( Originally Published 1918 )
The feeling that " industry " means " production." When we speak of American industries we almost always have in mind productive industries such as we have been studying in former chapters of this book. We even feel that transportation is not really an industry until we realize what an enormous amount of capital is invested in transportation systems and to what multitudes of human beings these give employment. There is good reason for this feeling that the word " industry " is always to be connected with production. Let us look into this matter first of all.
Attention has been centered on production. Throughout most of the earlier history of the race the attention of people has been centered upon the production of goods rather than upon any other activity exerted in connection with them. For before anything else could be done with goods they had to be produced by the labor of man. Therefore the organizing ability of the race concentrated itself there where its greatest interest and need lay. The problems of production were the ones which seemed most pressing, and the man who improved methods of agriculture or manufacture was the one who reaped the great reward. The manager of industry was engaged in producing more goods at lower cost, and, with the constantly widening market, the matter of selling was simple and called for less concentration of effort and attention.
No colonial problems of marketing. This was true in the early colonial times, when each family, village, or town was more or less sufficient unto itself. Where such self-sufficiency was to be found, there were no great problems of marketing, for the exchange of goods was almost entirely within the several communities. Producers who found themselves with a surplus bartered it for a share of the surplus of other local producers. There was not very much specialization, and the several members of the community managed to trade among themselves in an informal way, often by bartering or " swapping," and without the formation of anything well-organized enough to deserve the name of a market.
The fair as a market. The first step towards a real market was the fair. A real market is a rather permanent relation between buyers and sellers, whereas the fair was at first an occasional or intermittent relation of the same sort. Fairs were held among less civilized peoples and, in the earlier stages of European history, once or several times a year. They were very popular, both because they formed the only approach to a large-scale market for the trader and also because the occasion provided a chance for social intercourse between people who did not ordinarily come into contact, and thus furnished them with a variety of diversions which they could not otherwise enjoy. Some of these fairs, even among the savage peoples, have been very large ; the fair at Timbuctoo was attended by a number of thousands of African natives, as well as by traders of other nations.
The county fair. The fair was characteristic of the earlier history of a number of regions in this country. It was generally known as the county fair and was usually held at the county seat, the farmers coming in from the adjacent country with products of all kinds. Prizes were offered for the best of these products, and of course this led to the advertisement of the skill and goods of those producers whose showing was most successful. At these county fairs, likewise, there were all sorts of rustic entertainments, such as horse-racing, turkey-shooting, and dancing ; and gradually there drifted to the fair grounds the various varieties of entertainers, both respectable and otherwise, who saw in the gathering of population a chance to do business. These county fairs came to be not so much genuine markets as exhibitions of extraordinary products, but they formed, nevertheless, a device looking toward the formation of genuine markets.
The world's fair. The idea of the fair has been expanded into that of the world's fair. Here there is no great market for products, but rather a great advertising device which aims, as we shall see, toward the development of markets and marketing.
The weekly market. Another undeveloped form of market, but one less intermittent than the fair, was the so-called weekly market still common in parts of this country. A certain day in the week was " market day." This day was often Saturday. During the previous night the farmers from the surrounding country would drive into the nearest city, back their wagons up to the curbstones, set out a table in front, and be ready, almost before dawn, to dispose of the produce of their farms. Customers would set out with a large " market basket " and pass along the lines of tables, purchasing one article here and another there. The sellers generally remained until they had disposed of all their stock, and then set out for home to assemble another load for the next market day. In a number of the cities there was a regular " market house," which stood vacant for the rest of the week but was filled to overflowing during the market day.
Earlier forms become antiquated. These illustrations show the more simple devices which came into being for gathering the buyers and sellers together at regular intervals for purposes of ex-change. For a long time they were adequate, and, as we have said, the need was rather for more efficient production than for more efficient distribution. The efforts put in on production have brought about a productive organization which has gradually out-grown the earlier forms of distribution through such simple markets as were available. The more production has increased, and the more specialized it has become, the more inefficient have appeared the simpler means developed in former times for disposing of the product.
Produce-marketing. It is to be noted that these earlier devices had to do chiefly with the distribution of agricultural products as distinct from the ordinary manufactured products. This distinction is not very clear in some cases because many staple food commodities, such as butter, flour, and meat products, have under-gone manufacturing processes before becoming available for consumption ; but if we allow for cases of this sort we have a clear enough contrast between the products of agriculture and those of manufacturing. In former times the local store often formed a sort of connecting link between agriculture and manufacture in that it supplied manufactured products in return for those of agriculture. In the earlier days there was not very much money to change hands, and the exchange was chiefly through barter, or " payment in kind."
Rise of the modern market. It has been seen that the simpler devices which we have described were entirely sufficient for the marketing of the products of undeveloped industries. But, as we have also seen, the prevailing interest was in the higher and higher development of production. This meant that production should become more specialized and that larger amounts of a single product must be disposed of. It was not long before these amounts became too great to be handled by the simpler marketing agencies, and these gradually passed away in favor of the modern market. Here is where the development of transportation allowed of further progress, for the surpluses of production which could not be disposed of within a local area could be transported to some other place where the demand had not been satisfied.
Expansion of the market. In this way the market outgrew the fair and the village store, and people began to think of the marketing of goods as something that would not take care of itself in the natural course of things. There arose a need of higher organization in the marketing of products, and this need has summoned into being a more and more developed and complicated system of disposal of goods. The market is no longer local or even national ; it is a world market. Producers have looked farther and farther from home for their customers, until an industry located in the central part of this country relies upon a demand for its products which exists halfway around the world. Thus has come about an immense enlargement of the conception of markets and marketing.
The earlier and simpler conditions of food-distribution. In this country public interest turned first to the problem of marketing farm products. This was because of the fundamental importance of food, for if we look into the matter we find that the average workman spends half or more of his wages for food. Also there was a feeling among the farmers that they were not getting a high enough price for their goods on the farm, and in spite of the lack of cooperation among farmers in securing their interests, their influence was important because of their great numbers. Roughly speaking, a third of the labor force of the country is still engaged in agriculture ; and it is no wonder that the marketing of farm products in a country like this should occupy the foreground. In the older days the farmer was near enough to the final consumer of his products so that there was no great difference between the price received by him and the one that the consumer paid ; the profits of the middleman were likely to be moderate.
Concentration of population. But when a considerable proportion of the population became concentrated in large cities, and the development of specialization in agriculture made it necessary for surpluses to be disposed of at greater distances, the farmers became discontented with the wide differences which existed between the prices paid to them at the farm and the prices which, as they learned, were paid for their products in the distant cities. The whole matter of distribution of farm products was made more complex when perishable products, which ripened first in one section of the country, then in another, had to be trans-ported over great distances and sold in competition with products from various other regions. There has arisen, therefore, among the agricultural population a feeling that somehow they are being cheated out of their dues. Very likely they have been, on many occasions ; but the situation was inevitable. There had to be intervening stages and intervening men — middlemen — between the farmer and the consumer, and this meant a widening difference between the farm price and the city price.
Growing complexities. In addition to the problem of marketing agricultural products, a very complicated situation is presented in a country as large as ours, with a population of over 100,000,000 people who show wide extremes of purchasing-power. Some are able to buy only the barest necessities of life, while others consume an almost unlimited supply of the highest-priced goods. Between these two extremes lies the great bulk of population, whose purchasing-power is now greater and now less. It is clear that business has grown too big for either agricultural or manufactured goods to be produced by individual order ; they must be turned out in large quantities far in advance of their final consumption. In some instances a few manufacturing plants turn out millions of articles which are exactly alike, and they must be distributed eventually among our great consuming population. It is plain that there are large problems involved in getting manufactured products into the hands of the final consumer without incurring an extraordinary amount of expense, time, or waste.
Enforced complexity of the distributing system. The result is that the distribution of food and raw products is now accomplished by an elaborate organization of local dealers, middlemen, cooperative associations, produce exchanges, warehouses, elevators, cold-storage plants, and public markets. Also the tremendous output of our manufacturing plants must be disposed of through a long line of jobbers, wholesale and retail dealers, general stores, direct selling, and advertising. A study of the historic development of any one of these organizations or parts of them would show that they have passed through various phases of development as they became better adapted to the general needs of the situation. But it is commonly admitted that in this country the marketing of goods is that part of our business organization which shows the least efficiency at the present time, and in all probability great changes in methods of marketing both raw materials and finished products are due in the near future. Let us look at some of the various methods that have been worked out for the marketing of goods.
The three stages of marketing. There are three stages of marketing which may be distinguished : the earlier sales were made in bulk ; later on they were made by sample ; and in most recent times they are made chiefly by description. In the first case, before the purchaser bought anything he always saw the exact goods which he was purchasing. In the second case, when goods came to be better standardized he bought without seeing the articles, but in reliance upon the good faith of the seller as a guarantee that the deliveries would not be inferior to the sample. It was the introduction of machine methods in industry, whereby large quantities of a standardized product 'could be turned out in a short time, that gave the stimulus to the development of sales by sample. It is plain that more had to be taken on trust in the second form than in the first ; and when goods came to be sold by description, there was assumed an even higher standard of honesty and also a higher level of general intelligence on the part of purchasers. Sale by description is, of course, one of the many developments which have been rendered possible by the printing press.
Sale by description. Sale by description is the typical modern method. There are certain products which do not naturally come under this form. For instance, live stock cannot well be sold in that manner, and most perishable fruits and vegetables must he looked over to see what condition they are in before purchase. Some products, potatoes, for example, are apt to vary so greatly in quality and size that they cannot well be bought even by sample, for uniformity in quality and size are essential to successful sample selling. On the other hand, apples and many other fruits are now sorted and packed in a standard way, so that one barrel is an index of what the whole lot is like. One of the best examples of a commodity which lends itself to selling by sample is grain, because grain runs rather uniform in quality. The selling of goods by description rather than by the other methods lends itself better to manufactured goods than to farm products. Perhaps the typical form of selling by description is shown by the great mail-order houses ; their vast catalogues, issued at a great cost, are really textbooks of sale by description.
Combinations of methods. When goods are sold in bulk the intervention of the middleman is not a necessity, but when the sample method is in vogue the sales are actually made by middlemen or salesmen, while in case of the disposal by description the chief resort is advertising, although middlemen and salesmen may be used. All sorts of combinations of methods and agencies for selling occur, and this makes the problems of marketing very complex. What the dealer has to do is to work out such combination of methods and agency as will give him the most efficient system of distribution, or marketing.
The middleman. But, it will be noted, the development of the productive industries has had as a result the development of a new profession, that of middleman. More and more of these specialists have been introduced between the producer and the consumer, and they have secured a position of dominance over both of the original parties. The middleman is in a position to squeeze the producer and to impose upon the consumer. Hence there has been a tendency in recent years toward more direct methods of selling ; that is, toward the reduction of the number and power of the middlemen. However, the function of the middleman is a necessary one, and he deserves what he gets so long as he does not abuse his position. He shares a risk on goods, helps to finance the enterprise, and actually sells the products. The middleman was originally a necessary and a good development ; it is thought by some that he has come to be an unnecessary evil ; the hopeful view is that, if competently con-trolled, he may retain or resume his position as a recognized and serviceable factor in economic life.
Need of knowledge and ,efficiency. The foregoing paragraphs should give the student some idea of the complexity of the marketing situation, as well as of the importance of having a well-knit and efficient agency operating between the producer and the consumer. The inevitable extension of the market created a situation never before experienced by human beings, and they were obliged to develop an organization to deal with it. This organization grew up without anyone having given it great study or other attention, and has discharged its purpose with considerable efficiency. But its very faults have combined to serve notice on the world that the matter of the marketing of goods is one important and complex enough to demand the best possible brains of the race for its study and solution.
The marketing of exports. What we have said above has had reference chiefly to domestic conditions ; but if we consider the matter of export trade, still wider marketing problems arise. These are connected rather more with the disposal of manufactures than with the sale of foods and raw materials ; for while the latter presents very important marketing problems, the competition in the markets for manufactured products is somewhat keener than in the markets for foodstuffs and raw materials. In order that our manufacturers and exporters may gain control of the market for certain lines of manufacture, the most scientific of business methods must be employed ; the foreign department of a business will not look after itself, but demands the most constant attention and the most efficient organization.
Direct and indirect sale. The American manufacturer may sell his product in the foreign field either directly or indirectly. By direct selling we mean that he may, for example, make larger or smaller sales abroad merely by advertising his goods ; or, again, he may sell his goods directly to the foreigner through salesmen of his own. The manufacturer who makes use of the method of direct selling employs no one outside of his own firm. He may rely upon his banker and upon some forwarding agent, but the actual marketing is done by the establishment itself. In some cases the American manufacturer gets better results by indirect selling, that is, by disposing of his goods through a commission house or through some export agency. This method of selling indirectly rather than by establishing his own export department means that the merchant must exercise a good deal of supervision over the professional exporters.
Marketing through branch corporations. The very largest industrial concerns in this country have gone so far as to create branch corporations to take charge of their foreign business. Thus, the United States Steel Corporation has such a branch concern, known as the United' States Steel Products Company, and the United States Rubber Company has the United States Rubber Export Company.
Forwarding agencies. Whether the selling is direct or indirect, goods are actually forwarded by forwarding agents, who are specialists. For example, our express companies are able to make out a bill of lading from the point of shipment to a destination at almost any other point in the world. They are accustomed to assemble a number of small consignments from various sources, list them upon a single bill of lading, carry them to some foreign port, where they are entered through the customs by the forwarding agents, and then sort and dispatch them to their respective destinations. This is a great economy, for it saves freight charges by taking advantage of through rates and minimizes expenses and trouble in both port of clearance and port of discharge.
Meeting the tastes of foreign consumers. Of course this is only a part, though an important one, of the organization for securing foreign markets. The successful and continuous selling of goods abroad is a product of many factors. Export merchants and manufacturers must study every detail of the foreign business as a unit by itself. For example, goods must be made differently for different markets ; we cannot impress our own styles and tastes upon the South Americans or the Orientals. We have been too self-sufficient in that matter and have acquainted ourselves too tardily with the racial differences and varying social customs of foreign peoples with whom we wish to trade. We must produce things, and even put them up, in such forms as our customers want them, not as we think they should have them. They have as little sympathy, or as much contempt, for our styles and fashions as we could have for theirs.
Dangers of self-sufficiency. It is always the prime function of the trader to please his customer, and particularly to avoid treading upon any of his prejudices, ridiculous though they may seem. This is a very simple and obvious principle, but it has taken every great trading people some time to learn and apply it. It is the conviction of every nation that its own ways are right and expedient and that other peoples who differ with them must, as a matter of course, be wrong. So long as we have no favors to ask of the rest of the world we may not suffer from preserving this narrowness of mind, but if we actually mean to conquer our share of the world market, the sooner we give up our intolerance the better.