The New Competition

By O.H. Cheney, Vice-president, American Exchange-Pacific National Bank, New York (Reprinted From "Nation's Business")

"It would be better for us all if we could at one sweep scrap all our ideas of distribution."

I made this statement the other day in addressing a group of New York bankers and the chorus of agreement which is greeting these words from many parts of the country and from many lines of business makes me feel that I have been guilty of a platitude. Yet almost every day I meet some business men whose ideas of distribution would ap- propriately grace the quill-pen and silk-hat period of American business.

Distribution a Fetish

They think distribution is a semi-sacred process the rites and procedure of which are written somewhere into the Constitution of the United States and that it would take at least a constitutional amendment to change them. They still think the word "competition" means the struggle of two grocers on the same street to sell a woman a can of beans or the battle between two automobile manufacturers in Detroit. They believe in that aphorism which has guided the economic politics of this nation. "Competition is the life of trade"-they believe it probably more enthusiastically about other lines of business that about their own.

Ten years ago distribution and competition were not what they are today. In fact the methods of yesterday in many linis will probably be antiquated. tomoriow. Those of us who are thinking in terms of yesterday's competition are asleep. The noises which you hear in trade association convention halls, in congressional corridors and in the courts are the moans of such business men tossing in their sleep; and the loud cries you are hearing more -often are those of some business men waking up with a start to the new competition.

In the late war, which the peace conference are still so valiantly fighting, warfare left the ground and the waves and invaded the earth under the ground and the sea under the waves-and the air. So it has been with business warfare in the past few years-it has left the old battlegrounds and the old weapons. The business man these days doesn't know where he is going to be hit next, or how. The day is over when a man could see his competitor. It is a wis-e man who knows his competitor.

It is an interesting study in a neglected field of psychology to observe the degree of consciousness, in the average business man, of this new competition. Some of his reactions appear to be almost instinctive-he does not actually realize why he does certain things, but they very often turn out to be right.

The growth of trade associations is an example of this, By some form of herd instinct, men who still consider themselves competitors flock together for mutual protection from the mysterious dangers that lurk around them in the wild business jungle. They do not really realize that the reason why they act that way is that they unconsciously feel that the competition between them has become of minor importance compared with the new competition.

Fighting Days Are Gone

In the good old days (meaning almost anything more than thirty days ago) distribution was along a straight line and competition was along other straight lines-at right angles to it. In other words, the line of distribution was from producer through wholesaler and retailer to consumer. The lines of competition were between producers turning out similar products, between wholesalers in the same line, and between retailers selling practically identical goods.

The old competitive methods ranged from price-cutting to arson, including slander, bribery, espionage, man-stealing and fomenting strikes. Competition was competition in those days. When two competitors happened to meet in the same room it was against business ethics for more than one to be able to leave the room unassistgd. But nowadays, in these wishy-washy times, when two men in the same line meet, they start talking about cooperative advertising or standardizing sizes, eliminating unnecessary styles, uniform cost accounting or standard terms to the trade. And, if certain senators from the middle west are not within earshot, they may actually talk of a merger.

i The new competition is like the new art-the few simple lines which we could recognize and understand in the old competition have been replaced crisscross of angles and curves. Distribution becomes direct and cuts corners in some fields, in others it becomes more intricate with new middlemen. Competition breaks away from old lines, jumps across established methods, and travels up and down the very line of distribution itself.

What the New Competition Is

But closer study seems to reveal a logic in the confusion -an apparent method in the madness. But before the song of the new competition can become clear it is necessary to tune out a lot of interfering misconception and overcome considerable static. In fact, it is desirable to switch off and start all over again. That is why I have said that it would be helpful for us to forget all our previous ideas on the subject. As a beginning it is suggested that we do away with the word "competition" altogether and in this way get rid of the old conceptions that cling to the word. Instead of the word "competition" a phrase like "distributive pressure" is suggested; not that it is euphonious or picturesque, but it is more accurately descriptrve of the intricate processes which constitute modern competition.

The new competition is, broadly, pressure for distributive outlets; where this pressure was formerly exerted within certain established channels, the intensity of competition has broken these down and is making its own channels. The basic reasons for these terrific and newly directed pressures are, of course, the srrrplus plant capacity available for production and the tremendous progress in the arts and sciences of promotion and exploitation through advertising, publicity and salesmanship.

These pressures are impatient; they will not allow the stream of distribution to work through from producer to consumer at the old, slow rate. And this accounts for numerous merchandising phenomena which, seen alone, seem strange and often inexplicable; but when they are viewed together from this angle are seen really to be different currents and eddies in one stream. Such phenomena, for example, are hand-to-mouth buying, instalment buying, direct selling and group buying.

This distributive pressure, in almost every line of business, assumes the form of intra-industrial corfrpetition. Not only do retailers compete rvith each other, wholesalers with each other and manufacturers with each other, but individuals in each group compete with those in other groups -often with those who may be distributing or manufacturing their products.

-This competition may be observed, at the very beginning of the process, with the producer of the raw maierial. Th; dairy farmers join a league which buys milk routes and milk-products and ice-cream plants, entering into competi- tion with their own customers. A copper mining company buys a brass factory. Growers in many agricultural lines form gigantic cooperative marketing organizations. Manu' facturers become dissatisfied with the volume which thev are selling through wholesalers and begin to sell direct to, ttre retailers, as in the grocery field.

Both manufacturers and wholesalers enter into competi- tion with the retailers by organizing chains of retail stores. They go even further and try to eliminate the retailer and sell through house-to-house canvassers, as in the case of h-osiery or household appliances; further still, they try to eliminate the canvasser by using the mails, as in ahirost every conceivable type of goods; and even further, try to eliminate every selling method by getting the buyer t6 do more selling, as in the recent "endless chain" schemes for selling hosiery.

The Speeding-Up Process

This distributive pressure does not work in only one direction along the line of distribution; it works in the other direction also. The flow of distribution is accelerated not only by the pressure of production but also by the vacuum oJ merchandising; outlets want goods to sell-goods which they can -sell more quickly and on which they can make more profit, This ty-pe of the new competition also takes on many interesting forms.

The most striking and successful is, of course, the chainstore system, as in groceries, dry goods, variety goods, tobacco, and the like. By multiplying outlets undef one control, the retailer assumes the function of the wholesaler and competes' with him. Independent retailers combat chain competition by organizing group buying associations or combining their buying power through resident buyers, as !n tfe dry goods field. Chain and group retailers go.even further and enter the producing field, entering intolompe-

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