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THE independent wholesaler presents the first obstacle to the progress of the manufacturer engaged in high pressure marketing. Such manufacturers challenge the wholesaler's dominance of the channels of distribution. A whole technique of high pressure wholesaling has been devised by sales promotion managers and advertising men for the purpose of overcoming the sales resistance of these independent wholesalers.
The modern specialty salesman is one of the most interesting instruments of the technique developed to overcome wholesaler sales-resistance in those cases in which manufacturers sell through independent wholesalers.
In the distribution of groceries, the operations of specialty salesmen have reached a state almost of perfection--from the standpoint of the manufacturer. What the wholesale grocer thinks of the specialty salesman can be imagined from what one of them said in the course of an article (John D. Houston of James W. Houston Company, Pittsburgh, Pa., wholesale grocers, in Printers' Ink, January 18, 1923.) discussing this phase of present day marketing.
The manufacturer's specialty salesman is the pirate of the grocery business. He has but a selfish interest in the retailer and looks with contempt on the jobber. He knows nothing of the financial standing of the retail merchant, cares nothing for the jobber's expense of doing business, overloads the weak retailer, cuts prices to the strong and then turns the orders over to the jobber with the remarkable guarantee that they are genuine.
One of the most successful manufacturers of a grocery specialty operates substantially as follows: A territory in which his product is to be introduced is selected and to it is dispatched a crew of specialty salesmen. The product which they are to induce the jobbers in that territory to purchase from the manufacturer is a baking powder. They do not, however, begin by calling on the wholesalers and trying to sell them a stock of their baking powder. Instead, they proceed as follows: First, the territory is divided among the members of the crew. Then each specialty salesman makes a canvass of consumers near one of the retailers they propose to "get" and who buys from one of the wholesalers they propose to stockup. The consumer canvass is a door to door demonstration to the housewives of the merits of the baking powder. The demonstration may range all the way from a brief chemical test to the actual baking of a pan of biscuits. No matter how long and costly, the demonstrations continue until a sufficient number of orders have been secured from housewives. Orders on retailers is what the salesman wants--so he sells the consumer nothing. As soon as the salesman has a sufficient number of such orders from the housewives to justify him in approaching the grocers assigned to him, he calls upon them and presents the baking powder orders to them.
Each retailer is now placed in an embarrassing predicament. He probably has none of the powder in stock. He may be amply supplied with the half dozen brands which his customers have been using satisfactorily for years. To add still another brand to his stock will result in dividing his present volume of baking powder sales among seven brands instead of six. He will be increasing his stock of baking powders without correspondingly increasing his total volume of sales.
The grocer, even though he may not analyze the situation so carefully, is yet instinctively averse to the addition of the new brand. With every new brand he runs the risk of adding a slow moving, perhaps even an unsalable item, to his stock. But the specialty salesman's orders put him to the difficulty of either refusing to fill orders from his customers, and thus incurring their displeasure, or of placing an order for the baking powder. Naturally the average grocer yields to the apparent demand of his customers and gives the salesman an order to be shipped to him through the wholesaler with whom he does business. Then by offering the retailer some special "deal," the salesman loads him up with the new brand as heavily as he can, so as to force the dealer to push the new brand and to cut down on his purchase of the old brands.
When the entire crew operating in the district has in this way secured a sufficient number of orders on the wholesalers from the retailers, the manager of the crew calls upon the wholesalers one after another and places each of them in the same dilemma in which the retail grocers had been placed. The wholesalers may also be well supplied with all the baking powders for which there had been calls in their territory, but no matter how averse they may be to increasing the number of brands they stock, the fear of displeasing some of their retail customers constrains them to place an order for the new brand.
The baking powder has now been "distributed." Either of two things follows: the brand "repeats," or it fails to "repeat." If the housewives fail to continue buying it, each grocer finds himself loaded down with a lot of dead stock. And each wholesaler finds himself loaded down with a much larger quantity of a brand of powder which is unsalable or salable only at a great loss. The losses which both wholesalers and retailers suffer in this way become a part of their total cost of doing business and are ultimately passed on to the consumer in the general mark-ups of wholesalers and retailers.
If, on the other hand, the new baking powder proves to be a "repeater," there is a diminution of the sales of the old brands, but as we shall see, with the same net result: a stock of baking powder larger in proportion to sales than was carried previously by both wholesalers and retailers.
But the competitive baking powder manufacturers do not remain inactive while this manufacturer is introducing his baking powder. As soon as they hear of the drive of the new manufacturer, all the old manufacturers send their specialty salesmen into the territory. These men duplicate the operations of the first manufacturer's crew, go to the dealer with all kinds of "special deals," load him to the guards with their brands, and really force him to continue all the old brands, even though he has already on hand enough of the new to amply supply his trade.
Is it any wonder that the trail of the specialty salesman; that high pressure wholesaling by manufacturers who distribute through regular wholesalers, is marked by deals, rebates, dead stock, dissatisfied and injured merchants and wholesalers--as Mr. Houston says, by "commercial murder"?
Let us now consider high pressure wholesaling when the manufacturer decides to establish his own system of wholesaling.
In 1909 there was an epidemic of criticism of rising prices. The press, the pulpit, and the people reported, exhorted, and excoriated. Chronic criticisms crystallized into the phrase, "the high cost of living." Consumers blamed retailers. Retailers placed the responsibility upon wholesalers. Wholesalers, aware of the fact that the manufacturer's cost of production had dropped, were unable to blame the manufacturers. Unnecessary "middlemen" were charged with the chief responsibility for the rise in prices. The "middleman" was supposed to be the wholesaler. There was widespread criticism of wholesalers.
Manufacturers in increasing numbers began to eliminate the wholesaler from their scheme of distribution and to sell retailers direct.
One of the leading wholesalers (Willis P. Munger, of the Burnham-Munger-Root Dry Goods Company of Kansas City, Mo., in an article entitled, "The Wholesaler, the Hub of Service," written for The Midwest Merchant.) of the country describes just what has resulted in the dry goods field from the efforts of manufacturers who sell retailers direct.
The result was exactly what might have been expected. Where the manufacturer had used three or four salesmen, he had to increase the number to forty or fifty. Where his Credit Department had easily handled the comparatively few wholesale accounts of high grade credit, he had to add scores more people to handle the increased detail of more doubtful accounts. Where his Shipping Department had handled case and carload shipments with very little effort, it now became necessary to handle thousands of parcel post, express, and freight shipments with the resulting increased expense.
The manufacturer's line restricted to the articles he made himself, embraced a very small part of the retailers' requirements, reducing the amount of the individual sales and raising the cost. To overcome this, he fixed minimum quantities at a point disastrous to his new customers, slowing up their turn-over and reducing their discounts. Very soon his salesmen were complaining about slow deliveries and advocating warehouses situated at points in the country that would result in speeding up the service demanded by the retailer; in a great many instances this was done, enormously increasing expense. Then bankers, loaning money to manufacturers, began to ask pointed questions about increased cost, and were told that the wholesalers were back numbers, and that the up-to-date method was to distribute direct. They confided to their bankers all the terrible things the "middleman" was doing, and had done; but the banker could not get the increased cost in clerk hire, salesmen, shipping, and credit expense out of his mind.
A little later the retailer began to get restless and to realize that something was wrong. His statement, "I buy direct," was losing its ring of enthusiasm and he started to analyze his difficulties. He found that most of his time was occupied in looking over great numbers of short lines; his selections did not seem to work out right; women had suddenly developed erratic ideas about qualities and styles, and be was using P.M.'s and special sales to keep his stock moving. Adjustments on short shipments, damaged goods, back orders, and substitution seemed to be more difficult, and more annoying than they had been in the past, and almost impossible to bring to a final settlement. Every manufacturer was insisting upon advertising cooperation on the newly installed brands, special "so and so" days, premiums offered to his sales force, window displays, the word "pep" seemed to come at him from every direction, and was getting on his nerves.
To anyone who has observed the steady effort in the past decade to eliminate the wholesaler as a factor in distribution, it is disconcerting to discover after all these years, that the wholesaler is still the hub of our distribution wheel.
It is still necessary for the economical distribution of merchandise that manufacturers be enabled to ship in quantity. The wholesaler is essential if the economy of carload or quantity shipping and selling from the factory is to be maintained.
It is still necessary to have a reservoir of supply in each of the important distributing centers of the country, so that retailers will be enabled to draw upon the reserve at a moment's notice and not have to wait for shipments from the distant manufacturing centers. The wholesaler is essential if these reservoirs of supply are to be provided most economically.
It is still necessary that somebody break bulk and redistribute stock from the various shipping centers of the country and the wholesaler is still essential if this service is to be most economically rendered to the community.
It is true that independent wholesalers today do not control the channels of distribution as fully as was the case fifty years ago. If the existence of alternative methods of distribution be an advantage, then the existing maze of distributing channels represents progress.
Fifty years ago merchandise moved from manufacturer to wholesaler to retailer to consumer almost exclusively.
Today, some of it moves from the factory direct to the consumer.
Some of it moves from the factory to the manufacturer's store and then to the consumer.
Some of it moves from the factory to the independent retailer or to the mail order house, department store, or chain store, and then to the consumer.
Some of it moves from the factory to the manufacturer's district warehouse, then to the manufacturer's retail store, and then to the consumer.
Some of it moves from the factory to the manufacturer's district warehouse and then to an independent retailer and then to the consumer.
Some of it still moves from the factory to the independent wholesaler to the independent retailer and then to the consumer. More of it moves in this way than most people realize. In spite of the retailer's hunger to buy direct, and the desire of manufacturers to eliminate him, the wholesaler still moves the bulk of the goods sold at retail. If the proponents of the theory that he is unnecessary to economical distribution are correct, here indeed is an enigma. How does so inefficient an instrument survive? What is the secret which enables this middleman to survive the competition of the actual producer who sells direct?
The system of wholesale distribution through independent wholesalers survives because it serves more economically than does any other system.
The independent wholesaler may be an unnecessary middleman to the retailer--especially the large retailer. He may present formidable sales resistance to the distribution of the products of the over-ambitious manufacturer. But he can point to the fact that it is hardly progress to have increased the number of channels of distribution and to have also increased the total cost of distributing our products. For that is what high pressure wholesaling frequently does--it creates additional channels of distribution generally more costly than the old. It makes each manufacturer duplicate the wholesaler's activities; it produces duplicate selling staffs; duplicate credit departments; duplicate accounting departments; duplicate shipping departments. It reduces the relative volume of business transacted through the regular wholesaler without reducing prices to the consumer. It benefits only those manufacturers fortunate enough to succeed in creating consumer demand and "putting it over" on wholesalers, retailers, and consumers.