat more fully from the standpoint of the advertising manager himself, in an address before the Technical Publicity Association in New York City, on October 12, 1911, by Charles E. Jones, formerly advertising manager of the National Cash Register Company: *The subject assigned to me, "The Scope of the Advertising Manager," is an extraordinary one, because the interpretation must be individual. . . . Seriously speaking, an advertising manager's scope is all that he has given him and then whatever he can or should annex. You see that I am interpreting scope rougUy 'to mean latitude, and every advertising manager must have latitude enough to accomplish his ends. To have a good advertising department means time, and for an advertising man to have a good boss means time. . . . He may have to change the name of the product — he should if necessary. He may have to change the product, he may have to change the policy of the house, or he may have to create a name or a product or a policy. All these things I believe come strictly within the scope of the advertising man- ager, and if he is what he should be he has a more aesthetic taste and a more sensitive taste than any one else in the organi- zation. However, to be aesthetic or sensitive does not release him from the responsibility of being practical and sensible. To think correctly is success. The Need There was a story about George L. Dyer, which Pradiml ^^ ^"^ become a classic in the annals or lore of advertising, that had to do with some advertise- ments he wrote for Hart, Schaffner & Marx. It go6s without saying the advertisements were good; in fact they were so *PnnteTa' Ink, October 19, 1911, p. S8. 472 ADVERTISING AS A BUSINESS FORCE good that Mr. Schaffner, oiE the firm, sighed as he said: "1 wish our merchandise was equal." In an instant Mr. Dyer was back at him and said: "Make your merchandise as good as these advertisements. Merchan- dise less worthy will not sell, and you must not publish these advertisements until the merchandise is up to them." An automobile owner, driving a car the other night, said: " I wish this car was as good as the firm's advertising." It struck me that that advertising manager was under a tremendous handicap — that he was doomed to find another job before long, because his concern would have to go into the discard, and if he is not careful, he will find himself associated in the minds of people as having been responsible for a failure. And so I say the advertising manager should have a scope and a latitude sufficient to make his concern's product or service equal to the best on the market. He surely must have scope enough to make good for the house and he must take enough to make good for himself. . . . There are a great many things in modem business that call for dramatic action. They are things that should be done with a hope that they will be satisfactory, and when it is possible it is well to arrange to take care of the results in emergencies. I know of an advertising manager who, entering upon his duties, found fault with the guarantee that the concern put When a upon its goods and he wished to change it to Guarantee make it more hberal — to make it so liberal that Was it was a sales argument. Without questioning his Changed latitude in the matter he did this, only to be repri- manded by his boss. He said: "Why did you change our guarantee? That guarantee was drawn up by our lawyer. It is hard for a man to get around it." The advertising manager looked the boss in the eye ajad said: "We have no feud with our prospects and with our customers. Let us treat theni as though they were part of our family." Another case: An advertising man was called upon to increase the sales and also the profit of a by-product that had been managed by another for twenty years. The sales were meagre and the profit was always taken up in the selling expense. He offered a complete change in method to the management who met his plan with this remark : " Why we have been doing THE ADVERTISING MANAGER 473 this for twenty years." The advertising manager smiled and said : " That ought to satisfy you." When I took charge of the advertising department of the National Cash Register Company, they had been without an active head in that department for some three months, and tilings were at sixes and sevens. The work was behind. It was Mr. Chalmers' earnest desire that by a certain time the work would be caught up. As you may know, we had our own printing plant, which was iioroughly equipped and sufficient to get out a daily, which was sent to our salesmen; a weekly, which went to 5,000 people of the factory; several monthlies for different pur- poses; a hoiise-organ that went to a mailing list of a million; and in addition to this, catalogues, sundry booklets and supplies. The work was balled up. I had the problem of straightening it out. Those things that were started would have to be finished and new things would have to be put in process. I never have met a more liberal concern, a concern more will- ing to spend money or to do things to accomphsh their ends. I looked over my problem, made some calculations and decided the solution of the whole problem was to double the capacity of the press-room. On reporting to Mr. Chalmers that I would do that to get the result a look of anguish came over his face as he quietly said: "We have a quarter of a million tied up in that press-room equipment now. I don't know what the stockholders will say." I said: "I am going to double the capacity of the press room without spending a dollar." He asked how. "I am n ... going to print two colors instead of four colors VouMing ^^ ^^^ house-organ." "WeU," said he, "I do not Capacty think the president will like that." qfthe I said: "That is something that I will have to Pre»« |jg Judge of. If the president doesn't like it, I will ""^ move on. But I do not want to move on, and I am not making a mistake." This was an instance of the advertising manager taking the scope and I can say in passing, as you may be interested, that the result was satisfactory. I think advertising men very often unwittingly shorten their own scope. They circumscribe their own authority. There is no doubt a great deal of reason for submitting, at different times, the advertising matter that they prepare to superiors 474 ADVERTISING AS A BUSINESS FORCE or to co-workers. But their attitude in submitting the same is an mdifferent kind that causes a lack of confidence. They submit their plan or advertisement with this expression: "What do you think of this?" Instead of saying, "This is what we are going to do." If there is a real honest criticism due the advertisement or plan that is submitted, the latter way of submitting it will bring it out, whereas the first query is an invitation to pull it to pieces and leave it broken up. The advertising manager very often has not entirely de- veloped his scope. I know of a case in Chicago where a head of the concern had done his own advertising until his business got to such proportions that he felt that he could profitably leave that work to another and go on to more important things. I was in his confidence, and when he hired the young man to take up the work of advertising he asked me to see him as often as I could and to submit to him any ideas or suggestions that would be for the firm's good. Six months rolled by. The business that I got out of that house fell off to such an extent that I thought that another engraver must be closer to the advertising manager The!feed i]j^ji J ^as_ J took the matter up with the boss. Initiative ^^^ ^^ ^^i^' "No, you are getting all our engraving. Nobody else can get any of it and," he said, "strange as it may seem, I am sorry that we are not spending more money with you but the fact of the matter is that advertising man of mine doesn't get anything done. He hasn't ideas of his own; at least, so far as I can see, and when I or my partner give something to him to do he asks for time to improve upon our idea and in six months we have not spent one third of the money we should have liked to have spent in advertising. ^ Another story of an advertising manager who ordered a cover for a catalogue: I submitted the rough sketch, he looked at it and said: "Let me show this to the boss. I want to see what he thinks of it." I waited outside the private office and what came out of that private office was language that is certainly not fit to repeat here this evening. The boss told that advertising man, using language that was more lurid than elegant, that he certainly ought to have sense enough to 0. K. a cover sketch without bothering him, etc., etc. I felt embarrassed overhearing the call down of the advertising manager and moved as far away from the front office as I THE ADVERTISING MANAGER 475 could, so that when the young man came out he might feel at ease. Imagine my surprise when the gentleman smiled and said: "Mr. F. has left this entirely to me. I am to use my own judgment. This is O. K." THE TRAINING OF THE ADVERTISING MANAGER With this enlarged scope of the advertising manager's activity, the question naturally arises. Where is the man to be found who can meet these requirements? If the advertising manager is to be called on to perform these exacting functions, it is evident that the time has passed when successful adver- tising men can be developed without very careful and intel- ligent preliminary training. Truman A. DeWeese, director of publicity of the Shredded Wheat Company, discusses, as follows, his idea of what an advertising manager should be, and suggests the general form which he believes his preparation should take: Mr. DeWeese does not, however, give more than a general statement of his ideas on training: *I am asked to give an expression of opinion as to what should be the training, qualifications, and functions of an ad- vertising manager. ^"^ There is, no doubt, a wide diversity of opinion Training ^^ ^ what should be the duties and prerogatives of an advertising manager. But as I am asked for my opinion only, I intend to embody my opinion only in this article. It is obvious that the duties and prerogatives of the position must vary according to the job and the peculiar con- ditions that are thrown around it by the commodity to be advertised and the sales organization which has charge of its distribution. Advertising an adding machine or a typewriter that is sold to special customers in business offices is quite a different matter from advertising a food product for world-wide con- sumption. The functions of the advertising manager will *Pn'nters' Ink. July 14, 1910. p. 141. 476 ADViERTISiNG AS A BUSINESS FOECE also vary according to his connection with the company which employs him and also according to the kind of advertising that is required to market the commodity advertised. If the com- modity is one which, like Shredded Wheat, calls for a vast amount of educational work which he has trained himself to do by long association with the product, much of the detail which is necessary to make that advertising effective must be handled by the advertising agency which places the adver- tising. If the advertising of the product, however, is merely a question of poster efifect or the constant display of the company's trade-mark, the duties of the advertising manager will obviously consist of the mere management of details, selection of media and co-operation with the sales organization and the placing agency. In a general way, however, my opinion as to what an adver- tising manager should be and what he should do may be sum- marized as follows: First, the advertising manager should exercise great care in choosing an employer. If he is a man of experience and „, . national reputation he need not go begging for °an"^ a job, for advertising men who are big enough to Employer handle national propositions are very scarce. It is not beyond the bounds of truth to say that he can almost choose his own employer. The country is "blessed" with a bumper crop of "ad men"; but real advertising men who have demonstrated their ability to sell goods through advertising are not so numerous. We are in an age of wonderful industrial activity when new manufacturing enterprises are springing up on every hand, all of which are calling for the genius of the man who can make a world-wide market for a commodity through national adver- tising. An advertising manager should, therefore, be careful to pick an employer who understands the value of advertising and who is willing to pay a salary commensurate with that understanding. Unfortunately, many national advertisers are big corporations where authority is not concentrated. Advertising is too big a problem for the average business man on the average board of directors. The advertising manager should, therefore, pick an employer who is willing to give him absolute and unquali- fied authority over the advertising, and in order to carry this THE ADVERTISING MANAGER 477 out in good faith he should have one man or one committee to confer with. In no department of business management has the one-man-power idea so great an advantage as in the adver- tising department. Too many advertising managers are mere rubber-stamp clerks, charged with the duty of sending out cuts and electrotype matter. The advertising manager should be the manager in fact as well as in name. Mi. correspondence and matters pertaining to advertising should come to his desk. Second, hiaving selected his employer, the advertising man- ager should constantly look after the education of that employer with assiduous diligence and care. Members of big corpora- tions which do a national business are busy men. As a rule, they are glad to learn all they possibly can about advertising. Their minds are receptive and it would be well to put into their hands the best hterature deahng with practical problems in advertising. This kind of co-operation, combined with results, will bring about a relation that is not only pleasant but is very apt to be permanent and profitable. Third, having selected a good employer, the advertising manager should receive a salary on the basis of the yearly advertising appropriation to be expended.' Nothing less than an annual salary of five thousand dollars should be considered for a moment, and to this salary one thousand dollars should be added for every ten thousand dollars of appropriation above the sum of one hundred thousand dollars. If the management of the department which creates a market for a commodity and which increases sales from year to year is not worth this salary, it isn't worth anything, and the advertising manager should give his services to a corporation which understand the value of advertising. Fourth, the advertising manager should make a careful and conscientious study of the product he is going to advertise and should master all the "selling arguments" that Whatthe lie behind it. He should have no other interests Ad^ertidng ^f ^ny character. He shoidd not be interested in the S^M "advertising business" or in any publication or Stvdy medium. If he is employed by the Shredded Wheat Company he should be a "Shredded Wheat man"; if by the Eastman Kodak Company he should be a "Kodak man." He ought to know his own advertising proposition above all others, even though he may claim a general knowledge of advertising. 478 ADVERTISING AS A BUSINESS FORCE Fifth, the relation between the advertising manager and the sales organization should be one of complete, confiden- tial co-operation. The advertising manager should evolve, originate and formulate the selling arguments that are to be used by the sales organization from year to year and which may change with the development of the business and the trade conditions that govern its sale. If the advertising depart- ment is what it should be the salesmen will be merely distrib- utors. It is their job to keep in touch with the trade. They don't need to sell goods. The goods are already sold. Sixth, the advertising manager should select the agency which is to place the advertising, and the selection of that agency should be governed by a knowledge of its ability to give him individual service and thus make his advertising effective. No other considerations should have any weight in tiie matter. If the employing corporation hasn't enough confidence in his honesty or his ability to leave this matter entirely to him, it would be wise for him to make some other advertising con- nection. He is not in the right place for satisfactory growth or development. He should select an agency that handles no competing product and then he should stand by the agency. It is through sympathetic co-operation between the agency and the advertising manager that advertising is made effective. Make the agency work for you, not for the publishers. It is of no consequence to you whether the publisher pays the agency a commission or not. If you handle your business properly you can make the agency your agent. If a publisher confidently offers to give you the agency commission and just as low a rate as the agency will give, shun him and keep his publication off the list. If he deals unfairly with the agency, he will deal unfairly with you. The agencies have developed national advertising. You can't wipe them off the map with any resolu- tions or advertising associations. They are here to stay. The wise advertiser and the wise advertising manager will use them and their accumulated experience and facilities in combination with his own experience and ability for making the advertising effective and far-reaching. Seventh, whether the advertising manager should write his own copy or originate his own designs for the various kinds of advertising which he is going to employ depends on the nature of the commodity which he is advertising. In many instances where the product calls for a peculiar kind of edu- THE ADVERTISING MANAGER 479 cational advertising the advertising manager can sometimes write better copy and oiriginate more effective designs than . , the advertising agency, because of his long acquain- Mwrtidn ^^^^^ ^^*^ ^^^ product and because he isi in the at- ^ga^"" mosphere of the factory and in closer touch with to Ends the sales organization. In many other instances the agency can get out better copy and originate better advertising ideals than he can because it has made a greater study of the art of impressing the human mind with the desire - to possess salable commodities. Eighth, the advertising manager should know the special adaptability of newspapers, magazines, and other mediums to his particular product. He should know enough to use magazines for national pubKcity and newspapers for localizing that publicity, bringing the consumer up to the door of the dealer. The advertising manager is the only man in the advertising business who is in a position to take a rational view of advertising. He is not selling space or circulation. The publisher's representative will talk circulation as though it were a tangible commodity. The man who is advertising a product and spending money for a corporation knows that he is paying for the opportunity to attract the attention of the readers away from editorial and news matter. He is simply buying a chance. The pubhsher can guarantee that his publication has a certain circulation, but he cannot guarantee that your advertisement will be read. Whether it wUl be read or not is largely up to you, and even then the "make-up man" may put yoiir ad where nobody can see it. The advertising manager should make a study of all mediums. He should study their editorial character and learn if possible the kind of people who read the different publications. There is no other way in which he can judge of their value as distributing mediums for his particular product. You cannot always depend upon solicitors or representatives for this information. Many of them do not possess this information. Ninth, having determined upon a definite plan or policy, the advertising manager should stick to it. "Keeping ever- lastingly at it" is the secret of successful advertising. Adopt a schedule to fit the appropriation. It is unnecessary to say that this schedule should be based upon your selling plans and trade conditions that affect the sale of your product, and should not be arranged with reference to passing the appropria- 480 ADVERTISING AS A BUSINESS FORCE tion around among a given group of publications. The man who will allow a game of golf, a theatre ticket, or a diiiner at the Waldorf-Astoria to influence him in such matters is a poor, weak, despicable creature who will get the contempt of the publishers themselves and will not last long in the advertising business. The advertising manager should have enough character and stamina to pick his own mediums and run his own business, even though he may yield to the pleasures and beguilements of good fellowship. Tenth, the advertising manager, whenever it is possible to do so, should be a stockholder in the concern which employs him and should occasionally sit in the councils of the executive board. Inviting him to sit with the executive board is not only an expression of confidence in his judgment but is a recog- nition of the importance of advertising and its , close relation to salesmanship. If he is a stockholder he will be spending his own money for advertising, and every scheme he adopts to enlarge the market for the product will redound to his own financial advantage and at iJie same time give him prestige and standing which insures his position in the advertising world. If he cannot own any stock he should be the accredited representative of some big stockholder. He should be master of his own job. He should be so thoroughly familiar with the publications of the country and should have such a thorough knowledge of advertising that all matters pertaining to adver- tising should be very promptly and wilhngly referred to him by members of the corporation which he represents. The advertising manager should not claim too much for advertising. He should, however, have a sufficiently compre- hensive knowledge of the business in which he is Advertmng engaged to know just what measure of success is Sales new about , materials — the real point is in the sum of a dozen little superiorities of quality and in the way the materials are put together and the goods inspected. Processes may be just like those followed in every competitor's factory, yet the goods are superior and are sold year after year because they have little niceties of design and finish. The sales-plan expert coming from the outside may canvass the trade, tabulate superficial figures about the con- sumer, and lay down a striking scheme after a surface study. But he cannot get the close contact with the business that comes to the inside man who is part of it, whose whole time is spent with it, who follows the trade gossip, the technical developments, the consumer's complaints. The insider is with the factory men while they experiment with new things, and with the boss and the sales force when they try them on the dog in a comer of one city. Where the outsider kicks up a lot of dust in the copy, and emphasizes wonderful and fearful points of merit, the insider is a quiet specialist in the true sense, following all the little points of enduring importance. Advertising is becoming more and more special and technical. The days when a staple could be boomed by writing general wonder-stuif about it are passing. That was all very fK!^}^ well when only one concern had had the courage ^Mo£n *° advertise such a staple so far, and when adver- Conditiom tising for it was entirely new to the public. With a dozen, or twenty, or fifty houses advertising the same staple, however, and more coming into the field all the time, it is obvious that copy must have a more intimate appeal, and that finer points in distribution must be dealt with. This calls for a specialist who knows conditions better, and who can, at the same time, make advertising fit the general produc- 492 ADVERTISING AS A BUSINESS FORCE tion and distribution machinery of the house he works for. It calls for the insider. The all-around, outside advertising man who wants to grow with his industry will first select the special lines he wants to work in. Then he will study them technically. It is astonishing that he has thus far read so little along technical Unes. The trade press and the technical libraries are open to him, however, and the technical men he can meet everywhere will yield information as fast as he is able to understand and use it. There are technical conditions to study and technical move- ments to follow. In this direction lies progress. If he is going to be with us to-morrow, he will begin to get busy. CHAPTER XV THE ADVERTISING AGENCT IT IS estimated that 95 per cent, of the national adver- tising now conducted in the United States is placed through advertising agents. A very considerable part of the local and territorial advertising also is conducted in this manner. No accurate data exist showing the exact number of institu- tions of this kind now in existence in the country. The latest figure given out by the American Newspaper Publishers Association, is 235 "recognized" agents, and it is estimated that the number of "unrecognized" agents would bring the total up to approximately 375. In the year 1889, the second year in which Printers' Ink was published, that paper issued a list of "recognized" agents in the United States. There were 41 names on this list. Not only has the number increased from 41 to 375, but the amount of business done by many of the agencies has increased enormously. * " One agency, for instance, which for twenty years or more has counted but one in the list of agents, compares its present number of accounts by those of two decades ago at the ratio of 1 to 60. And four of these accounts began to advertise with an annual appropriation aggregating less than $10,000, and now, after a few years, aggregate more than a million — 100 times as much." An interesting record was recently unearthed reporting the work of the National Association of Advertising Agents at *Printen' Ink, July 20. 1911, p. 158. MS 494 ADVERTISING AS A BUSINESS FORCE its convention held in the Astor House, New York City, on April 16, 1873. The records of this convention are particu- larly interesting in that they show that nearly all of the five main topics of discussion at that meeting were such as might very appropriately be considered at a gathering of advertising agents now after ajapse of nearly forty years. 1. "On the relations of advertising agents with publishers who do not recognize the rights of agents or allow them any comiiiission on advertisements. 2. "On the relations of advertising agents with publishers who ostensibly 'recognize the rights of agents and allow the usual commission but in various ways encourage and practise acts which work to the disadvantage and injury of agents. 8. "On'the recognition of new advertising agents. 4. "On the relation of advertising a;gents to each other and. to canvassers and persons who express a desire or intention df becoming agents. . 5. "On the relation of advertising agents to advertisers." i The resolutions adopted in connection with this last topic are of particular interest and value in the light of forty years of subsequent discussion. They were as follows* Whereas, Newspaper advertising agents derive their profits from commissions allowed by publishers, and these profits depeaad upon securing advertising contracts and obtaining pay- ment for the same, therefore it is evident that the agent mast work for the interests of the advertiser quite as much as for those of the publisher whom he represents. And, Whereas, It is asserted and believed among ad- Agmcy vertising agencies that the average beginner in adver- Fm^ tising, who rehes upon his own unaided judginent, Years ^^^1 ^°^> ^ ^ rule, procure, for any fixed sum of Old money, more than one half the pubUcity which would : Lj be obtained for him with the same amount in the hands of an agent of experience; a,nd that on the largest con- *Pnraers' Ink, August 31, 1911, p. 34. THE ADVERTISING AGENCY 495 tracts for experienced advertisers, those agents whose facilities are first-dass secure for their patrons as low rates as could be obtained in direct dealings wiUi the pubhshers and make their commission intact; and, Whereas, There has not been a single instance in the past twenty years of an advertiser who has achieved a conspicuous success without contracting mainly through newspaper adver- tising agencies, and that the competition among agencies and the adoption by some publishers of fictitious rates are the main causes which lead to the demoralization of the agency business and to the practice of dividing commissions with advertisers, and that in this, as in other matters, it will be wise for agencies to adopt some rule for their guidance; therefore, it is hereby Resolved, That no advertising agent is justified in dividing with an advertiser the commission which he received from the publisher, imless it can be shown that the publisher in question has, at least in one instance, been known to make a similar deviation to the advertiser direct, and that, in case this cannot be shown, it shall be considered dishonorable to divide a commission, or discount the regular rates. That we deprecate the custom of accepting the entire business of any advertiser for a stipulated sum per annum in lieu of commission, and we recommend that any agent conducting business on this plan shall discontinue it as soon as present contracts expire. That in contracting with advertisers for the insertion of advertise- ments in papers which cannot be relied upon to demand a uniform price, the agent will best serve the interest of all parties by declining to name a positive price, but should name a price at which he expects to obtain insertion, and, if the same is refused, it shall be at the option of the advertiser to increase his offer, or to omit the paper from his fist. That in no case is any agent justified in charging or receiving from any advertiser a larger sum for any advertisement than would be required by the publisher's schedule of rates; but that when an agent is induced to "speculate" in advertising, thereby making himself a principal, and contracting with the advertiser for insertions in certain papers, without regard to the prices which may be required of him, in such cases, as the agent risks a loss by the chance of paying large advances to some papers, he may also be entitled to an extra profit, even beyond his commission, should he succeed in procuring the service at less than the contracted price. It is hereby further 496 ADVEKTISING AS A BUSINESS FORCE Resolved, That in all cases where an advertiser contract! with an advertising agent for the insertion of an advertisement in any paper or list of papers, on which he has himself already procured an estimate, the contracts shall not be binding on the agent unless the advertiser, at the time of asking his estimate, shall inform the agent that he has already secured, or intends before giving out the order, to secure the publisher's estimate. It is further hereby Resolved, That we will furnish advertisers with files of papers for their examination, at our offices, at any time within three months after the dates of publication, and that for any advertiser who will not make such examination, but requires to see papers at his own office, arrangements shall be made to secure, as far as possible, the sending of the papers, at his expense, direct from the office of publication. It is impolitic to permit our files in office to be rendered incomplete for uie ac- commodation of any individual advertiser. It is further hereby Resolved, That as it is thought proper that some rule should be adopted to regulate the class of business which we will receive and forward, and that as this is a matter about which widely different opinions prevail, we will adopt as a criterion, that we will not receive or forward for publication in any paper any advertisement to which we would refuse insertion in a first-class morning daily were such a one under our charge, and that the class of business accepted by agencies under this resolution shall be the scale by which may be measured their own estimation of their own moral status. THE WORK OF THE AGENCY The service, out of which the work of the modem advertising agent has grown up is the service of space brokerage. The biiying of space is still one of the most important parts of the agent's work no matter how many other lines of service he may undertake to perform. It is this service which, in the case of most agencies, is still made the basis of payment to the agent and, as already intimated in the forty-year-old resolutions which have been quoted, the controversy about payment on this basis rather than on a commission received from the advertiser is an extremely heated one. THE ADVERTISING AGENCY 497 J. R. Wakeman, treasurer and space buyer of the Van Cleve Company, of New York, in an address on the "Space Buyer's Work," described some of the problems which are involved in this the oldest part of the advertising agencies ' activities : *The principal and familiar mediums with which the space buyer has to deal are the following: Billboards, wall signs, and bulletin boards, all classified as outdoor display; street cars, magazines, newspapers. Bulletin board display is sold by the running foot; bill posting is charged by the sheet, per week or per month, and wall signs The Work ^^^ charged by the square foot. Some outdoor of the display signs in exceptional locations, which may Space be seen by an unusual number of persons, are charged *"?'*' at fixed price for a given period; that is, per week or per month. The charge for street-car cards is made per card per month. The various forms of outdoor display and the street-car cards are admirable adjuncts to any campaign. And a good many articles have been introduced to the public by the use of these mediums alone. But since, from the very nature of the display space, there cannot be given a great deal of argument, these mediums are used much less often than are the magazines and newspapers as a primary medium for the introduction of a product about which there is a story to tell. The price charged for outdoor display and for street-car space is based, naturally, on the prominence of the outdoor sign, or the importance of the street-car line, because this determines the amount of travel on the car line or along the thoroughfares from which the sign may be seen. Only a few years ago there was perhaps a greater lack of stability in the rates charged for these forms of pubHcity than for anything else on earth that was oflFered for sale. I was connected about thirteen or fourteen years ago with a concern that had over ten acres of outdoor display and over 36,000 cards in the street cars of the United States, nearly all east of the Mississippi. The prices we paid were in many cases less than the cost to the seller; that is, we thought they were, and if they were, naturally some other advertisers had to make up the loss. And the inequalities in the rates were something *PnrUera' Ink, July 4, 1912. p. 20. 498 ADVERTISING AS A BUSINESS FORCE fearful. At that, we didn't always get what we paid for, or what we thought we were getting. . . . During the last few years most of the outdoor display space and the street-car advertising space has come under the control of concerns who are running their business in an honest way, and the inequalities which prevailed a few years ago do not exist now. It is in the selection of newspapers and magazines, and the choosing of those which are likely to bring the quickest results at least expense, that the space buyer of an agency The Selec- proves his ability. *New°i- ^^® value of memory is obviously great in this papers matter. The well-informed and competent space buyer must know about the newspapers in every city in the United States and Canada; must know, when there are two or more papers in a city, which is the best, not only as regards circulation but also as concerns its advertising rates — whether those rates are fair for the amount and kind of cir- culation it has. He must know how many papers to use jn each city, to market cheaply and effectively the product which he is to advertise. Hs must have a pretty thorough knowledge of the climate in the territory where he is to sell his goods. He must know whether the morning papers or the evening papers will be better. For instance, it is almost always the case that in tropical or semi-tropical climates the morning newspaper has a bigger and better class of circulation than the evening paper. There are exceptions, of course, and he must know what they are. It is necessary for him to have a knowledge of the train service out of every important city, so that he may know whether or not the papers in the city can get the out-of-town cir- culation, and if they do where it is. Also, whether the morning paper can more easily get the out-of-town circulation than the evening paper. If there be both one morning and one evening paper he must decide whether the circulation of one duplicates largely the criculation of the other, and should a city have a large number each of morning and evening papers he must know, when he' is making his decision to use either the morning papers or the evening papers, how many papers to use so as to avoid dupli- cation but still cover the population he is trying to reach. It isn't easy to tell you on what are based the charges for THE ADVERTISING AGENCY 499 advertising space in newspapers and periodicals, because there are so many exceptions to any rule that we try to make. The space in the standard size magazines is generally sold at the rate of $1 per page for every 1,000 circulation; that is, if a magazine has 500,000 circulation, its rate is Space T^® space in women's publications is sold on the basis of about twelve or fourteen dollars per single column inch for each 200,000 circulation. Thus a column fourteen inches long in such a publication, with a miUion circulation, costs about $900. In the big weeklies of general circulation space is sold on about the same basis as in the women's pubhcations. Daily newspaper space is generally considered as wortii from three to five cents per single colunm inch for each 1,000 circulation. As circulation increases rates become Cojwion/ proportionately lower, as a rule. For instance, in Value ii^ * daily paper with one thousand circulation the rate would be about five cents an inch, while space in a daily newspaper having a circulation of 200,000, instead of costing $10 an inch, or two hundred times as much as in the paper with one thousand circulation, would cost about $4 per single column inch, or only eighty times as much. . . . In any city or territory the relative values of the newspapers are constantly changing. The newspaper which is most important this year may be the second paper next year. A paper, in its editorial policy, may offend some of its readers, and those readers will drop that paper and take another one. The paper may not get those readers back and it may not get others to replace them. And even if it does, it will take time. Or a particularly aggressive management may take hold of a newspaper and build up its circulation so that from a relatively unimportant place it comes up so as to occupy a commanding position. Among magazines the changes come about correspondingly often, though the magazines are so many less in number than there are newspapers that the magazine field is more easily watched, and it is easier to keep up with the variations. You have to be alive to these fluctuations. You must recognize them just as soon as they occur, and as a matter of fact you must learn to sense them almost before they happen. . . . 500 ADVEETISING AS A BUSINESS FORCE The advertising agent's work as it is at present conducted seldom stops with mere space broking. In some cases the agency has developed a "trade aid" service whicb makes the agency take on the nature of a professional adviser in all matters relating to his client's distribution policy. A. B. Freeman of the Nichols-Finn Advertising Company, of Chicago, discusses these new activities of the agent in the following terms: — . . . . *" Agency" to-day means to a great number of business men a collection of persons who solicit accounts, place business, quote rates, get up copy and check The publications. Erdarged g^|. there is a rapidly growing number of institu- of°the tions which consider these only incidental to real Agency agency service. The thoroughly up-to-date and conscientious institution (agency so called) is composed of business men who have selected the advertising and selling end of business as their particular field. These men are business men before they are advertising men. They are business counselors and business advisers, with an organization back of them, to carry out in detail what they recommend in conference. To call these men "agents" in the sense that this word is accepted among business men is not only unfair, but positively untrue. These men are students of commerce, of economics, of distribution, of trade conditions; they are alive to financial conditions in practically all divisions of business. They know about exports, imports; they have studied commercial law and together they represent a fund of business information such as no one man could give and such as no business man could hire outside of an institution of this character. The commission of such an advertising institution on $100,000 worth of business is usually from $15,000 to $20,000. Where could a business man spend this amount of money to better advantage than with such an organization of men? *Pnntera' Ink, July 20, 1911, p. 132. THE ADVERTISING AGENCY 501 And when the business concern has selected the right adver- tising institution to handle its business, it will secure value received for every dollar it pays for service, even Is the without taking into consideration the fact that the "Aamai" ^^^S^^ portion of this remuneration comes, not from a Mimo- t^® advertiser, but from the publications. merf The time is at hand when the business man asks not, "How much pretty copy have you written and how big is your institution?" or, "What do you charge for your service?" but, "How can you help me to market my proposition to better advantage? What do you know about my market and the people I am trying to reach? Are you equipped to say with any reasonable surety just how much money it would take to do a certain thing in an advertising direction? Are you in touch with concerns that have attempted or are doing the thing I want to do or something enough alike from which to draw a conclusion? " Even though the business man pays but very little for adver- tising agency service, he is more and more becoming particular regarding the institution which he selects to handle his adver- tising. And another thing, advertisers are beginning to appreciate that space costs just the same, whether it is filled with glitter- ing generalities, whether it is filled with detrimental copy, or whether it has the quality necessary to sell goods and estab- lish good-will. And aside from the placing of copy in publications there is that great co-operative necessity to an advertising campaign which pays no commissions to the advertising institution and is therefore so often lacking in the advertising "agency." Booklets that sell goods — follow-up letters that do some- thing else besides fill waste-baskets — selling ideas that dove- tail in with advertising and make precious inquiries worth what they cost; good, common-sense, reason- why literature to the dealers that not only sounds good to the firm which sends it out, but grips the interest of the most ordinary smaU local dealer and makes him do business with a concern that can present such a convincing proposition — these are some of the strong lines of demarcation which separate the advertising "institution" from the mere advertising "agency." Business men have been led to expect too much from adver- tising alone by over-zealous advertising "agencies." And 502 ADVERTISING AS A BUSINESS FORCE advertising institutions, on the other hand, devote as much time and energy, and even more, to devising ways and means for the advertiser to co-operate thoroughly with the advertising than they do to the writing of the copy and its insertion in the publications. We have with us yet, and may continue to have for some little time, the advertising "agency." But because the sur- vival of the fittest is a natural law which business men must recognize, there is no doubt that the day of the advertising institution has come and that " agency " days are numbered. The gap widens rapidly and what was once but a fine distinc- tion has come now to be recognized as a strong contrast. The advertising "agency" has seen the handwriting on the wall. Walter Barnes Cherry, advertising manager of the Merrell- Soule Co., maker of None-Such Mince Meats, etc., of Syracuse, N. Y., not long ago created a good deal of disturbance among agents by an article entitled "What the Agent Does Not Know," in which he somewhat bitterly assailed the "trade aid" service of the agency of the present time. A part of Mr. Cherry's article was as follows: . . . *Some of us have heard all about agency "trade aid." Is there any such thing? Is there a well-lmown agency r ad Aid *?"*^*y liandliug the business of large national adver- Mahods tisers in various lines, like clothing, furniture, house- hold articles, foods, which has any proper concep- tion of the trade end of the accounts it is promoting? What agencies maintain commercial investigators who know the "retail game"? Not many. . . . I venture the prediction that five years from now no adver- tising agency handling national business will be complete without a staff of commercial salesmen and investigators, stronger in sales ability and trade investigation than in writing copy, outlining a campaign, or getting a new client. The good copy man or the good estimate man in an agency, it seems to me, should know much about the trade end of the product he is promoting. Anyway, he should know what is in the package, what it is made of, and how it is wrapped; certainly where it *Prwiers' Ink, May 25. 1910, p. 9. THE ADVERTISING AGENCY 503 is sold, and, if possible, be familiar with the process and the source of production. Unless a solicitor is thus equipped witii information he promptly stumbles in his work and does not do justice to either himself or the prospective customer, or the agency he represents. what a joy it would be for an advertiser to have his agency come back with some trade information the advertiser did not have. The agency's commercial representative could easily handle several different accounts and become proficient in canvassing grocers, druggists, department stores, clothiers, and other trades represented in his home office accounts. Then, too, the agency's commercial man might find out things the advertiser's own men would skip. Anyway, the agency's commercial man would approach the dealer from a new view- point, and if he confirmed the advertiser's information, that would be some satisfaction; and if he could demonstrate that the advertiser's methods with the trade were open to change or betterment, that would be even a greater service. . . . In reply to Mr. Cherry's article a number of letters were written by representatives of agents who took exception both to Mr. Cherry's statements and to his reasoning about them. The replies of some of the agents are given below. One agent whose name is not given is quoted as follows: *" Some have the notion of the past decade that an agency is purely a space brokerage office with a little mildly hannless copy writing tliown in for those who will have it; ^H ^^y while there are others who simply lay the whole Age^ burden of the business on the agent's shoulders, as if he should dicect the salesmen, correspond with retailers, open new territory, caU on the trade, etc., whOe the sales manager simply loUs back in his chair and waits for wonderful things to happen. "Of course, both views are wrong. An agent is a frofea' sional man, remember, and his function is always advisory. He makes contracts with his clients not to manage the sales department, but to supply that rapidly increasing scope of selling plan and help which involves the use of language, picture and paper. These are simply his tools, however, and an *Printers' Ink, June 1ft, 1910, p. 47, 504 ADVERTISING AS A BUSINESS FORCE agent is a sorry incompetent nowadays if he hasn't practical business experience, imagination, and effectiveness enough to know how to make these tools produce results along lines which the advertiser has not before thought possible. "You see, it's a comparatively easy, sleepy job to be an agent for some old concern with distribution all settled and copy all set in moulds — as Walter Baker's, for instance. But the great modern volume of advertising and business effort is concentrated, not on holding and leisurely developing prestige, but upon rapid, aggressive creation of sales and securing of retail outlets, often in the face of severe competition and for a product and a concern absolutely new. "The agent should be capable, and a considerable number are capable, of analyzing a selling proposition thoroughly enough to know what advertising tools to apply to secure desired results most cheaply. Having furnished the tools, it is up to the sales manager and his staff to use them and co-operate with them. I have seen not a few cases where a good agent has revolutionized a manufacturer's business and fur- nished far more merchandising skill than is properly in an agent's province, and securing duly a broker's pay for it, too. "The advertising agent, I believe, in nine out of ten cases (where he is not simply a plain crook or a raw incompetent) returns more brains and service to his client than any other professional man. In the one case which I recall just now where an agency failed to make things go for a client, that client has admitted to me that just one idea secured from that agent who faUed was worth all the cost of his services and the cost of the unsuccessful campaign. "The agent is properly the lawyer for the manufacturer for presenting a winning case for his goods to the public. But of late years he has become more — he has become a lawyer for the manufacturer in presenting his case to the dealer as well. In a number of cases he has of his own account made himself still more — a selling and distribution analyst. He has de- veloped into this because he has found that so many manufac- turers have not solved their problems of this kind, and cannot successfully make use of his advertising services until they do. Manufacturers, to put it plainly, are asking more and more expert sales advice from agents. So he has pitched in — making plenty of mistakes, but on the whole becoming a distinctly beneficial stimulant and aid to manufacturers." THE ADVERTISING AGENCY 505 The emphasis which the Federal Advertising Agency, New- York, places on merchandising knowledge makes interesting the words of William Handley, business manager, vZof p,'! t^e subject of agency trade knowledge :- Anoth^ "To have been on the buying side is, I believe, a Agency most essential part of the training of an agency man. In no better way can he learn the weakness of agency work, as it has been conducted, and especially the unprepared- ness of the average solicitor. But agency organization has seen a new light during the past year or two, and it is now possible to find agencies whose management has been broad- gauged enough to plan and form agencies capable of giving true merchandising service. "Mr. Cherry, in his article, 'What the Agent Does Not Know, ' predicts that 'five years from now no advertising agency handUng national business will be complete without a staff pf commercial salesmen and investigators,' whereas the best agency practice to-day takes representative men in various callings, rounds out their training in advertising methods, thus making available service and more truly professional advertising men. "And now the question to Mr. Cherry: Suppose any agency having a man who has studied the grocery trade, knows aU its inner workings, trade stunts, etc., should solicit your account with a certain new trade selling plan in mind, would you, after investigating the standing of the man and his agency, take him through your plant and really into your confidence to allow him to perfect his plan? This is no more than your doctor would expect of you or your lawyer would demand in order that he could effectually prescribe. "Many merchants and manufacturers expect this, however, and balk the advertising man at every turn. He has no chance to study the individual proposition, is given no opportunity to learn certain and vital points which can make for or spoil the real marketing and advertising possibilities. "There is such a thing as 'trade aid' in many advertising agencies, and even now it is much more comprehensive than Mr. Cherry knows. Agencies where the merit of a product, trade condition, possible demand, and factory capacity are investigated; where a knowledge of trade papers is an asset; where real sales plans are outlined; where window trimming and dealer helps are worked out in a practical manner; and 506 ADVERTISING AS A BUSINESS FORCE where consumer advertising is made but one link in the properly worked out campaign, are to-day available to the manufacturer who will seek. Too many manufacturers employ an agency because So-and-so is a good fellow, or some one else put over this or that big campaign." Writes the Franklin P. Shumway Company, Boston: _ "Our attention has been called to Mr. Cherry's article in your current issue by some of our customers for whom we have for the past three years been doing just what Mr. Cherry claims is not done by advertising agents. "We continually keep on the road a staflF of trained salesmen, whose entire duty is to visit retailers, talk with them regarding trade conditions, suggest to them new ideas about pushing our customers' products, learn all they can about rivals' products, and make a definite report on a printed blank which is kept on file in our office for instant reference by either our customers or ourselves. These men are not allowed to take an order, and rarely even talk prices, but, having a thorough knowledge of the goods they are interested in, are prepared to discuss quaUty, pattern, etc., all day long. "In addition to these men who work exclusively for certain manufacturers, whom we have the pleasure of serving, we also have other men who, by reason of training and natufal ability, are fitted to travel from city to city, and size up the possible market for a product, report in detail what is being done in competing lines, and, after visiting several hundred retailers, are in a position to make a report which is used by our office solicitors in discussing advertising with would-be advertiser. "Neither of these two groups of men have any connection with our soliciting force, who work exclusively in our own interests, and the second group are often sent out with instruc- tions to secure certain information from retailers, without having any idea why they are requested to secure the infor- mation, or for whose benefit it is to be used. "To illustrate, a certain manufacturer's salesman reported that he couldn't sell his goods to any extent in a portion of the Southwest. Our men visited over two hundred tailors in that section who ought to sell these goods, and found that the manufacturer's salesman was entirely at fault, and the final result is that this manufacturer is now selling $40,000 to $45,000 worth of his goods in that section each season, and there is every probability that he will soon sell $150,000 THE ADVERTISING AGENCY 507 a year, where before he wasn't sdling practically a dollar's worth." THE agency's relations TO THE ADVEBTISEH These changes in the functions of the agency, and the attempt on the part of many agencies to branch out from their old position as space brokers into what is virtually an entirely new field as professional advisers of advertisers on commercial problems, have led to a series of rather complicated problems concerning the relations between the agent and the advertiser whom he serves. Not the least troublesome of these problems is that which is involved in the almost inevitable misunderstanding arising sooner or later between the agency and the advertiser as to just what forms of advertising will accomplish the desired results. If we could imagine a case of a physician being retained in a medical case in which the symptoms were all obscure, and in which the patient was convinced that he had a pecuUar disease which had never been encountered before, we could very readily understand that it would take something besides mere medical skill on the part of the physician to avoid an open break with his patient — to say nothing of effecting a cure. One of the diflBculties growing out of the new attitude of the advertising agent toward his client is the trouble involved in adjusting the relations between the advertiser's own adver- tising manager and the advertising agent. Some of the salient features of this group of troubles are brought out in the following discussions written by the "Advertising Manager of a Famous Men's Clothing House," whose name is not given: *A manufacturer who had made up his mind to take the fatal plunge and advertise a product of imdoubted merit came to me and said: "I have made up my mind to start a national campaign. *PritUeri' Ink, November 10, 1910, p. 10. 508 ADVERTISING AS A BUSINESS FORCE The questions of agencies has bothered me a good deal. You have had experience with the agency proposition. What agency would you advise me to tie up with? " To this question I answered, in the Yankee manner, by asking anop;her. . "Have you hired a man to take care of your advertising? " "No; if I get in with an agency I shall not need a man to take care of my advertising." Here is where this manufacturer and I parted in our opinions. An advertising agency is unquestionably a tremendous help in the preparation and administration of an advertising cam- paign. Even the weakest agencies will often produce a valuable idea, and present a useful scheme. But the advertising agency is seldom qualified to assume the complete control of any advertising proposition. A lawyer whom you call into consul- tation over some uncertain exploitation of your affairs is not expected, and does not expect, to undertake the management of your business. The position of agency and the lawyer is in a good many ways pretty closely alike. I have always considered it mistaken economy for an advertiser with a business of national scope to hand over his advertising affairs without let or hinderance to the direction of an agency. The case of the manufacturer who was quoted above will serve as evidence in this contention. He closed a contract with an agency of undoubted repute. His appro- Where priation was estimated at more than $100,000 ^^'A^AO *^® ^'^^^ Y&SiV of his campaign. This agency the Ad- ^^ achieved a reputation for employing high- vertising salaried experts with enviable batting averages. A few weeks after my friend had signed up, I met him at luncheon with a young man who looked very much as if he had just left college. He was introduced to me as "Mr. , of the agency." We fell to talking and he told me he "had run down for a day or two to look into the plant and get enough stuff for the season's copy." This interested me, and we talked apace. I found that his adver- tising experience had lasted but little more than a year; that he was one of the copy staff of this agency, and that he had been assigned to write the campaign for this particular adver- tiser. He said he would gather the materials for the campaign in two or three days. The campaign was launched in most of the magazines of THE ADVERTISING AGENCY 509 national circulation and in some others. The copy was bland; it had no specific faults of grammar or of style. But it was superficial. The ring of authority was not in it. The young man had gathered his material in two or three days— ^ and his copy showed it. The sentences were balanced, they told the truth, but when one looked away from the advertisement and weighed it as a whole, as all advertisements should be weighed, it fell flat like a punctured dirigible. What was the trouble? The agency was a good one, with a reputation. The manufacturer who was paying the bills seemed to be satisfied. The advertisements looked attractive, but at the end of the year he was a little aghast at the bills, and a little breathless at the other side of tlie ledger. The trouble was just this: Superficiality. This is the trouble with far too many agencies. They load their guns with the same kind of powder, but they gauge their shot to birds when they ought to be loading for duck. I am not saying that all agencies are guilty of this fault; but I do assert that, averaged up, the agency that is permitted to play a lone hand is prone to fall into this ditch. There was a business that had taken nearly half a century to build up. It was full of traditions, of methods peculiar to itself; the system of honor among its employees, and their devotion to the common cause were essentially its own. These characteristics are not solely the property of this one concern. They belong to all great, yes, and to all little, concerns, too, that have hewed out a way to put before the people a product that is better than any other product of its kind. This atmos- phere was the advertising asset of that business. But to be assimilated and digested for reproduction into real advertising copy for that particular business would have required the living and sleeping and eating with that business for months. This is why I believe that the best interests of prospective advertisers are brought out only when the agency can come into close personal contact with some one who understands advertising principles, and at the same time has a deep personal familiarity with the essentials and the details of the business. No one, clever though he may be, and gifted with an exhaustless fountain pen, can get the atmospheric touch that, reproduced, gives advertising copy the breath of individual life that sells the goods because they have that one and inseparable trade- mark. . . . 510 ADVERTISING AS A BUSINESS FORCE The attitude of the agency, especially the powerful one with tradition behind it, toward the advertising manager is curious. One of the foremost agencies in this country for years C(>-operar- refused to co-operate with the advertising manager. '^"*" The agency submitted a plan of campaign, presented Building copy, and outlined the whole course procedure, and the advertiser had to take it or leave it. Then along came an advertising manager who suggested that, perhaps, it might not be a bad scheme for the interests of everybody concerned to let him get together with some bright young man of the agency staff and see if the two of them might not be able to hack out some stuff that would be more worth while. His suggestion was overruled. He insisted, and took the matter to the headquarters of his business. Correspondence followed, and finally, as a concession, the agency submitted to the plan. This acquiescence, however, was tempered with vague alarm, and an uneasy sense of having stirred the dust heaps of the past. The advertising manager picked out a likely staff man on the agency list, discovered they had friends in common, and soon found himself sincerely liking his colaborer. They met morning after morning, spent hours in reminiscences and argument, and occasionally turned out a page of copy. In the course of this association the advertising manager turned over to the agency man all the ideas, the hints, the details that he had picked up around the works, and the agency man in his turn handed out all the experience and adventures and scars of a score of wilderness campaigns. What was the out- come? A series of advertisements that make people sit up and take notice. Both men had co-operated to the extent of their powers, and both had poured into the copy the ripened wine of their united experience. To-day the keynote of that agency's solicitation is the close co-operation between the advertiser and the agency staff. I have been dwelling overlong on the copy end of advertising. This is an important feature of advertising, but by no means the most important. This point I want to emphasize strongly. Over it has toppled many a fairly reared advertising edific*!. Copy is the last thing that an advertiser should permit to be talked about or touched. Yet too often the subject is the one which the agency insists upon discussing first of all. Copy is the tangible, visible return which the advertiser receives for his money, and with probably imconscious yielding to this THE ADVERTISING AGENCY 511 weakness of human nature the agency will prepare first of all the copy — and when that is completed, but little time, alas, remains for the real essentials of the campaign's success. : *Agencies have solicited me by the dozen, and, unless my memory is playing me false, not one has presented its claims as it has seemed to me an agency ought to do it. The ^ In a talk with a representative of one of the greatest ^eSto* agencies in this country I spoke my mind quite Study Dia-^^^y about this and asked him why so important tribution a point was so generally subordinated. He admitted it was a mystery to him. The point is that of distribution. I told this representative that if he should be soUciting business of a potentially national advertiser in Massachusetts, the place to begin on should be California. How are this manufacturer's goods sold in San Francisco? Are they sold there at aU? If not, why aren't they? These are questions that make the manufacturer who is self-satisfied — and most of them are — sit up and take notice. An intelligent f;rasp of a business's business leads a solicitor right into the ast office where all the furniture is polished mahogany. Copy can follow in due time. Again permit me to say that all agencies do not fall short on this point. Of late years they have developed along the selling analysis line in a most gratifying manner. But the average is where one is compelled in fairness to strike; and the average is yet lower than it should be. . . I have often wondered how some of the organizations for selling advice to business men exist even for a year. No less a wonder is it how business men of shrewd enough minds to bring their products to the advertising stage can swallow the advice dosed out to them. The real agency, the one founded on sound business and professional concrete, is becoming a power in the industrial world. I have been asked by prospective advertisers whether they should choose a small agency or a big one. I have always answered this question warily. If by a small agency they mean one with few accounts, more than one can be found whose record is aglow with enthusiasm and success. If they mean by a big agency one whose accoimts total into the millions, many are achieving tremendous successes every year. The question of the agency is almost precisely similar to the question 'Printers' Ink, November 17, 1910, p. 51. 512 ADVERTISING AS A BUSINESS FORCE of the college for the boy. Shall he be sent to the small college or the big college? The answer lies solely with the man who asks it and the business he is interested in. In conclusion to this rambling and necessarily superficial discussion of an interesting subject, let me urge the advertisei who is engaged with an agency that is giving him ample service, not to desert that agency for new gods. A natural inquiry here is, what is ample service? In a sentence, ample service on an agency's part is selling the most goods for you at the least expense to your treasury. Good soimd advice is an ingredient of ample service. I know of an agency that is so jealous of its reputation that more than once it has run the risk of making an eternal enemy by advising a would-be client to forsake all idea of advertising his product. Undoubtedly in the files of many agencies can be found corre- spondence keyed to as high a plane as this. Keep the mails busy with letters to and from your agency. Clients of some agencies have told me that their files between seasons contain nothing but the agency's bills. This in a measure is the fault of the advertiser. The best intentioned agency is after all based upon human ingenuity and run by human brain power; and both are pretty strongly geared up to human nature. When I advise sticking to the agency that is delivering the goods I feel almost as if I were guilty of uttering a platitude. Yet many of my readers can call to mind without 77 T*^ , great effort more than one instance of advertisers PermViCTce J™iping from agency to agency like grasshoppers in the back pasture, and never staying lit. In some cases there may be good excuse for such instability, but I have too much respect for the high-class agency's capability to blame them always for failure to hold an account. One house with which I am familiar has been receiving the services of one agency for nearly ten years. At times things have come up which both have regretted. Again let me point out that human institutions are but human. Yet the things that have been gained from that agency have been 'fully worth the money that has passed from one's bank account into the other's. Both houses have received good advice. What the agency learned from its association with the house strikes a fair balance with what the house has learned from our dealings with the agency. THE ADVERTISING AGENCY 513 This condition is true in the relations of all clients with their agencies, when the relations are adjusted as they should be. Many and many a prospective advertiser has passed up bright prospects of success because he failed to grasp the agency's point of view, was incapable of understanding the agency's plan of procedure. To plan a campaign, to lavish upon a layout of copy the best brains in your establishment, and then be compelled to stand by and behold that fabric torn to shreds by the narrow-gauge mind of the man you are working it out for, is one of the most harrowing experiences that a human being can be asked to face. Yet in the course of an agency's year this thing occurs again and yet again. This leads me back to where I started. I believe that the agency will agree with me when I repeat that for all concerned in an advertising campaign, both the advertiser and the adver- tising agent, the best plan is to begin your battle with a trained captain at the advertising manager's desk. THE PAYMENT OF THE AGENT The commission system of payment of the agency by the publisher is believed by many, including some agents, to have defects which have grown largely out of the change in the character of the agent's work. If the agent's service is ren- dered principally to the advertiser it is argued that it is not only better business, but also better common sense, that the payment should come from him whom the agent serves. There are many, however, who take the ground that the old system is safe and offers many advantages over any system of payment on the basis of the amount of total expenditure. As already stated, a number of agents have abandoned the old commission method of payment from the publishers, but the change has by no means become general. Question John Lee Mahin, president of the Mahin Adver- qfCom- tising Company, of Chicago, before the Associated mxsnons Advertising Clubs of America at the Omaha meeting, made a short address in which he touched on this subject. Mr. Mahin's address was, in part, as follows: 514 ADVERTISING AS A BUSINESS FORCE . . . . *There is not to-day a really successful institution which, for the want of a better name, is called an advertising agency that is operated at all on the lines on which it was originally founded. The original advertising agent was a representative of the pubUsher — the man who makes advertising space and has it for sale. However, the minute that in the same field there entered a competitor the advertising agency at that moment lost its function of being a representative of the publisher, and in order to sustain its own life and existence became absolutely the representative or the agent of the advertiser. In so far as the men conducting advertising agencies feel or believe that their business is founded on the fact that the publisher pays them a commission for their services, and that because of this fact they are under any obligation whatever to the publisher that could in the slightest degree interfere with the absolute service that they should render to the advertiser, that advertising agency is on an unsound basis. For many years I felt that the publisher paid the agency commission, and it was not until I woke up to the fact that both publisher and advertising agent who assumed this to be true were working on a false basis that I was able to get the right sort of grip on my own business. I was one of the men who thought that when the Curtis PubUshing Company instituted its contract agreement with agents that this would be a benefit to the business. It has been a benefit to the advertising business in so far as it has enabled the Curtis Publishing Company to give stability and strength to the administration of its advertising department. I cannot figure, however, where this contract has been of any other advantage to the advertising agent. To-day the publications on which the commission is most frequently cut are the contract publications where the gross and the net rates are generally known. An advertising agent who goes to the publisher asking for protection or telling him that he knows some other agent has cut the commission puts himself in a weak position before the pubhsher and loses his own confidence and self- respect. *Printers' Ink, August 4, 1910, p. 23. THE ADVERTISING AGENCY 515 Advertising space can be bought to-day in the very few publications that rigidly maintain their rates at the cost of sending out an order from so-called agents that rebate all of their commission except enough to cover this phase of the service. Anything that the creative agent secures above this amount on a contract publication or one-rate publication he gets from the advertiser and solely from him, and not in p w^i ^^y sense or by any process of reasoning can it be and^ claimed that it comes from the publisher. Commis- ^ ^o not mean by this that the publisher ought to aions make the same rate to everybody, or that he ought to change his present system of making rates. I do claim that at the present time, when he says that he pays an agent commission, he is in error, because he recognizes so many, and the competition among them is so keen, that it is absolutely without efifect. I am not telling the publisher how to run his business; I am not giving him any advice. All I am trying to say to you to-day is that all this talk about whether the agent gets a commission from the pubKsher or not is wasted time and energy. The advertising agent most emphatically does not get a commission from the publisher, and the agency man who assumes that he does is only weighting himself with needless fear and difficulty. The purchasing power of the advertising agency is largely interfered with to-day by the commission-giving system. The daily paper pubhsher who makes a bulk space price to a large local advertiser forces the advertising agency that knows the situation to buy space from the big local dealer instead of going direct to the publisher. The idea that the recognition by some organization of publishers makes a man an advertising agent is responsible for some advertisers placing their business through men who do nothing to create, build up, or develop advertising ac- counts. The idea that some advertising agents hold, that the soliciting of an account justifies them to receive a commission from the pubhsher, prevents them from looking after the advertiser's interests in such a way that they will make themselves indispen- sable to him and thereby make it unnecessary for them to talk or even think about asking the publisher for protection. . . . 516 ADVERTISING AS A BUSINESS FORCE THE AGENTS AND THE ADVERTISING MANAGERS The Association of National Advertising Managers was formed a few years ago to take up some of the problems common to managers, and among these problems was the question of the advertiser's relation to the agency. Some of the reports concerning the work of the association led to rumors of friction between this body and agents as a whole, and O. C. Harn, advertising manager of the National Lead Company, of New York, and president of the association, issued a state- ment in which he undertook to set out the objects of the associa- tion and its attitude toward the agency ,*So many false statements are in circulation relative to the attitude and purpose of the Association of National Adver- tising Managers in connection with the advertising TkeWmle agency system, that I believe a few words of fact MmLgera' ™Jglit be refreshing and illuminating. Assoeiation It has been variously stated that the Association of National Advertising Managers is going to abolish all agency commissions. That it has an axe out for all agencies. That it doesn't believe agencies earn their salt. That in a short time it will have all periodical rates on a free-for-all flat basis, equal to present rates less the agency commission, etc., etc. The impossibility of the Association of National Advertising Managers accomplishing some of these things ought to have prevented such purposes being imputed to the association even if it were given credit for desiring to see them done. The general conception of the Association of National Advertising Managers given by all this talk is that of a Texas steer in Tiffany's. What is the real attitude of this big organization of 165 and more advertising managers — men spending twenty-five mil- lions a year in advertising — on the live question of agency functions and performances.'' What has the organization done? What is it trying to do? *Priniera' Ink, June 27, 1018, p. & THE ADVERTISING AGENCY 517 The feeling that something is wrong in the advertising agency system has existed for several years. Rumblings of revolution have been heard because the quiet processes of evolution have not kept pace with the education of the advertising man. When enough advertising men get to grumbling as individuals something is apt to break out en masse when they get together. The Association of National Advertising Managers is the first medium advertising men have had for the expression of mass opinion. One of its early utterances has been a protest against certain evils attendant upon the advertising agency system. The big composite advertising manager for the first time has come to a definite conclusion that there are some things he doesn't like in the present agency conditions. He hasn't yet said what he is going to do about it. He has analyzed and stated the problem but he hasn't said he has the answer. He hasn't said he can find the answer alone. On the con- trary he beUeves that publishers, and even agents, may have something to say and to do in the premises. The agent, who was at the beginning clearly a promoter for the publisher, has come to be a complex factor. He takes a commission from the publisher on business handed out as the advertiser's space buyer. The publisher still looks upon the agent as his man, and rightly, for the agent who can hope for no compensation for his work except a commission upon an order will produce that order. Yet the agent of to-day claims to be the counselor — the employee, if you please — of the advertiser. Some agents do furnish a big service to the advertiser. Thus we see the agent trying to serve two masters. Notwithstanding the fact that in some cases the agent seems How the ^ ^® accomplishing this supposedly impossible feat Commis- pretty well, the fact is always present, uncomfortable rion Affects as a death's head at a banquet, that whatever advice the Agents \}^q agent may give his advertiser-client, at bottom it must always be: "Spend your money with my other client." Next comes the disagreeable knowledge that the only way the agent can increase his income is, not by doing more for the advertiser, but by spending more of his nioney. To face these facts and acknowledge them is not to impugn the honesty of any agent; but one cannot see them without 518 ADVERTISING AS A BUSINESS FORCE questioning the wisdom of the system imder which the best of agents have to work. The association believes that true service agents would welcome the discovery of a practicable system wherein they could assume a lo^cal relationship with the advertiser. We admit a change might be hard on the kind whose whole idea of professional service to the advertiser is financial phlebotomy — to reKeve that money-congestion from which they assiune their patient is suffering. Not only does the present system necessarily cast suspicion on the advice of the best of agents, but it very crudely fits the compensation to the service rendered. The agent is undoubtedly very often underpaid. He renders a service which not only is worth more to the client than the latter pays, but which actually costs more than the agent's commission on the account amounts to. On the other hand, it is equally true that an advertiser often gets very little benefit from an agent though the commissions on his account may pay the agent handsomely. The agent, perhaps, is content because in the long run the two kinds of accounts balance up, but one can hardly blame the second advertiser if he is not enthusiastic over the system which forces him to make up the deficiency! The association asks: Is there not some way to make the system less crude in regard to method of compensating the agent? As intimated before, all these things are being considered with an open mind. No move to change existing conditions will be recommended until something better can be slipped into its place. The A. N. A. M. does not want chaos. It wants better conditions. We need agencies; that is, we need some kind of a man or organization from which we can buy advertising service other than mere white space in periodicals properly HoKio circulated. We need help in filling that space, rt^fcT" ™ planning our campaigns, in collating experiences WithaJ" °^ others as a chart to steer by; some of us may value Destroying ^Q organization to do the purely mechanical and