Classification of Customers.— The sec ond price problem of the manufacturer, to which we have referred, has to do with the necessity of maintaining dealers' profits. Goods flow up hill in price, as water flows down hill. The difference between the price paid by a wholesaler and that paid by his customer who is a retailer is a spread, out of which must come the wholesaler's costs and profits. If a manufacturer sell to a retailer on the same terms as to the wholesaler who has been sup plying him, it is obvious that the wholesaler cannot continue to patronize that manufacturer. If in a typical distributive chain we have manu facturer, commission merchant, wholesaler and retailer, there will normally be four price levels, each higher than the other, and each maintained at a certain spread with reference to the others by the normal operation of com petition. Into this normal situation a disturb ing influence has been introduced by the ab normal growth of certain retail and wholesale institutions, in response to the economy of quantity prices, and in response to superior managerial talent. These large institutions have very naturally tried to change their class as buyers and purchase on the same terms as institutions prior to them in the distributive chain. So we see everywhere retailers who advertise themselves uwholesalers and retail ers,D to facilitate an approach to manufac turers. It has been found difficult to frame a satisfactory definition of what a wholesaler is. Inasmuch as manufacturers are commonly ad mitted to buying privileges with other manu facturers and with wholesalers, all small shops and local repair men are anxious to be classed as manufacturers and to buy either from manu facturers' catalogues, or at least from the same traveling salesmen as serve the neigh boring retailers. Hotels, likewise, are priv ileged buyers: therefore restaurants and boarding-houses put themselves forward as much as possible for the same privileges.
Dealers and agents are usually advanced one class in the distributive chain: therefore an in numerable number of persons acquire agencies for the sale of wagons, automobiles, windmills and manufactured specialties, for the purpose of purchasing their private supplies at better advantage. Against this tendency to break down the classifications of trade merchants have been obliged to interpose an influence. This they have done by drawing up lists of classified buyers. Such lists are usually formed by the joint action of two trade associations and are promulgated to govern the conduct of the members with reference to the trade classes covered by the definitions.
Control of the Prices of Resale.—A third price problem has been forced upon man ufacturers as a result of the intensity of com petition between retailers. One of the mod ern tricks of retail selling is to offer one arti cle or a few articles at a very low price, and feature the prices of these by advertising as °leaders.° The psychology of the leader is that the customer will infer from the few low prices quoted that all prices in the store are equally moderate. In practice, the leader is supposed to bring the customer into the store where his cravings will be so intensified by the sight of merchandise that he not only purchases the leader, after which he came, but pur chases a variety of other articles as well. These
latter carry a good profit and recoup the loss on the leader, so that the result of the total transaction is a profit for the store. The best articles to choose as leaders are those branded or trade-marked articles which are known to be identical in whatever store they may be found. These will bring out in full force the price comparison, free from any possible ar gument that the quality may be better where the price is higher. When, therefore, a manu facturer builds up a reputation for uniform quality, and his goods become well known, his merchandise best serves the dealer as a leader. It might be concluded that if the dealer low ered the price he would simply sell more goods and so would confer a favor upon the manu facturer. The history of a leader is, however, that after it has served a temporary purpose of attracting attention, it is dropped. As it is impossible to at once restore normal prices for the article, the dealers who once featured it exclude it from stock, or if it have too well an established position with the consumer for this, relegate it to the background so that the losses on it will be as small as possible and push other things in preference to it. Distri bution falls off, therefore, and the manufac turer is aroused to action. The action which manufacturers have taken has been along the line of endeavoring to dictate to wholesalers and retailers at what price they may sell, and to whom they may sell, and then to enforce these dictates by cutting off the supply of goods from those dealers who disobey orders. These efforts have brought manufacturers within the pale of the Federal laws which forbid con tracts in restraint of trade. A considerable variety of devices has been invented by manu facturers in the endeavor to encumber the title to a movable chattel with restrictions, in connection with its sale, and without creating a bona-fide relation of principal and agent. These devices have been uniformly declared null and void by the United States Supreme Court.
Miscellaneous Elements of Manufactur er's Distributive Campaigns.— Of the many minor distributive problems of the manufac turer, embracing such matters as the design and use of trade-marks, trade-names and brands, and the significance of packages as brand carriers and as a means of specializing an article out of its competitive class, there is not room to speak. Likewise the purport of style as a trade device for rendering goods in consumer's hands obsolete; of agency systems, such as prevail in the automobile and agricul tural implement businesses; of list-price sys tems, used the construction of catalogues; and of the trials encountered in administering discounts for cash and of preventing the can cellation of contracts can only be alluded to. In other articles the functions of advertising and of salesmanship as general aids to distri bution are given appropriate attention.