The house that sells by mail has not, therefore, any advantage which lowers its percentage of selling ex pense below that of its over-the-counter competitors. Even if the catalog house may in some instances have a lower actual expense of operation than the compet ing retail store, and thus be able to quote lower prices, it should always be remembered that the retail store's selling expense usually includes an item for delivery—the goods are usually quoted at a price which includes laying them down at the consumer's door. On the other hand, the customer of the cata log house almost invariably pays for his own delivery. For comparative purposes, therefore, this expense should be added to the other catalog house expenses.
9. Most important do-tient in price.—If there is anything in mail-order selling, therefore, which per mits the seller to quote lower prices than retail stores can quote, it must lie in the third element in selling price--cost of the goods to the dealer or to the direct selling manufacturer.
In case of the manufacturer who sells direct, it is naturally assumed that the goods laid down in his warehouse have cost him less than they would cost the dealer who had to buy them from him. This would be true provided the cost of the goods to his sales department was the same as the cost of manu facture. But many manufacturers credit themselves with a profit both on manufacturing and on selling; they charge the sales department with an amount that represents both the actual cost of manufacture and the profit demanded from the manufacturing depart ment ; and the sales department is then expected to make still another net profit for the manufacturer. Because of this difference in procedure, it cannot be said that the direct-selling manufacturer can always start with a lower cost of his goods than the mail-or der house that has to buy what it sells, altho probably in many cases he can do so.
10. How size of the business influences prices.— The ma j ority of mail sales are not made by the manu facturer, but by the dealer. There is nothing in the nature of the mail-order house that gives it the power to command lower prices than any other kind of re tailer can command. The mail-order house and the local retail store must pay the same price for their goods if they buy in the same quantities. The abil ity to buy in quantities nowadays is the most impor tant consideration making for low cost of goods to the dealer. The jobber usually has a sliding scale of prices, and many manufacturers are willing to go over the jobber's head and to make their lowest prices to anybody who can buy in sufficient amounts. The
catalog house that can buy in maximum quantities, therefore, can get the minimum prices, as can the de partment store, the chain store, and the independent specialty store that is large enough to purchase in like quantities. If on account of lower cost of goods to the seller, a large mail-order house makes better prices than a small retail store, it is because one is a large buyer and the other is a small one. This fact should be obvious, but its repetition is made necessary by the popular belief that all mail-order prices must necessarily be low.
11. Secret discounts.—We have been speaking about the quantity prices that are an ordinary thing in trade. If the usual quantity discounts were the only price advantages of the large establishments that are able to buy in maximum quantities, the small dealer would not be seriously handicapped in competi tion, because in many lines the ordinary scaling down of prices for varying quantities is not large. The big buyer is sometimes able to force from the manufac turer a secret discount, and some people maintain that it bears the same relation to legitimate business that the secret rebate formerly did in transporta tion. For the sake of getting an order that is not otherwise obtainable, some ma.nufacturers will sell a quantity of goods to a large mail-order house at a price that cuts their profits close to the vanishing point; indeed, manufacturers without adequate cost systems have been known to sell their entire output to mail-order houses at a loss, blinded to the un profitable nature of the business by the seeming ad vantages to be derived from the mail-order connec tion. This sort of thing, of course, gives the large mail-order dealer a decided advantage over tbe small local retailer who can command no such inside prices. But again, this advantage is not peculiar to the large mail-order house ; secret rebates and other sub rosa forms of price discrimination are used to their own advantage by all classes of large distributors. The great department store and the chain of specialty stores are often in just as advantageous a position to obtain these secret price favors as is the mail-order establishment. This advantage, like many others, is one accruing from the factor of size of the business, and is no more inherent in the mail-order form of sell ing than it is in any other form of retailing.