PROTECTING THE MANUFACTURER'S GOOD-WILL 1. Good-will and price maintenance.—By making zt good product, by advertising, and by a long period of fair dealing with his customers the manufacturer gradually attracts to his goods and to his business a certain amount of popular interest and approval. This good-will is often the manufacturer's or dealer's most valuable asset, and the protection of good-will, acquired slowly and expensively, is one of the most iniportant problems in marketing. Many manu facturers believe that this problem is largely one of price maintenance.
2. What is price maintenance is a policy adopted by a manufacturer who sells thrtt middlemen, whereby the manufacturer seeks to limit or to fix the price at which the middlemen shall sell his goods. The attempt may be made to control the resale price of jobbers or of retailers or both; the price may be definitely fixed, or the control may con sist in the establishment of maximum or minimum limits. Price maintenance vitally concerns not only the manufacturer, but also all classes of jobbers and retailers, and, most of all, the consuming public.
3. //ow price maintenance developed.—Price main tenance is indirectly the outgrowth of large scale production and of national advertising. The former has greatly stimulated competition. Increased com petition has constantly forced manufacturers to seek new ways of insuring sales and profits. Na tional advertising was one of the things seized upon as a valuable aid in competitive marketing. Its rise dates from about the year 1870. Before that time there had been some national periodicals and some national advertising but without any marked influence on marketing methods. With the development of magazines and newspapers, however, manufacturers, pressed for a market, began to realize the possibilities of appealing directly to consumers by giving their goods individuality and by publishing broadcast the merits of the product. This bad the result of famil iarizing consumers with the quality and prices of cer tain brands and of creating a marked demand for well advertised articles.
R,etailers were quick to take advantage of this situ ation. Price cutting is nothing new. Ever since
there has been any merchandising, some dealers have tried to attract trade by offering well-known articles at less than market prices. National advertising increased this practice. If an article is widely adver tised, universally known and in constant demand, some retailers believe it good policy to offer it oc casionally or regularly at an unusually low price. They have two purposes : one to get people into the store by the lure of a well-known article at a low price, and then to try to sell them, in addition, other articles at regular prices; the other, to create the impression of a general low level of prices on all the goods in the store.
4. Three kinds of price cutting.—Dealers who en gage in price cutting are of three kinds: First, there are those who cut only on standard, well-known goods, for one of the purposes just enumerated. The cuts may be temporary or permanent, but in either case they apply only to advertised goods—other goods in stock are sold at regular prices. Most price-cut ting dealers are in this class. There are other cut price dealers, however, who do not single out adver tised and well-known brands; they sell all their goods all the time at below normal prices. These dealers contend that unusual buying advantages and methods of operation permit them to offer goods to the con sumer at lower prices than those charged by their com petitors. The third class of cut-price dealers cut on all goods, but they do not do it all the time. To close out at the end of a season they may lower all their prices temporarily, or they may run cut-price sales on their entire stock on other occasions.
Most manufacturers do not object to reasonable cut prices in bona fide clearance sales. But the other forms of price cutting are generally disapproved by advertising manufacturers, even tho the ethical aspects of the two different practices are widely dis similar. In the following discussion the first price cutting method is chiefly considered because it is the most common, but the general principles apply usu ally to the first and second kind alike, and also to the third when it is abused.