Selling economies are associated with the distribution of the product of a firm. The main types of such economies are (a) advertising economies, (b) other large-scale economies, (c) economies from special arrangements with exclusive dealers (representatives or distributors, wholesalers or retailers) and (d) model-change economies.
Advertising expenses are necessary not only for a new firm or a new product, but also for established firms, who need a minimum of advertising in order to keep their name in the minds of actual or potential customers fresh. Advertising economies do exist at least up to a certain scale of output. Advertising space (in newspapers or magazines) and time (on television or radio) increase less than proportionately with scale, so that advertising costs per unit of output fall with change in scale. Thus, the larger the output the smaller the advertising cost per unit becomes. Similar considerations hold for other types of selling activities, such as the salesmen force, the distribution of samples etc. Such large-scale promotion expenditures rise by less than proportionately with increase in output, at least up to a certain scale. Large firms can enter exclusive agreements with distributors, who undertake the obligation of maintaining a good service department for the product of the manufacturer. This is usual for the motor- car industry, where the dealers build up garages and keep regular stocks of spare parts for various models. The buyers of durables pay a lot of attention to the availability of spares and of good servicing-shops for the brands they buy. In modern industry, firms need to change the style of their product quite frequently in order to meet the demands of their customers and the competition of the rival firms- ' A change in the model or style of the product often involves considerable expenses in research and development, and possibly on new materials and equipment. The spreading of such overheads is lower per unit if the scale of output is large.
Advertising expenses are necessary not only for a new firm or a new product, but also for established firms, who need a minimum of advertising in order to keep their name in the minds of actual or potential customers fresh. Advertising economies do exist at least up to a certain scale of output. Advertising space (in newspapers or magazines) and time (on television or radio) increase less than proportionately with scale, so that advertising costs per unit of output fall with change in scale. Thus, the larger the output the smaller the advertising cost per unit becomes. Similar considerations hold for other types of selling activities, such as the salesmen force, the distribution of samples etc. Such large-scale promotion expenditures rise by less than proportionately with increase in output, at least up to a certain scale. Large firms can enter exclusive agreements with distributors, who undertake the obligation of maintaining a good service department for the product of the manufacturer. This is usual for the motor- car industry, where the dealers build up garages and keep regular stocks of spare parts for various models. The buyers of durables pay a lot of attention to the availability of spares and of good servicing-shops for the brands they buy. In modern industry, firms need to change the style of their product quite frequently in order to meet the demands of their customers and the competition of the rival firms- ' A change in the model or style of the product often involves considerable expenses in research and development, and possibly on new materials and equipment. The spreading of such overheads is lower per unit if the scale of output is large.
No comments:
Post a Comment