Function of marketing *

Original and present meaning of distribution

The possibility of setting up a distinction between the term "distribution" and the term "marketing" has been suggested on a different page. Formerly, a definite distinction was common. "Distribution" meant originally a literal and physical dividing or parcelling out, a separation by class or location, and nothing more. Only in an extension of the natural meaning is "distribution" anything but physical.

Promotion methods that figuratively move goods by persuasion through pictures and print, are not matters of "distribution" in the fundamental sense of the word. However, in its present business usage, "distribution" has come to mean matters of promotion as well as matters of motion. It is now a broad term which includes all of the functions that have been briefly described on a different page.

Changes in the meaning of marketing

Marketing, too, has often been limited in definition to selling by means of the distribution of such ideas about goods as will arouse desire for the goods and cultivate willingness on the part of the consumers to pay the price and to make the required effort to secure the goods.

To many minds, "marketing" is still precisely synonymous with selling, and in many business enterprises nothing exists in the way of marketing organization beyond a sales department. Of late, however, there has sprung up a growing realization that marketing involves something above and beyond mere sales making. In addition to personal salesmanship and advertising it comprises research, forecasting, planning and other development activities. Discerning experts have discovered that it is more important to coordinate production schedules with carefully-determined sales possibilities than it is to develop a huge volume of output and load an impossible selling burden upon an efficient sales department already doing its best.

Marketing, then, has broadened out in its scope so that in addition to touching the physical activities of distribution at many points, it reaches back into product manufacture as well.

Distinction between physical and non-physical activities

The physical activities connected with distribution involve the actual handling of the goods. Those of a non-physical character concern the research and promotion methods employed to determine markets, arouse consumer demand and develop sales possibilities. It is obvious that in their extended meanings both "distribution" and "marketing" are synonymous terms, including the activities of physical supply as well as those of demand creation. These two types of activity are interdependent.

Consumer demand, when, aroused, has no profit-making value unless provision is made "for satisfying it by actual transfer of the goods through one or more of the available agencies." Nevertheless, it is convenient to keep in mind a distinction between the physical distributive or marketing activities and those of a non-physical type. The emphasis necessary on one type of activity as opposed to the other depends upon the kind of goods that a particular enterprise produces and wishes to place in the hands of the consumer.

One group or class of goods may demand particular attention to physical distributive problems while another may demand the same degree of attention to non-physical marketing problems. Moreover, most of the criticism of modern distribution or marketing is directed against the non-physical activities, and with good reason. These activities, of course, are more controllable than the physical distributive activities. There is little excuse for allowing their costs to equal, exceed, or completely counterbalance savings brought about by economies in manufacturing. Finally, even to-day, whenever the term "marketing" is used in a restricted sense rather than in its extended meaning, the intent is to refer to the non-physical activities.

Steps in scientific marketing practice

Excluding from consideration, for the moment, such physical activities as transporting and storing and such general business activities as risk-taking and financing, we find the list of non-physical marketing activities covers :

1. Market research
2. Market forecasting
3. The formulation of definite market policies with respect to product, price, trade channels, dealers and consumers
4. Market planning
5. The effective and economical direction and control of advertising
6. The effective and economical direction and control of personal salesmanship

These activities are sometimes called the fundamental steps in scientific marketing practice.

Staff and line marketing activities

In the foregoing list of fundamental steps in scientific marketing practice there are two distinct types of activities. These activities may be classified as staff and line marketing activities. The line activities are concerned with the adoption and approval of plans, with the issuance of orders, with the maintenance of discipline and morale, and with the execution of plans. The staff activities involve study, research, analysis, and the presentation of advisory recommendations.

In the group of six non-physical marketing activities listed above, two are essentially line activities—the direction and control of advertising, and the direction and control of personal salesmanship. Market research, market forecasting, market-policy formulation and market planning are primarily staff activities. If we add the physical activities of storing and transporting we include two other line activities.

Principal classes of vendible goods

The six activities connected with scientific marketing practice may be carried on by the producer or manufacturer or by the individual middleman, or they may be split up between the producer or manufacturer and different types of middlemen. In some cases the individual producer or manufacturer and the individual middleman will not be able to handle these activities because of the nature of the product. Accordingly, the characteristics of the principal product groups or classes should be studied to ascertain the relative importance of the physical and non-physical distributive or marketing activities and to note in particular the limitations on those of the several non-physical marketing activities listed above.

Although the variety and complexity of goods and commodities on the market seem endless, products can be roughly classified with comparative ease. The principal groups or classes of goods are: Agricultural products, raw-materials, technical or industrial commodities, consumers' manufactured goods, and services and rights.

Agricultural products

The farm produces a large portion of the world's supply of vendible commodities. Wheat, cotton, barley, oats, rice, flax, rye, corn, tobacco, and fruits and vegetables are typical primary farm products. Among the secondary farm products are livestock and dairy products. Some of these products like fruits, vegetables, milk, cream and eggs, are ready for consumption when they leave the farm. Others, like the grains, livestock, and textile fibres must pass through one or more manufacturing processes before they are ready for consumption.

Distributive factors relating to agricultural goods

The marketing of agricultural goods is highly complicated by the following factors : agricultural products are produced on a small scale by a very large number of producers, agricultural production is very largely seasonal in character, a large portion of farm production is perishable, agricultural production varies greatly in quality and quantity from season to season. As a result of these factors the physical functions of assembling, transportation control, grading, and storing are exceedingly important.

Since the points of production and consumption are widely separated, agricultural products pass through various types of markets. These markets are usually classified as : Local markets (at country points), primary wholesale markets (at central concentration points), terminal markets or secondary wholesale markets (at central distribution points), and retail outlets (at points of consumption) .

In the local markets are found the following types of middlemen: Local buyers, car-lot shippers, country-store buyers and shippers, travelling buyers, travelling brokers, and cooperative shippers. In the primary wholesale markets are the brokers, commission men, auction companies, jobbers, car-lot wholesalers, and cooperative selling agents. In general, these same middlemen are typical of the terminal or secondary wholesale markets. Among the retail outlets are the grocery, meat, dairy product, and fruits and vegetables stores, the public retail markets, the chain and the cooperative food product retail establishments.

Limitations on use of non-physical activities

The individual farm producer can make very little use of the six non-physical activities involved in scientific marketing procedure. Market analysis and market forecasting are available to him only to a limited extent. He can adopt and use certain definite policies of production but he cannot package or identify his products by brand on a large scale. It is impossible for him to select his own distribution channels irrespective of existing marketing middlemen. He cannot enforce particular price policies because he is a small producer and must take practically what the assembling middlemen offer. Neither can he work out dealer or consumer policies. He can make very little use of effective personal salesmanship and practically no use of advertising.

Only by combining with other producers in cooperative marketing associations can he apply these techniques intensively or extensively. The agricultural middleman can do more, of course, but he, too, is limited by the fact that essentially he is a small handler in comparison with the total volume of almost exactly similar production.

Raw-materials

The second group or class of products includes all those raw-material commodities other than primary farm products. The extractive products such as coal, iron ore, zinc, copper, and lead belong to this group. Here, too, some products, such as coal, go directly to the household for consumption, while iron ore, copper, zinc and lead must be processed. But even in the case of coal, a very large tonnage becomes raw material for industry and is consumed in the productive process. In this second group belong also fabricating goods.

These are goods which have already been processed to some extent but which are still considered raw materials and must go through additional manufacturing operations before they are ready to be consumed. Sheet iron, structural steel, hides, textiles, and cut lumber are illustrative of fabricating goods.

Distributive factors relating to raw-materials

The distribution or marketing of raw materials such as extractive products and fabricating goods is also highly complicated by a number of important factors. The points of raw-material production are generally few and localized. The markets, too, are largely concentrated in industrial centres.

Usually, raw materials are large in bulk as compared with their intrinsic value so that transportation costs are relatively of considerable importance. Storing and grading or sorting are necessary. Moreover, the wide variety of uses to which the raw materials may be put involves reaching a large number of different markets. These uses are altered constantly by research and experimentation. The shadow of some possible substitute frequently clouds the whole marketing horizon., The volume of sale depends rather directly upon the rate of manufacturing activity.

Wholesale and retail markets overlap because such raw materials as paint, textiles, and leather are sold for retail distribution as well as for industrial use. The principal middlemen engaged in marketing this group of products are : Commission merchants, brokers, sales agents, wholesalers, jobbers and retailers. Special types of middlemen like wholesale and retail dock and trestle coal companies and wholesale and retail lumber yard companies, independent or line (chain) , are also common.

Possibilities of using non-physical activities

The producer of raw materials and the raw-material middleman can make a much more intensive use of the non-physical marketing activities than can the farmer or the farm middleman. Market analyses for raw materials are profitable because the exact needs of buyers can be determined rather accurately.

The forecasting of supplies and price trends is important because raw materials are purchased on a price basis and very frequently on short or long-term contracts. Distribution policies can be worked out irrespective somewhat of traditional marketing channels. Definite policies on prices, such as guarantees against price declines, are possible. Equitable and fair policies toward consumers can be established to build up good will.

Technically-trained salesmen can be employed, because raw material buyers are concentrated in industrial centres, do not require frequent visitation, and are glad to avail themselves of technical advice with respect to raw materials. Advertising may be employed effectively and economically particularly when it is directed toward the manufacturer. Ultimate consumer advertising is more costly and less productive of results. Although identification of raw materials by brands may be possible, most raw materials form component parts of finished products and the consumer is more likely to be interested in the brand of the finished product than in a raw-material brand on a part or element of the finished product.

Technical or industrial commodities

Technical or industrial commodities are the equipment, tools and supplies used in manufacturing but not entering the finished product in its marketed form. These commodities are purchased for purely utilitarian purposes. They include such accessory goods as belting, tools, and office supplies and such installation goods as factory boilers, heavy cranes, and textile machinery.

They are called technical commodities because technological considerations of design, quality, and performance are the major determinants in their purchase and consequently in their manufacture.

Distributive factors relating to technical commodities

Products for technical service present their special marketing problems. The total number of buyers is relatively small. Competition for markets is extremely keen. Market location has no inherent relationship to the distribution of population. The character of the market is determined by the particular use to be made of the product. Installation commodities, in particular, must fit the needs of the individual plant or industry. Buying on specification and to individual order is common practice.

Purchasing is carried on from the point of view of product performance. The buying test is the cost per unit of satisfactory service. Installation commodities are purchased at infrequent intervals and the unit of purchase is large. Accessory products are purchased more frequently but at irregular intervals and in varying amounts. Service obligations are imposed upon the seller, particularly in the case of installation equipment.

The marketing functions are performed, in the main, by manufacturers' representatives or sales agents, wholesalers or jobbers, and such special-type middlemen as mill-supply houses ( wholesalers) and sales engineering concerns (sales agents ). Certain kinds of accessory equipment such as wrenches, electrical supplies, automobile parts, bearings and fans, are handled also by retailers.

Possibilities of using non-physical activities

Both the manufacturers of technical commodities and the middlemen handlers can make an effective use of the several activities in scientific marketing procedure. Accurate and comprehensive market analyses are necessary to consummate initial orders, to secure repeat orders, and to avoid replacement by competitive products.

Technical products are often purchased as the result of competitive bids and market forecasting is absolutely essential to estimate production costs in terms of present and future raw material prices. Single distribution channels or mixed channels may be used as effectiveness and economy dictate. Technically-trained salesmen who are competent to offer engineering advice may be employed with profitable results. Buyers begin to consider the purchase of installation equipment long before it is actually bought.

They purchase accessory equipment irregularly and at very infrequent intervals. Hence advertising which is directed toward the industrial market and which stresses performance facts, design and construction details, exclusive advantages and service facilities will be most effective.

Consumers' manufactured goods

Consumers' manufactured goods are those fabricated products which are sold to the ultimate consumer—an individual or a household. They may be classified on the basis of the characteristic purchasing behaviour of the consumer. Thus, we have convenience goods, shopping goods, and specialties. The distinction is important. One major difficulty in the marketing of products has arisen from the tendency of the manufacturer, and even of the dealer, to think of their lines as staples. This conception, however, offers no key as to the correct marketing procedure to follow. It is essential to view products in the way the consumer looks at them.

Convenience goods are goods of small unit price in the purchase of which the consumer wishes to be put to a minimum of effort. Many of them come under the heading of so-called staple products. Groceries, tobaccos, drugs, and similar items are typical examples. Neckties, collars, handkerchiefs, shirts, belts and other articles that are found usually on the counters just inside the doors of department stores are likewise convenience goods because they must be placed where the customer does not have to search for them. Shopping goods are those goods in the purchase of which the consumer desires to compare prices, qualities and styles.

Chinaware, yard goods, clothing, jewellery, and so on, are typical shopping goods. Specialty goods are those which have some particular attraction for the consumer other than price alone. Their purchase is important and infrequent enough to induce the purchaser to visit a distant retail store, if necessary. A Hickey-Freeman suit, a Dunhill pipe, a Mark Cross brief case, or an Electrolux refrigerator are examples of products which may be specialty goods as far as an individual consumer is concerned. The term "specialty" as applied to goods must not be confused with "specialty" as applied to stores. In connection with goods it implies high quality and a certain degree of exclusiveness, but in connection with stores it implies a limitation of the nature of products carried to types, such as groceries, or hardware, or clothing.

Relative importance of physical and non-physical activities

Consumers' manufactured goods are produced in quantity for sale to wide markets. They are intensively marketed through middlemen and pass to the individual or the family usually through retail outlets. Broadly speaking, the problems of physical handling are somewhat less important in the distribution of consumers' manufactured goods than the problems of performing effectively and economically the several non-physical distributive activities.

However, this statement must not be extended in its meaning to belittle the importance of physical handling. It matters little that the market is well analysed, the product line well chosen, the field sales campaign well planned, the advertisements well written and placed in mediums that pull—no amount of psychology or promotion will result in continuously profitable sales without an effective and economical physical handling of the goods from the maker to the consumer. With this word of caution, it should be said again that market research, market forecasting, the formulation of definite market policies, and careful planning for personal salesmanship and advertising are particularly essential to mass distribution.

The manufacturer of consumers' goods and the middlemen who handle consumers' goods can make a more intensive and extensive use of these steps in scientific marketing procedure than can the producer or middleman engaged in distributing any other class or group of products. In spite of this fact, it is probable that more economic wastes exist in distributing consumers' goods than in any other field of distribution. And most of these wastes are the result of an ineffective and careless performance of the non-physical marketing activities or the failure to perform some of -them at all.

Services and intangible products

The final group of vendible "commodities" is composed of services and intangible products. The services which fall into this group may be personal and technical advice or the actual and personal execution of some definite commission. They may be the professional services of physicians, surgeons, dentists, clergymen, lawyers, engineers, and accountants, or the skilled labour service of the plumber and the carpenter.

They may be the semi-professional services of the advertising agency or of the collection agency. They may be the non-professional services of the public utility. The "intangibles" may be bank credit, securities, insurance or statistical services. Obviously, this group of intangibles is exceedingly varied in the nature of its component elements.

Distributive factors relating to services and intangible products

As a general rule, the distribution or marketing of services is not a highly organized process. Personal services are individualistic and consequently are marketed usually on a one-man basis.

Few middlemen take a hand in the process. Occasionally the broker and the commission man become important factors but, on the whole, personal services do not lend themselves to middleman handling. Personal services cannot be standardized and produced in quantity to any extent. Often they cannot be accurately described. They cannot be transported, classified and measured in the sense of physical products. Accordingly, sales are mainly direct and the functionaries of distribution are absent. In the case of intangibles like insurance and securities more elaborate marketing techniques are usually employed. Insurance may be sold by the insurance company's own sales organization or through middlemen known as insurance brokers.

Securities may be marketed directly to individuals, stock brokerage houses or institutions by the issuing business enterprise or through such financial middlemen as the financial broker, the mortgage companies, the investment banking houses, the commercial paper houses, and the commercial credit companies, or through organized security exchanges. Ordinary bank credit, of course, is obviously a matter of direct exchange between lender and borrower.

Effective use of marketing facilities

Such, then, are the principal groups of vendible commodities and their respective limitations or possibilities with respect to the use of the several non-physical marketing activities. In this text, our discussion of marketing will be confined to the effective and economical use of these non-physical marketing activities. We will touch upon the physical handling of goods only incidentally.

This procedure will be followed for a number of reasons. In the first place, the function of distribution is all-inclusive but the function of marketing is concerned primarily with the non-physical problems of reaching the consumer. Gorton James, who formerly was Chief of the Domestic Commerce Division of the United States Department of Commerce, put the situation as follows: "We take 'distribution' to cover all the problems of getting goods from the producer to the consumer. Of course, these are the two phases—marketing and physical handling." In the second place, most of the criticism which is at present directed against the whole field of distribution is aimed at marketing in particular, at "frenzied" salesmanship and "prodigal" advertising.

Finally, it appears that the possibilities of improving commodity distribution are greatest in connection with the effective and economical use of these true marketing functions. Certainly, the growing recognition of the value of staff marketing activities is opening the way for study and analysis which must inevitably produce beneficial results.

Application to the field of consumers' goods

The discussion of the ways and means of using these non-physical distributive activities will be confined mainly to manufactured consumers' goods. This type of goods, as has been indicated, presents the greatest possibilities for an extensive and intensive application of the marketing function.

It is in the process of reaching the consumer with manufactured goods that we now find actual examples and evidence of what can be accomplished by using these non-physical marketing techniques. Naturally, much that will be said in connection with market research, market forecasting, the formulation of definite market policies, and careful market planning can be and is frequently applied to the problem of distributing technical or industrial commodities, and even to the problems of distributing raw materials.

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