Who Pays to Advertise?

(Editor's Note: This very illuminating article by Scammon Lockwood in Collier's is well worth the reading of every merchant.)

Judge Henry G. Ward of the United States Circuit Court of Appeals, in handing down an opinion recently, made the following statement: "Advertising is a method of selling goods which, without increasing their merit, increases their cost."

If this is correct, the matter needs lo<lking into. Conservative estimates indicate that we, in this countrv, are spending more than a billion dollars a year in advertisirg. Lf the sole effect of this gigantic expenditure is merely to make things cost more, we ought to know it, and something should be done about it.

If the judge is wrong, then this statement is merely another example of the fallibility even of judges, and of the danger of public men expressing opinions on matters with which they are not thoroughly familiar.

But judges are not the chief offenders. This statement, or its equivalent, is constantly made by representatives of concerns which do not advertise. I suppose each of my readers has had some salesman say to him: "We can sell this to you cheaper because it isn't advertised, and we pass all that saving right on to the customer."

Now, I believe that Collier's readers would like to know 'for certain whether or not, when they buy an advertised products, they are paying more than they would have to pay if it were not advertised.

Let us consider what I regard as a typical instance of the way advertisi'ng operates. In 1898 a well-known concern began making canned soup. "In that year its ex- pense for salesmen," said the president of the company in a recent interview, "was 7f per cent, and its advertising was 14 per cent, a total distributing expense of 2lrl per cent." The advertising has been steadily increased each year. Today the expense of the company for salesmen is 2 per cent instead of. 7l per cent, and the expense for advertising about 3 per cent, instead of 14 per cent, making a total distributing expense of 5 per cent. Here is a cut in distributing cost ratios of over 75 per cent, ahd that during a period in which all costs have risen faster than in any other period of which we have knowledge.

Note that I say this is a cut in distributing costs. I say that because most authorities now regard advertising as a part of the cost of distributing a product. It may be trrre that it has no effect on quality, but there are many other costs entering into the distribution of a product which, of course, have no effect on its quality.

The judge above quoted might have said that the employment of salesmen is a method of selling goods which, without increasing their merit, increases their cost. Also, we might mention rent as part of the cost of getting goods to you which in no way adds anything to their merit. Or we might say that transportation is a method of getting goods to you which doesn't increase their merit but increases their cost.

The Cheapest Method of Discovery

But such costs are necessary and unavoidable. Take transportation, it may make an article cost more, but without it you couldn't have the article. We can't have factories making everything under the sun within walking