Radio Broadcast (May 1929-Apr 1930)

> The MARCH The Problem of Reducing Prices How Distribution Costs Can be Lowered How About The Place of the Jobber? . ... ^ ^ ^he average purchaser of a radio receiver is usually amazed if he learns that more than half his expenditure is devoted to meeting h the cost of distribution. He is even more 4 startled if he discovers that the cost of M production of a radio receiver is rarely more than one fifth of its list price. From this, he concludes that the radio industry is blessed with the most inefficient system of distribution imaginable. Actually, practically any specialty product sold to the consumer is as expensive to distribute as radio. It is impossible to assign average percentages, showing how the consumer's dollar in radio is spent. This is due to the fact that the actual expenditure per receiver for materials and labor fluctuates between wide limits, depending upon how widely the cost of research and tooling up is spread, the percentage of efficiency in utilizing manufacturing facilities, and how successfully the effects of -over-production are avoided. For example, a plant with a capacity of 100,000 receivers, utilized to only fifty per cent, of its maximum capacity, has a materially higher cost per set than one operating at one hundred per cent, of capacity. These and many other factors vary greatly, not only among different manufacturers, but season by season with each manufacturer. In general, the substantial reductions in the cost of radio receivers to the consumer have been effected almost entirely through manufacturing economies, and not through increased efficiency of the distribution system. Over and above the cost of production, the manufacturer meets a substantial national advertising expense, contributes to better broadcasting, pays considerable amounts for royalty, development, and research. Usually the goods pass from the manufacturer to the jobber and from jobber to dealer. A vital question to the industry is to discover ways that savings may be effected in order to make possible a still further lowering of prices and a consequent broadening of the sales opportunity. Most efforts to reduce selling costs are aimed at the elimination of the jobber or finding some substitute for him. Radio is hardly a perishable product, yet the radio jobber shows little tendency to stock goods. Too often, he chooses chiefly to watch the credit of the individual dealer. He sells when consumer demand is built up by the manufacturer's efforts. Otherwise he may pronounce the line a flop and concentrate on something else. The jobber's function appears to be easily assumed by the manufacturer and, as a consequence, many have tried the experiment of establishing their own distribution branches at principal centers or distributing through a jobbing house in which they have an interest. But, as in the automotive industry, the jobber is found more or less essential to distribution. Prac tically every a u t o m o b i 1 e manufacturer litis sought to elimin ate the jobber by establishing manufacturer's branches but, in general, this has not been found profitable. Manufacturers could not make branch managers apply the same selling zeal and the same watchfulness of the manufacturer's interests as a jobber whose profits are automatically measured by his ability. When the difficulty of finding suitable representatives is successfully solved, then the factory finds that the cost of maintaining factory branches about equals that of selling direct to the jobber, while the manufacturer's responsibility is considerably increased. Furthermore, automobiles are delivered to dealers with sight draft attached to the bill of lading, so that there is no important credit function involved as in the case of the radio jobber. The only prospect of economies through the elimination of the jobber is, therefore, the absorption of the jobber's profits by the manufacturer, either through ownership of the jobbing business or the assumption of the jobber's function. This represents little or no saving to the consumer because the increased risk, investment, and organization required under such a plan makes additional profit to the manufacturer essential. How Can the Dealer s Position Be Improved? Only the dealer, then, seems a prospect for cutting distribution costs. Anyone who has studied the financial position of the average dealer is convinced that forty per cent, is the minhnum with which he may do business. This is not due to the fact that forty per cent, is too small a margin per sale, but because of the seasonal character of the radio business, service costs, end-season dumping and pricecutting, which tend to dissipate the profits made during the more active months. The fortunes of the radio dealer cannot be judged on the basis of outstanding successes. It is the case of the average dealer which we must consider. The discounts extended to him, when stated in percentage, are large, but, when gross margin with the average annual turnover is considered, it becomes obvious that the discounts cannot be materially reduced in the search for lowered costs. The solution, in our opinion, lies in altering the radio dealer's function. Fundamental changes are gradually taking place, leading to the development of a specialty retail store with radio as the most important and major item of sale, but not dependent solely upon the radio industry for its profits. Experience will gradually evolve a better combination of items which will increase turnover and gross sales without requiring additional personnel, space, selling expense, or materially increased capital over that at present invested by the radio dealer. Such combinations as radio with electrical refrigeration, home motion pictures, electrical appliances, phonographs and records, sporting goods, toys, and automotive accessories are among the many possibilities. The day is passing when the radio dealer must be a teeh padio Mother things/ 334 • • O C T () I* K R 19 2 9 «