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Competition And The Consumer

( Originally Published 1939 )



In comparing the methods of distribution with those of production it should be recognized that competition in distribution is not as likely to lead to drastic economies in the use of labor-saving machinery and methods. While the mechanical and automatic methods which have been so successful in lowering production costs can be applied to some extent to the operating procedures of distribution, they are not equally applicable in selling. The idea of a push-button factory, wholly automatic in operation, is no longer fantastic. But, while there are a few "automat" restaurants and cigarette dispensers, the idea of a slot-machine department store is far from practicable so long as human beings remain what they are today. Personal service and convenience usually mean more to the customer than mere mechanical efficiency.

Competition Increases Costs

Competition in production generally has had the effect of decreasing costs as the pressure for lower prices spurs mechanization and improved operating methods. But in distribution competition frequently tends to increase costs. Success often comes to the manufacturer or distributor who spends the most on advertising, fancy packaging, delivery and a whole range of expensive personal services demanded by his customers. Efforts to cut costs, on the other hand, are balked by the inherent difficulties (so long as consumers demand individualized service) of mechanizing and standardizing distributive processes. This cost of more and more intensive competition for customers is an important part of the mounting bill for distribution.

These growing costs have raised serious difficulties-both for the distributor and for the buying public. Decades ago the business-man's main problem was to make goods; today his primary problem is to sell them. Capacity to produce appears to have out-stripped purchasing power. This means that goods cost too much -largely because of increased services and increased distribution expenses-for the public to buy them as freely as if they cost less.

The consumer himself can properly be charged with a part of the responsibility for the higher distribution costs which have resulted from competition for his favor. The buyer expects-or has been led to expect-from the distributor a multitude of costly privileges and services which cannot be dispensed with until the buyer's attitude itself has been changed.

To say that consumers expect and demand increased services from distributors, however, is not the same thing as saying that the consumer is responsible for the higher costs they involve. To a very large extent the consumer expects more because he has been led by modern advertising and promotional efforts to expect more. He is the victim as well as the beneficiary of modern merchandising.

Moreover, not all of the higher costs of distribution result from increased services. A large part of what is paid for modern distribution goes for selling expense, for educating the consumer, for inducing him to buy one product instead of another, or sometimes for encouraging him to buy something which on sober second thought he decides he did not want to buy in the first place. All of these-as well as the very real services offered by distributors-are reflected in the costs of distribution.

The Costs of Variety and Convenience

Among the costs of modern distribution is that paid by the consumer for the privilege of free choice and variety. So long as tastes vary it will be impossible to standardize consumer goods in the same way as paving-bricks or steel rails can be standardized. It would be far more efficient in the narrow meaning of the term to dress all the men of the country in a uniform of olive drab and all the women in a standardized costume of navy blue. But this economy cannot be gained under our present system. This means that the retailer or wholesaler is denied one of the privileges which has made many modern factories so efficient in production-that of concentrating efforts on a single article or a limited range of standardized products. Unless the distributor offers a wide range of choice among a variety of brands and sizes and shapes and kinds of goods his customers will go elsewhere.

Another cost which is inevitable so long as human beings remain what they are today is the cost of immediacy. Not only does the consumer want what he wants but he also wants it when he wants it, which is usually now. If a million consumers were willing to place their orders and pay their money today for hats or shoes of a particular design and size, to be delivered next spring or next fall, the cost of distributing these products from the factory through wholesale and retail channels could be greatly reduced. Since consumers are not willing to do this the cost of immediacy means that manufacturers and distributors must assume the risks and incur the costs of forecasting what consumers will buy six months or a year hence. All of this means possible losses to distributors and greater cost to the consumer.

Another privilege-and another cost-is that of convenience. Consumers want to be able to supply at least some of their needs by running around the corner to the drugstore or grocery store. So long as they indulge this desire we shall have hundreds of thou-sands more retail outlets than we would need under a different system of living. Again, retail customers do not like to wait too long to be served. Hence, the retailer must maintain a working force to care for capacity demand rather than average demand.

Another costly service which has become a serious problem with the trend toward shorter working hours, is the demand of consumers for convenient shopping hours, long enough to accommodate their needs. This means that the distributor, unlike the producer, cannot organize his working hours in the most efficient way to suit himself and his employees. Here again it is the buyer rather than the seller who is in ultimate command.

Then too, consumers-and commercial buyers as well-have been led to expect from the distributor all that is embodied in the term personal service. The producer can turn out identical articles by the thousand, but the advantages of standardization cease when distribution commences. Each order filled by the distributor is a special order requiring the personal attention of himself or a sales-man. One customer in a retail store may take up an hour of a sales-man's time in making a two-dollar purchase, and another, only five minutes. Each buyer, of course, pays the same price, but together they and the other customers must meet the cost of the personal services which the buyers, collectively, require. The same thing is true of retailers in buying from wholesalers or of wholesalers buying from producers. Small orders and "fussy buyers" take more time and energy and add to distribution costs.

Extra Services Add to Costs

Another privilege demanded by many retail customers is free delivery service. Delivery service, of course, cannot be free in any real sense to either the consumer or the retailer. The woman who buys a pair of silk stockings and insists upon delivery to her home in the suburbs does not pay the full cost of that service for that particular purchase; but in the long run she and other consumers have to pay for that service if they want it. And whether the customer wants delivery service or not, he must pay for it if he patronizes a store that offers it.

Another costly retail service is the returned goods privilege. So long as it remains true that, as one department store executive said recently, "it is necessary to sell three women's dresses in order to have two of them stay sold," the customer in the long run will have to meet this cost. Coupled with the returned goods privilege is the privilege of charging goods and paying for them a month or so later, and of buying on the instalment plan. Interest and service charges paid by consumers for instalment purchases alone probably amounted to almost as much as total retailing profits in 1929.

All this might be taken to imply that the consumer-or the commercial buyer, for many of the costly services demanded by the retail customer are also required by the retailer in buying from the wholesaler and by the latter, from the manufacturer-is the real "villain of the piece" and that there is no hope for improvement until the buyer becomes more reasonable in his demands. But the consumer, for many years, has been the beneficiary, or the victim, depending upon the point of view, of a high-powered and effective program of what is described by the merchandising profession as "consumer education." This has taught him to expect and demand more and more services, conveniences, and privileges from distribution, all of which he has had to pay for, and without always being aware of what they cost him. Obviously the rising cost of personal services in the present-day system of distribution cannot be "blamed" exclusively on either the buyer or the distributor; it is a joint responsibility and the problem-short of state control-can only be solved by their cooperative effort.

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