Th?s dissertation has been microfilmed exactly as received 67-2470
KING, Algin Braddy, 1926- THE MARKETING OF PHONOGRAPH RECORDS IN THE UNITED STATES: AN INDUSTRY STUDY.
The Ohio State University, Ph.D., 1966 Business Administration
University Microfilms, Inc., Ann Arbor, Michigan THE MARKETING OF PHONOGRAPH RECORDS IN THE
UNITED STATES: AN INDUSTRY STUDY
DISSERTATION
Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University
By
Algin Braddy King, B.A., M.S.
A A A A A & A
The Ohio State University 1966
Approved by
A d v iser — Department of Business Organization PREFACE
The problems associated with the marketing of phonograph records were brought to the w riter's attention during a graduate seminar conducted by Professor Theodore N, Beckman at the Ohio
State University. As an outgrowth of this discussion and under the encouragement of Dr. Beckman, the w riter undertook, in October
1964, to conduct a study in depth because considerable confusion exists in this industry concerning the marketing process. This confusion results from the fact that the marketing of phonograph records has undergone a revolution since 1950, and numerous seg ments of the industry have failed to perceive these changes or understand the effect of their ramifications on the marketing process.
L ittle information from any formal study of the marketing of phono graph records is currently available to the industry. There was an opportunity, therefore, to contribute to the clarification of this subject by formal study, and to draw conclusions and make sugges tions which would serve to improve the marketing process in the records industry.
The author owes a debt of gratitude to many people for mak ing this study possible. Because of space lim itations, acknowledg ments must be restricted to those making special contributions. I acknowledge a very special debt to the members of ny dissertation reading committee at The Ohio State University—Drs, Theodore N.
i i Beckman, Alton F. Doody and Irving Abramowitz. They contributed not only their great knowledge but through their constructive criticism were responsible for making the study more precise, scholarly, and meaningful. Especially to my adviser. Professor
Theodore N, Beckman, the debt is particularly great for it was his keen perception which first envisioned the need for investigation into this subject. His guidance in both the research efforts and in the writing of this study have been of inestimable value, not only in my producing a better research study, but in my own per sonal and professional development as an academician.
Another group to which is owed a special debt of thanks is the Industry Advisory Committee formed for the purpose of- aiding this research undertaking. The -Industry Advisory Committee was composed of the following: Mr. Alvin Bennett, President, Liberty
Records, Inc.; Mr. John Y. Burgess, Jr., Vice President, RCA
Victor Record Division; Hr. Hal B. Cook, Publisher, The Billboard;
Mr. Dan Dansiger, President, The Disc Shop; Mr. William R.
Gallagher, Vice President, Marketing, Columbia Records, Inc.; Mr.
Amos Heilicher, President, Heilicher Bros.; Mr. Cy Leslie, Presi dent, Pickwick International, Inc.; Mr. Jules Malamud, Executive
Director, National Association of Record Merchandisers, Inc.; Mr.
Tom Noonan, Research D irector, Record Market Research; and Mr.
Irwin H. Steinberg, Executive Vice President, Mercury Record
Corporation.
These men gave of their time, knowledge and advice to the end that this study could better fu lfill its purposes and receive
1X1 the cooperation of the industry in supplying the requisite data
for the dissertation, A special word of appreciation goes to Mr.
Hal B. Cook, Publisher of Billboard, whose encouragement and advice
has meant muchf. Mr, Thomas Noonan, D irector, Record Market Research
(a division of Billboard) who so generously gave of his time and
wide range of knowledge about the record business; and Mr, Jules
Malamud, Executive Director, National Association of Record Mer
chandisers, whose excellent leadership in heading the Industry Ad
visory Committee contributed much to the success of this research
in q u iry .
To Dr. Donald Ball of the English Department of the College
of William and Mary in Virginia goes an expression of appreciation
for his editing review and comments.
Finally a word of appreciation to the nearly 450 firms that made the study possible by supplying the required data. Without
their cooperation this dissertation would not have been feasible.
Algin B. King
May 20, 1966
IV VITA
January 19, 1926 Born - Latta, South Carolina
1947 . . 9 B.A>, U n iv ersity of South C arolina, Columbia, South Carolina
1947-1948 .... Executive Trainee, Sears Roebuck and Company, Columbia, South C arolina
1948-1951 ...... Instructor, School of Business Admin istration, University of South Carolina, Columbia, South Carolina
1951-1953 ...... Chief, Econcsnic Analysis Branch, Office of Price Stabilization, Columbia, South Carolina
1953 ...... M.S., Men York University, New York, New York
1954-1955 ...... Executive Secretary, Columbia Mer chants' Association, Columbia, South C arolina
1955-1956 ...... Assistant Professor of Marketing, Department of Business Administration, ^ Texas A and M University, College Sta tion, Texas .
1956-1959 ...... Associate Professor of Business Ad m inistration, College of William and Mary, Williamsburg, Virginia
1959-1963 ...... Professor of Business Administration; Acting Head, Department of Business Administration (1960-1962); Director, Bureau of Business Research (1959- 1963) ; College of William and Mary, Williamsburg, Virginia
1963-1964 ...... Graduate Teaching Assistant, Department of Business Organization, The Ohio State University, Columbus, Ohio 1961^-1966 Professor of Business Administration, College of William and Mary, Williams burg, Virginia
PUBLICATIONS
1 - Books, Chapters of Books, and Monographs.
Committee on Marketing (co-author of a chapter), Principles of Marketing. New York; Pitman Publishing Co., 1961.
Committee on Retailing (co-author of a chapter), Principles of Retailing. New York: Pitman Publishing Co., 1955.
— Compsi'Btive Analysis of Nine Selected Business and Economic Indicators in Thirteen Virginia C ities, 1956-60 (50-page mono- graph). Williamsburg, Virginia: Bureau of Business Research, College of William and Mary, 1961.
Retailing and Wholesaling in Virginia (40-page monograph). Williamsburg, Virginia; Bureau of Business Research, College of William and Mary, 1962.
Selected Services Trades in Virginia (25-page monograph)! Wil- liamsburg, Virginia: Bureau of Business Research, College of William and Mary, 1965.
2 - Articles
"Build Your Own Business Barometer," Banking Magazine (Febru ary, 1960).
"Marketing and Marketing Research," Life Advertisers Magazine (June, 1965).
The follow ing l i s t of a r ti c le s published in th e Commonwealth Magazine of Virginia, official publication of the Virginia S ta te Chamber o f Commerce. Richmond, V irg in ia: The Common wealth Magazine of Virginia.
"Retail Sales as an Indicator of Business Activity" (February, 1963).
"Advertising: Expense or Investment" (March, 1963).
"Advertising: Three Common Misuses" (April, 1963).
"The Virginia Economic Outlook Today: Bullish or Bearish" (May, 1963).
VI "The Trained Manpower Shortage" (June, 1963),
"Marketing Research: What Does It Do?" (July, 1963),
"How to P la y The B u sin ess Game" (A u g u st, 1964),
3 - Other Publications
The Virginia Business Index Report, a continuing monthly re search report on business and economic activity in Virginia, published monthly for four years by the Bureau of Business Research, College of William and Mary, Williamsburg, Virginia, under my direction.
The monograph. Retailing and Wholesaling in Virginia, was re viewed in the Journal of Retailing, Volume XXXIX, No, 1, Spring, 1963,
FIELDS OF STÜLf
Major Field: Marketing
Studies in Management. Professors Ralph C, Davis and Irving Abramowitz
Studies in Economics, Professors Paul G, Craig, Arthur D, Lynn, Jr., Alvin E, Coons, and Robert D. Patton
Studies in Personnel Management, Professor William E, Schlender
V l l CONTENTS
Page
PREFACE ...... '...... i i
TABLES ...... x i
ILLUSTRATIONS...... xv
C hapter
I . NATURE AND SCOPE OF THE STUDY ...... 1
Rationale for the Study ...... 2 Objectives ...... 5 Hypotheses ...... 7 Methodology ...... 10
I I . THE PRODUCT, ITS NATURE AND CLASSIFICATION .... 15
Product Examination from D ifferent Viewpoints ...... 19 Tapes - A Special Case of Sound Reproduction ...... 36
I I I . HISTORICAL DEVELOPMENT OF THE PHONOGRAPH RECORD . . 42
The Acoustical Recording Period Prior to 1925 . 43 The Electrical Recording Period from 1925 t o 1948 ...... 51 The Successful Commercialization of the Long Play Record - 1948 to the Present ...... 57 The Dimension of Stereophonic Sound Is Added to the Record - 1958 to the P re s e n t ...... 60 The Phonograph Record Player - A Neces sary Adjunct to the U tilization of the Phonograph R ecord ...... 61
V l l l Chapter Page
IV. THE CONSUMPTION OF PHONOGRAPH RECORDS...... 66
H istorical Sales Patterns of Phonograph R e c o r d s ...... 67 Dollar Sales Patterns by Geographical- Market Areas ...... 75 The Influence of Selected Economic and Demographic Factors on the Consump tion of Phonograph Records ...... 84 Consumer Motivation in Record Purchasing. . . 94
V. CHANNELS OF DISTRIBUTION ...... 101
Historical Patterns of Distribution from 1930 to 1962 102 Channels of Distribution Utilized in 1965 . . 114 Trends in Distribution ...... 118 General Factors Effecting Changes in Distribution Patterns and D istri bution Channels from 1948 to 1355 .... 131
V I. THE PHONOGRAPH RECORDS MANUFACTURER...... 135
A Quantitative Analysis of Record Producers ...... 135 A Qualitative Perspective of Record Manufacturers ...... 146 Distribution Policies and Practices ...... 151 Pricing Policies and Practices ...... 165 Sales Promotion Policies and Practices . , . 170
V II. A QUANTITATIVE AND QUALITATIVE ANALYSIS OF THE WHOLESALING STRUCTURE ...... 178
Independent D istributors and Manufac turers' Sales Branches ...... 182 Rack Jobbers ...... 204 One S t o p s ...... 222
V III. THE MARKETING OF PHONOGRAPH RECORDS THROUGH RETAIL OUTLETS ...... 237
A Quantitative Analysis of Retail Outlets . . 243 Buying and Inventory Control Policies and Practices of Retail Outlets ...... 250 Selling and Pricing Policies and Practices. . 254 The Relative Position of the Retail Outlet in the Current Market ...... 262
IX Chapter ^ sge
IX. A SPECIAL MARKET, THE MUSIC MACHINE INDUSTRY . . . 270
Record Sales To and Through The Juke Box Operato's ...... 271 Location Problems and Practices ...... 280 Buying Policies and Practices of Juke Box Operators ...... 284 The Outlook for the Juke Box Operator as a Marketer of Records at Retail .... 286
X. SUMMARY AND CONCLUSIONS OF S T U D Y ...... 289
PART 2 - RECOMMENDATIONS...... 310
APPENDIX ...... 315
BIBLIOGRAPHY ...... 353
X TABLES
Table Page
1. The Number of Single Records Released Annually and the Per Cent Change from Previous Year, 1 9 5 5 -1 9 6 4 ...... 23
2 . The Number o f LP Records Released Annually and the Per Cent Change from Previous Year, 1955-1964 . . 24
3. LP Records Released by Type of M aterial, 1950-1954 27
4. Singles Records Released by Type of Material, 1960-1964 ...... 30
5. Sales of Phonographs and Percentage of Electrically Wired Homes With Phonographs, 1950-1964 . . . 62
5. Factory Phonograph Sales by Selected Years, 1940-1963 ...... 64
7. U. S. Phonograph Sales in Dollars Over a Forty- three Year Period, 1921-1964 ...... 69
8. Dollar Sales and Per Cent of Change by Type of Record — LP*s Singles, and EP's, 1961-1964 . 73
9. Per Cent of Dollar Sales by Type of Record—LP *s. Singles, and EP's, 1951, 1957, 1961-1964 . . , 74
1 0 . Per Cent o f T otal U nit Sales by Type o f Record (LP's, Singles), 1951, 1960-1964 ...... 76
11. Consumer Expenditures fo r Phonograph Records Broken Down by Market Locations, 1956 78
12. Consumer E xpenditures fo r Phonograph Records Broken Down by Geographic Regions, 1956 . . . 79
13. Dollar Sales Patterns of Phonograph Records Sold Through Record Shops for the Years 1958 and 1963 ...... 81
XI Table Page
14. Consumer Expenditures for Phonograph Records by Annual Household Income Classes, 1956...... 85
15. Consumer Expenditures for Phonograph Records by Age of Household Head, 1956 .87
16. Household Consumer Expenditures for Phonograph Records by Educational Level Achieved of Household Head, 1956 , ...... 89
17. Consumer Expenditures for Phonograph Records by Occupation of Household Head, 1956 90
18. Retailers’ Opinions as to Basic Market Segments by Age Groups for Different Types of Repertoire , . 95
19. Manufacturers’ Opinions as to Basic Market Segments by Age Groups f o r D iffe re n t Types o f Repertoire , . , , ...... 96
20. The Number and Per Cent of Record Manufacturers Selling to Each of the Institutional Seg ments in the Channel of D istribution ...... 122
21. The Number of Manufacturers’ Lines Handled by Distributors ...... 126
22. Changes in the Relative Share of the Record Dol lar at Retail Held by Various Marketing Institutions Excluding Juke Boxes, 1955, 1961-1964 . . . . . 129
23. Manufacturers Classified by Dollar Sales Volume for Year, 1964 ...... 139
24. Dollar Value of Phonograph Records at Factory, 1921-1963 , ...... 140
25. Selected Statistics on Phonograph Record Manufac turers Over the Twenty-four Year Period, 1939-1963 144
26. Net Profit Patterns of Phonograph Record Pro ducers in 1964 by Size of Firm ...... 146
27. Relative Value of Various Sales Promotion and Advertising Methods in Selling Records ..... 173
X l l Table Page
28. Primaiy Sources of Information on Consumer P ro d u c t Demand U tiliz e d by Manufacturers » ...... 174
29. The Wholesale Structure in the Phonograph Records Industry, 1962-1965 182
30. Distributors Classified by Dollar Volume for the Year 1964 185
31. The Extent of Operations by Vertically Integrated Distributors ...... 187
32. Record Distributors* Dollar Sales Volume Broken Down by Type of Account, 1962-1964 ...... 190
33. Relative Importance Placed by Distributors on Various Sales Promotion and Advertising Methods . 194
34. Types of Credit Terras Extended by Distributors . . . 197
35. Types of Merchandise Return Policies Granted by Distributors ...... 198
36. Primary Sources of Information on Consumer Product Demand U tilized by D istributors ...... 200
37. Dollar Sales and Percentage Share of Record Sales at Retail Accounted for by,Rack Jobbers Over the Seven-Year Period, 1957-1964 ...... 205
38. Rack Jobbers Classified by Dollar Sales Volume in 1964 ...... 207
39. Sales Volume of Rack Jobbers Broken Down by Classes of Customers for Selected Years - 1961, 1964 . . 211
40. Primary Sources of Information on Consumer Product Demand Utilized by Rack Jobbers ...... 213
41. Relative Importance Placed on Various Selling and Advertising Methods by Rack Jobbers ...... 217
42. One Stops Classified by Dollar Volume in 1964 .... 224
43. Primary Sources of Information on Consumer Product Demand Utilized by One Stops ...... 228
Xlll Table Page
44» Relative Importance Placed on Various Selling and Advertising Methods by One Stops ...... 232
45. Dollar Sales of Phonograph Records at Retail and Per Cent of Total Record Dollar Sales at Retail by Type of Institution, 1960- 1964 ...... 240
46. Unit Sales of Phont. raph Records at Retail and Per Cent of Total Record Unit Sales at RS“ tail by Type of Institution, 1957, 1961-1964 , , 241
47. Record Retail Outlets Classified by Dollar Sales Volume, 1964 ...... 244
48. Sources of Information on Demand Utilized by R e ta ile r s ...... 251
49. Relative Value of Various Advertising, Selling, and Sales Promotion Methods in Selling R ecords ...... 256
50. Sales, Number of Establishments, Payroll, and Em ployment for Record Shops (SIC 5733 P art), 1958 and 1963 265
51. Sales of Phonograph Records in Dollars and Units to the Juke Box Industry, 1957, 1961-1964 . . , 272
52. Types of Records Purchased by the Music Machine Industry, 1960-1963 ...... 273
53. Diversification Practices Among Juke Box Operators, 1960-1964 ...... 277
54. Music Machine Locations by Types of Sites ...... 280
55. Methods of Payment by Juke Box Operators to Location Owners, 1960-1964 ...... 282
56. Sources of Supply Utilized by Juke Box Operators, 1960-1964 285
57. Number and Sales Volume of Drinking Places, Census of Business Y e^s, 1954-1963 and Per Cent Change for Drinking Places and Total Retail Trade, 1954-1963 ...... 287
XIV ILLUSTRATIONS
Figure Page
Il U. S. Phonograph Record Sales in Dollars Over a Forty-three Year Period, 1921-1954 ...... 72
2. Patterns of Distribution of Phonograph Records in the 1930's and 1940's ...... 104
3. Record Distribution - 1948 106
4. Patterns of Distribution of Phonograph Records, the Late 1940's to 1955 ...... 108
5. Record Distribution - 1955 110
5. Patterns of Distribution of Phonograph Records, 1955-1962 112
7. Record Distribution - 1962 ...... 113
8. Changing Distribution Patterns of Phonograph Records, 1948-1963 ...... 115
9. Current Patterns of Distribution of Phonograph Records, 1965 ...... 116
10. Normal and Auxiliary Methods of Record Distribu tion and Their Interrelationships, 1965 .... 117
11. Dollar Sales of Phonograph Records Over a Forty- three Year Period, 1921-1964 ...... 141
12. An Example of an Organization Structure of a Typical Small Record Producer ...... 148
13. Capitol Records Distribution Organization in 1964 . . 154
14. Columbia Records Distribution Organization in 1962 . 156
15. Mercury Records Distribution Organization in 1965 . . 157
16. A Simplified Operating Statement for a Typical Record Dealer ...... 248
XV CHAPTER I
NATURE AND SCOPE OF Î*HE STUDY
Phonograph records are a major industry in the American economy. Record Market Research, Inc., reported that in 1955 dollar sales volume at retail of phonograph records amounted to seven hundred eighty-nine million dollars. If the industry is considered in its broadest dimension by including the phonograph record player in an economic significance picture, then the sales volume of both commodities amounted to over one billion, two hun dred million dollars in 1965,
This industry cannot and should not be measured, however, solely on a monetary or economic basis, for it contributes sub stantially to the cultural life of America, providing one of the major forms of home entertainment. An illustration of the phono graph record's significance to American consumers is the fact that they spend more money foi^he purchase of high fidelity equipment and concert-music recordings than they do for all spectator sports com bined,^
Because of the economic and cultural significance of phono graph records and because of the paucity of published information of a scholarly nature on major economic aspects of the industry, a study has been undertaken of a major facet of the economic
^Sidney Shemel and M, W, Kraslovsky, This Business of Music, New York: Billboard Publishing Co,, 1964, p, xv. productive process known as marketing. As Drs. Theodore N. Beck man and William R. Davidson point out in their textbook, marketing is a vital and integral part of economic production,^ In the crea tion of economic values, u tilities must be created. Marketing creates time, place, and possession u tilities through the perform ance of basic marketing functions such as buying, selling, transportation and storage. This study is further limited to the marketing of phonograph records in the United States, Since there is little descriptive material available on marketing practices or policies, the study must necessarily be descriptive as well as analytical in nature.
Rationale for the Study
In the decade since the middle 1950’s much confusion has arisen in the phonograph records industry regarding the marketing and distribution of phonograph records. Such adjectives as ’’con fused” and ’’chaotic” have been applied by the industry itself in describing the marketing process. The confusion applies not only to common marketing practices and policies but extends even to the nature and role of marketing institutions in the trade channel.
As an example of this latter problem, the case of the rack jobber
(a type of a middleman) could be cited. Since his appearance on the scene (as far as record marketing is concerned) in the early
1950’s, the question has arisen in this industry as to whether or
^For a more detailed discussion of the productive nature of marketing see Theodore N, Beckman and William R, Davidson, Marketing, 7th edition. New York; Ronald Press, 1962, pp, 6-9, not rack jobbers are essentially wholesalers. The answer to the
question is significant not only to rack jobbers but to other seg
ments of the phonograph records business. A major ramification of
this question deals with the prices of goods bought by rack jobbers.
If the rack jobber is classified as a wholesaler, he receives one
class of functional discount from his supplier; if he is classified
as a retailer, then he does not get this class of functional dis- .
count granted to wholesalers.
Since 1950, traditional channels of distribution have
crumbled as the number and different types of marketing institutions at the retail level handling records have grown substantially. The two most significant outlets at retail for records prior to 1950 were the record specialty shop and the department store. The spe cialty shop, which handled the-majority of the volume, has declined
in relative significance, both in terms of numbers and in share of the record dollar at retail. New types of mass merchandising retail outlets such as supermarkets, discount stores, variety stores, and drug stores began to handle records in the early 1950's. Because most of these mass merchandising type retail outlets operated on es sentially a self-service basis and offered as main product lines commodities other than records, new and different types of whole saling practices were called for. New wholesale type institutions developed when the traditional wholesale institution (distributors) failed to meet cha.nging marketing needs. As a result of these new and different marketing circumstances, traditional relationships between manufacturer, distributor and retailer have been modified considerably. The following developments could be formally cited as prime
contributory factors to the highly fluid marketing environment which has prevailed since the early 1950's. F irst, a revolution
in product technology has taken place since 1948—the introduction
of the long play 33 1/3 records and the advent of stereophonic re
cording. These product advances have stimulated consumer demand by broadening the market appeal of phonograph records and intensifying demand among market segments already buying this product. Second, a concomitant revolution in marketing has taken place with the de velopment of mass marketing—self-service type retailing outlets, many of which since 1950 have added phonograph records to their product line offerings. This latter development, along with the product changes, has had the effect of transforming the product, consumptionwise, from a class or restricted semi-class product to
a mass product. These changes in consumption and distribution patterns have had wide ramifications, particularly relative to such
things as channels of distribution used, institutional structure,
and distribution policies of manufacturers.^
In such a highly fluid and rapidly changing marketing en vironment it is natural that some degree of confusion should exist.
In the phonograph records industry much of the current confusion
concerning marketing and distribution can be traced to several re
lated factors. First, there is a lack of understanding on the part
^Much of this analysis is based on the contents of a speech made by Dr. Alton Doody on April 10, 1962, before the 1962 Conven tion of the National Association of Record Merchandisers held in Miami Beach, Florida. Dr. Doody’s speech was entitled, "A Market ing Perspective For The Record Merchandiser." of much of the industiy as to what has happened in the phonograph records business# particularly concerning the nature of its rami- fications from a marketing standpoint. Second# there is a genersil lack of knowledge of the overall current picture of marketing in the industry. Third# various segments of the industry fail to appre ciate the role each segment pl^ys in the total marketing process.
In view of the conditions discussed in the previous paragraphs, a study of the marketing problems, the practices and the policies in the phonograph records industry should prove to be fruitful because it would develop new knowledge that would give the various segments of this industry a greater insight into the vital marketing p ro c e s s e s .
O b je c tiv e s
Since little published information pertaining to marketing practices# problems# and policies of the phonograph records indus try exists# this study has three general objectives; first# to develop some comprehensive body of knowledge concerning marketing problems# practices# and policies in this industry; second# to or ganize and summarize this knowledge in a research study so that both the lay reader and knowledgeable industry personnel may gain new
insights and knowledge concerning the marketing process. Particu
larly# it would be the objective to develop insights and knowledge
for the industry reader that could result in an improvement in the meirketing process for all segments of the industry; third# to add
to the general store of marketing knowledge to the end that market
ing# as a vital economic process, may become more productive. In accomplishing these general objectives, the study under takes to achieve certain specific objectives. First, concepts and data relating to ultimate consumer market segmentation are developed and analyzed, with common economic and demographic factors being utilized in the analysis. As an illustration, product demand by different age groups is explored. Second, channels of distribution are examined in terms of historical and current dimensions. Changes in distribution patterns are traced chronologically during the p erio d from 1950 to 1965 and s ig n ific a n t changes p o in ted o u t. Chan nels of distribution currently existent are described. Third, the structure of wholesale marketing institutions operating in the trade channel is investigated and generalizations are developed concerning this structure. Fourth, a similar investigation of the structure of marketing institutions operating at the retail level of the channel is undertaken and generalizations are made about such structural findings. The basic types of marketing functions per formed by the various marketing institutions at the wholesale and retail levels are e:glored and conclusions drawn. Fifth, advertis ing, selling, and promotional practices and policies currently utilized in moving phonograph records at various levels in the trade channel are investigated. Current promotional practices are contrasted with those employed previously (in the period frcan 1955-
1960). Sixth, various aspects of buying and pricing practices and policies at each level of the trade channel are analyzed and gener alizations are made where possible. Primary facets of pricing to be examined are such practices as trade discounts, quantity discounts, cash discounts, and credit terms. Of particular interest in buying practices are sources of product and market knowledge utilized by marketing institutions in such a crucial decision as product selec tion and the degree of utilization of unit stock control systems.
Hypotheses
In any scientific study one starts with certain assumptions or propositions. Such propositions may be based on speculation, conjecture, idea, or accumulation of certain facts and data, which, while they point to a certain conclusion, are so limited that the conclusion or proposition cannot really be proven on the basis of these sets of data or facts. If such assumptions or propositions are to be tested by the research efforts in the study and either proven to be correct or disproven, then they are commonly labeled hypotheses. Rummel and Ballaine in their textbook, define a hypo thesis as "a tentative proposition, stated as a generalization, which is to be tested from a sample of data to be collected in a research project."^ Beckman and Davidson in their textbook define a hypo thesis as "a tentative supposition provisionally adopted to explain certain facts and to guide research that might verify or disprove the hypothesis."^ Thus hypotheses are the very heart of the scien tific method, because propositions advanced by the researcher are tested and either proved or disproved.
The following hypotheses are being advanced and tested in this study:
*^J. Francis Rummel and Wesley C. Ballaine, Research Method ology in Business (New York: Harper and Row, Publishers, 1963), p. 55.
^Beckman and Davidson, op. c it. , p. 19, 8
1) Due to changes in consumer attitudes, advances in prod uct technology, and the general revolution in marketing methods in the United States, a revolution has taken place in the marketing of phonograph records in the United States since 1950. As a result, the following conditions have been effected, and these conditions are advanced in the form of specific hypotheses;
a* The racking of records has become a significant
method of retail selling and w ill become an even more
important technique of marketing records at retail in the
f u t u r e . .
b. The distributor, historically the key wholesaling
institution in this industry, is being by-passed to a greater
and greater degree in the channel of distribution as record
producers increasingly market records directly to retailers
and sub-distributors such as rack jobbers.
c. Forward vertical integration on the wholesale level
has been tremendously stimulated since 1961.
d. Two basic classes of middlemen, rack jobbers and .
one-stop operators, have emerged since 1950 at the whole
sale level in response to marketing needs generated by
changes in consumption patterns and in retail distribution
o u t l e t s .
e. The traditional basic distribution policy of a
distributor being an exclusive agency for a single producer
with a restricted-protected territory is no longer prevalent
in the industry. f. The traditional practice of assigning distributors
sales quotas based on a territory’s BPI (buying power index),
as traditionally computed, is no longer valid as a marketing
technique in the current marketing environment.
g. Primary methods of advertising and promotion of
records have not changed significantly since 1955.
h. For many types of retail outlets handling phono
graph records, these products are a secondary line of goods
which require a high degree of merchandising skill. This
condition has stimulated the practice of racking records at
the retail level.
2) As a result of this revolution in the marketing of phono
graph records, there exists today a relatively high degree of con
fusion among industry segments about (a) the overall current marketi^ng "picture;” (b) the requisite role in marketing played by the various types of marketing institutions ; (c) and the rami
fications of this marketing revolution.
3) Common economic and demographic factors do affect pat
terns of consumption of phonograph records. Such factors as age,
income level, educational level, and occupation influence the pat
terns of consumer expenditures for records.
M-) Manufacturing and marketing institutions operating in
this industry can utilize standard economic and demographic factors
in solving a number of common marketing problems such as defining
market segments, determining market potentials, and developing sales
q u o ta s. 10
The foregoing hypotheses advanced in this study were de veloped after an analysis of considerable facts and data gathered from general and industry periodicals, unpublished m aterials, personal interviews with knowledgeable industry representatives and faculty at the Ohio State University. Some of the hypotheses are also based on speculation and conjecture.
Methodology
The methodology employed in this research study consists of both primary and secondary research techniques. Secondary research was utilized in gathering pertinent information from published books dealing with the industry and from textbooks on the general subject area of marketing. Few books have been written on the record in dustry. The few available deal mostly with the historical develop ment of the phonograph record, and the industry structure, or they are technically oriented toward the recording process. Also, relevant information gathered from general and industry periodicals was integrated into the study. There are few periodicals whose editorial content deals primarily with the phonograph record. Of the periodicals which do, most concern themselves primarily with descriptions of current repertoire, product offerings, and artists evaluation of current interest news. General industry periodicals such as Fortune Magazine yielded some m aterial in the form of special articles analyzing or discussing the industry, but such articles were relatively scarce or too general in character.
In addition, a number of published or unpublished source m aterials, such as special studies on consumer behavior in record 11 buying, speeches, letters, monographs, and two Master of Business
Administration theses, were examined and utilized. Several of the special studies dealing with consumer expenditures and other facets of buying behavior, such as L ife's Study of Consumer Expenditures, conducted by Alfred Politz, and Curtis Publishing Company's special study on the phonograph records market, were quite helpful. While secondary research was significant in the study, primary research constituted a substantial amount of the methodology employed.
Primary research was undertaken to secure requisite informa tion either not available through secondary research or incomplete.
One method employed was the use of a mail questionnaire. The sam ple design for the questionnaire utilized varied with the different segments of the industry researched. Lists of firms in each of the five segments cf the industry—retailers, rack jobbers, one stops, distributors, and manufacturers—were developed in collaboration with a Phonograph Records Industry Committee formed for the purpose of assisting in this research study, and with Billboard Magazine, the leading trade publication in this industry. Billboard Magazine's yearly publication, ^ International Buyers Guide and Directory of the Music-Record Industry, is considered to be the most authorita tive and complete compilation of firms in the industry. This 1965-
66 International Buyers Guide and Directory of the Music-Record In dustry served as the basis for the mailing lists employed.
In approaching the problem of sampling of manufacturers it was the judgment of the Industry Committee, and the faculty of Ohio
State University, that a sample of producers should be drawn rather than attempting to research the universe. A 30 per cent stratified- 12 random sançling of the 890 record producers-manufacturers currently in operation was used. This 30 per cent sample was selected with the anticipation of receiving a 10 per cent over-all return from the universe. It was not expected that 100 per cent of the ques tionnaires sent to a 30 per cent sample of record firms would be returned. A larger initial size sample was utilized for manufac turers than for retailers, based on the assumption that the standard deviation of the firm size is higher among the manufacturers than among retailers. Thus it was necessary to get a larger sample of manufacturers than of retailers in order to secure a sim ilar degree of accuracy in both samples and compensate for the anticipated
Ispger standard error. Stratification was based on five categories as follows:
1) Very significant large, full-line manufacturers with their own recording and pressing facilities.
2) Significant full-line manufacturers but lacking their own pressing facilities. This group, however, is classified as full-line manufacturers with substantial offerings in both albums and singles.
3) Semi-significant full-line manufacturers with company emphasis on either singles or albums (no pressing facilities gener a l l y ) .
4) Fairly insignificant manufacturers but fully operational twelve months of the year, thus offering consistent releases through out the year (no pressing facilities).
5) Fairly insignificant manufacturers with periodic releases but potentially capable of producing a top ten record at any time
(no pressing facilities). 13
A random sampling technique was utilized to select manufac turers from each category. Such a stratified-random sampling technique based on size and type of record producer ensures a more accurate data picture than if simply a random sample had been chosen from the universe, since the majority of record producers are small and do not even have pressing facilities. An actual 9 per cent sample of the universe of record manufacturers was achieved.
There are approximately 7,500 retailers currently engaged in selling records. Because of this large number, the use of a sample was deemed especially necessary. An in itial 5 per cent stratified-random sample was selected with the anticipation of re ceiving a 2 per cent sample of the universe. It was not expected that 100 per cent of the questionnaires sent to a 5 per cent sample of retailers would be returned. A return rate of 1.8 per cent of the retail universe was achieved. The design of the stratification technique was predicate.. - geographical location and dollar sales volume size categories. The United States was divided into eight geographical regions, with each region accounting for approximately
12 1/2 per cent of the total dollar record volume. Record retail dealers were then classified into sixteen size breaks or categories
(based on dollar sales volume done) within each of the eight geo graphical regions. The matrix, sixteen across and eight down, thus results in 128 retailer strata. A sample of three retailers from each of the 128 strata was selected on a random basis using random number tables. A stratified-random sample of 384 retailers results.
In the estimation of the committee members involved, the results of 14
this 5 per cent stratified-random technique based upon Record Mar
ket Research Corporations retail sample design lists (used in its
own research efforts) would yield a more statistically valid re
sult than a 20 per cent sample of the retailer universe drawn at
random ,^
It may be pointed out that the return rate of the question--
naires sent out to manufacturers and retailers was approximately
30 per cent and 35 per cent respectively, a percentage return
comparable to that received from the universe of the wholesale seg ments’ of the industry.
Since the universe of each of the other three segments of
the industry is relatively small, questionnaires were sent to the.
entire universe of rack jobbers, one stops, and distributors.
Further discussion of the actual number of questionnaires sent out
to each segment of the industry and actual numerical and percentage
sample sizes achieved may be seen in Appendix A.
A second method of primary research consisted of personal
interviews with selected phonograph record industry personnel, such
as company executives, trade association executives, and trade-
business publication executives. Such interviews supplement both
questionnaire results and secondary research findings.
“Record Market Research Corporation, a subsidiary of B ill board, is the leading research agency in the industry. Among other things, it compiles weekly a list of best selling pops and LP records, which is quoted internationally as a buying and gen eral marketing guide. The above sample stratification design was predicated on Record Market Research’s stratification technique used in compiling its weekly best selling list of records. CHAPTER II
THE PRODUCT, ITS NATURE AND CLASSIFICATION
As one trade spokesman put it, "The world of phonograph records is a world of beauty and culture, of music and words, symphonies, operas, jazz, folk songs, pops, hymns, poetry and prose; with records one can turn his home into a theater, a con cert hall, a night club, a classroom, or even a church with the tremendous variety of sound reproduction available on records."^
To those who have the responsibility of selling it, the phonograph record is both sim ilar and dissim ilar to many other products. As with other products, companies which make and sell phonograph records afe confronted with such basic marketing tasks as these; (1) trying to ascertain what kinds of records people want; (2) providing the desired goods at the right times and in the right places; (3) setting up the necessary market conditions and physical facilities to effect the exchange of title and the physical distribution of the product ; (4) performing whatever other functions are necessary to facilitate the entire process of m ark e tin g . In a practical sense, phonograph records are a highly per ishable product due to the public's vacillating taste, especially
%enry Brief, "Radio and Records: A Concert in Sound," a monograph published by the Record Industry Association of America (New York: Record Industry Association of America, Inc., 1964). 15 16
in a substantial segment of the product field such as "pop" rec ords, and to the changing degree of public acceptance of a particu
lar artist. In another sense, the product is also an intangible,
the same as any entertainment or educational process is. While the record itself is a physical commodity, its nature as a form of entertainment makes it an intangible since the satisfactions de rived by the consumer are essentially psychological and social.
As a product, phonograph records take a variety of forms and types in an attempt to satisfy diverse consumer tastes and serve different market segments. As Dr. William J.. Stanton points out in his textbook, "The total market for most types of products is too h etero g en eo u s f o r m ark etin g management to d e riv e maximum v alu e from 2 an analysis as a whole." Therefore, market segmentation is a
common marketing management practice which consists of taking the total heterogeneous market for a product and dividing it into sev eral submarkets or segments, each of which tends to be homogeneous 3 in all significant aspects. These submarkets or groups of consumers with similar tastes for a given product or class of product are
called market segments. Adequate definition of market segments is
important to the marketing firm in order that proper product defini tion and design can be accomplished and that adequate marketing efforts in the form of advertising and personal selling may be em ployed in stimulating demand. Few products ~tak'e~-as diversified
^William J. Stanton, Fundamentals of Marketing (New York: McGraw-Hill Book Company, 1964^, p. 77.
3 jb id . 17 forms as the phonograph record in trying to appeal to the various market segments. The tremendous variety of this product is exempli fied by the fact that a little over 10,000 "new and different" records were released by some 890 record producers in 1964.^
Phonograph records as a product involve a high degree of risk on the part of the producer and marketer. There are two valid reasons for this high incidence of risk. Public acceptance is hard to ascertain prior to release of the product. It is almost impos sible to pretest or to make ch^ges in a phonograph record after sampling reactions from the consuming public or trade. The product objective of most manufacturers, a hit record, appears to be at least in part a chance event, Mr, Henry Brief, Executive Secretary of the Record Industry Association of America, expressed this view point in a speech on April 8,’1964, before the National Association of Broadcasters in Chicago: "A hit record is that happy but almost completely accidental combination of artist and repertoire, coupled with the exposure that is necessary to bring it to the attention of the public,"^ One may not entirely agree with such an over-drama tized generalization but this statement points up the fact that it is difficult to predict product hits or misses in advance.
The second factor adding to the incidence of risk is the rapid change in public demand for the single biggest category of both Singles and LPs, pop records, Riding the crest of popularity one day, demand for a given record falls drastically the next.
'^Henry B rief, og^, c it,
^ Ib id , 18
Thus the product obsolescence factor exists in this commodity to a
substantial degree, particularly for pop records.
Notwithstanding the high degree of product risk, the indus
try makes a tremendous investment each year, currently running 0 about $58,750,000. An industry spokesman for the record manufac
turers reports that it costs a company on average about $2,500 to produce a Single record and get it out into the field. This figure
does not include the promotional merchandising and selling expenses
that are ultimately incurred. The average costs of producing an
album of LP is about $15,000 and this figure does not include the promotional and selling expenses either. These quoted figures are
average costs, and in the album field the extremes are much higher.
Webster's unabridged dictionary defines a record as "some
thing made by perforating, indenting, or otherwise transforming an
original blank so that when operated upon by a special instrument
or machine it w ill at any time perform a definite act of reproduc
tion, especially of sound; as the cylinder or disk of hard wax, 7 rubber, etc., on which phonographic sounds are recorded."
The phonograph record is defined in this study as any form
of plastic-like disk upon which is imprinted sound, either-spoken word, musical sounds, etc., and which product is capable of repro
ducing these sounds when played on an appropriate phonograph playing
^Ibid. All cost figures quoted on the next two pages are taken from B rief's speech cited above. 7 Webster's New International Dictionary, 2nd edition, un- abridged (Springfield, Mass.': G. And C. Merriam Co., Publishers), p . 2081. 19 machine» Tape and wire reproduction of sound are not technically covered under this definition. In the trade, tapes and wire are considered to be an adjunct type of sound reproduction and, as such, w ill be treated briefly in a subsequent part of the report.
The historical development of,the phonograph record since its inven tion in 1877 to its present state of technology in 1965 is covered in Chapter III.
Product Examination from Different Viewpoints
For the purposes of marketing analysis and particularly con sumer demand analysis, it is highly desirable to examine a product from a number of viewpoints. The phonograph record has numerous facets which affect its demand as well as marketing efforts and strategies to be employed. The pu3?pose for which a record is to be utilized, e.g., an advertising commercial by a radio or TV network or a dance record for the ultimate consumer, w ill affect the type of market segments which purchase it, the motivational appeals be hind its purchase, its frequency of purchase, and even its physical construction.
Thus, because of the marketing significance involved, the phonograph record is examined from the following six viewpoints;
1, purpose or use
2, physical characteristics
3, repertoire
H, p r ic e
5. sound reproduction
6, terminology usage. 20
Phonograph records from a purpose or use view point
The most basic viewpoint from which to look at any product is the purpose or use to which it is put. In this light phonograph records may be thought of as falling in one of three categories;
a) Entertainment
b) Educational
c) Business—mainly advertising.
The vast majority of records released are bought by the ultimate consumer in the home entertainment market. The different types of record entertainment purposes of the ultimate consumer, such as for listening and dancing, could be further broken down into varied psychological and social ends» Records for purposes other than the home market are considered specialty products aimed at rather limited special market segments.
The purpose behind the purchase of a record is of such sig nificance in buying behavior that it has many ramifications on marketing. Several examples are illustrative. If a record is to be utilized by the buyer for educational purposes, different chan nels and types of retail outlets may be called for than those utilized to market a pop record designed for the mass home enter tainment market. Obviously, if the product is for educational or business purposes, price assumes a different dimension than when the record is a teen beat entertainment Single. The appeals to be utilized in selling commercial jingle records to an NBC Vice Presi dent are different from those used in moving the latest Vic Damone pop record bought solely for entertainment by the ultimate consumer. 21
Records for educational purposes are most popular as a de
vice for foreign language instruction and in teaching of the blind.
Another important instructional use is in teaching appreciation
and fam iliarity with various types of musical forms.
The production of commercial jingles and related type back
ground music discs has developed into a specialized segment of the
record field. This utilization of records for advertising purposes
on radio and TV is widespread and employs many name-brand artists,
such as Harry Belafonte and Peggy Lee. A major advantage of re
corded advertising messages is that they can be played over and
over without any substantial incremental cost.
If tapes are to be considered as a form of a record, then
the purposes are expanded to include business communication in such
forms as letter dictation and recording conferences.
Thus, the purpose of use to which a record is to be put af
fects many facets of marketing and serves as a very useful approach
to the marketing task.
Phonograph records from a physical characteristics’" v iew p o in t
Based on their physical characteristics phonograph records
can be put into three classes;
a) S in g le s
b) EPs (Extended Play)
c) LPs (Long Play)
Singles are records which are seven inches in diameter with
a large center hole that fits only a large spindle on a record player. 22
Having only one tune on each side, with an average length of play ing of each tune of two minutes and twenty seconds, this class of record can be played only at 45 rpm speed. Relatively light, it weighs only one and one-half ounces.
EPs are differentiated from Singles only by the fact that there aie two tunes on each side which gives a playing time of ap proximately five minutes per side. As a type of product, EPs are a dying "breed," accounting now for less than 1 per cent of the records produced.
LPs or Long Play records are twelve inches in diameter, have a sm a ll c e n te r h o le , and p la y a t 33 1 /3 rpm. There may be as many as eight or ten tunes on each side, but the average is about six.
Compared with the Single and EP, the LP weighs five ounces. A term used synonymously for the LP is the word album.
Of the more than 10,000 different records released in 1964,
3,553 were LPs and 6,504 were Singles. The number of records re leased during the period 1955-1964 is shown in Table 1 for Singles and for LPs in Table 2.
Statistics in Tables 1 and 2 indicate that the number of LP releases has grown almost three times as fest as the number of
Singles releases over the ten-year period, 1955-1964. The number of Singles released yearly rose from 4,542 in 1955 to 6,504 in 1964, an increase of 43.2 per cent over this ten-year period. The growth in Singles released annually has been sporadic, with a large jump taking place in 1959 and in 1962. Since 1962 there has been a slight decline in the annual number of Singles records produced. From 23
TABLE 1
THE NUMBER OF SINGLE RECORDS RELEASED ANNUALLY AND THE ANNUAL PER CENT CHANGE FROM PREVIOUS YEAR, 1955-1964
Y ear Number Per Cent Change From Previous Year
1955 4,542
1956 4 ,4 5 1 - 2.0
1957 4,649 + 4.0
1958 4,576 - 2.0
1959 5,812 +27.0
1960 5,797 _ 0.3
1961 6,036 + 4 .0
1962 6,700 +11.0
1963 6,543 - 2.0
1964 6,504 - 0 .6
Source ; 1965-66 International Music-Record Directory and Buyers Guide. New York: Billboard Publishing Co., 1965. 24
TABLE 2
THE NUMBER OF LP RECORDS RELEASED ANNUALLY AND THE ANNUAL PER CENT CHANGE FROM PREVIOUS YEAR, 1955-1964
Per Cent Change From Year Number Previous Year
1955 1,615
1956 2,500 +55.0
1957 3,001 +20.0
1958 3,471 +16.0
1959 3,480 + 0.3
1960 3,112 -1 1 .0
1961 2,927 - 6.0
1962 3,655 +25.0
1963 3,686 + 1 .0
1564 3,553 - 3 .6
Source : 1965-66 International Music-Record Directory and Buyers Guide. New York;" Billboard Publishing Co., 1965. 25
1955 to 1964 the annual number of LP releases increased 120,0 per cent. The largest growth in LPs took place during the 1956-1958 period when the number of LPs released annually rose from 1,615 to
3,471. Since 1958 the annual number of LPs has fluctuated between
2,927 aid 3,686 yearly.
While the long-run upward trend of releases of both Singles and LPs is clear, yearly fluctuations in the number of records pro duced are due to changes in producers’ expectations, the uncovering of new talent, and the entry of new record producers in the market.
It appears from the data in Tables 1 and 2 and information uncovered in general research on the industry that the number of annual re leases of both Singles and albums has leveled off during the past three years.
As the economic and demographic data in Chapter IV show, physical characteristics such as the LP vs. the Single affect rep ertoire, market segmentation, price, advertising and promotional strategy, and numerous other marketing problems and techniques. As an illustration, the Single with its limited playing time is not suited to the recording of a Beethoven symphony by the Boston
Philharmonic Orchestra. Because of the nature of time requirements inposed by this particular tjpe of repertoire, a Beethoven symphony would have to be done on an LP, This fact would in turn affect the price, the distribution channels to be utilized, and types of retail outlets used. 26
Phonograph records from ^ repertoire viewpoint
Another meaningful viewpoint from which to look at records
is by repertoire. As a concept applied to records, repertoire
designates the kind of editorial content of the recording, e.g..
Country and Western music, Religious music or Jazz music. It also refers to general designations such as Popular and Classical music.
LP records are classified into twenty-one basic repertoire cate gories , with the percentages accounted for by each of the categories shown in Table 3. Five categories of LPs accounted for 80 per.cent of LP releases in 1964. In their order of significance they were .
Popular, 42 per cent; Classical, 17 per cent; Jazz, 8 per cent;
Country and Western, 6.6 per cent; and International, 6 per cent.
Billboard classified Singles records into fifteen categories. The percentages accounted for by each of these basic categories during
the four-year period, 1960-1964, are shown in Table 4. The top three categories of Singles in 1964 in their order of importance were Popular 75 per cent. Country and Western 14.8 per cent, and
Rhythm and Blues 5 per cent.
In LP records the repertoire group classified as Pops, or
Popular music, constitutes the largest group of records released over the past five years. This type of repertoire has accounted for between 34 per cent and 46 per cent of the total releases dur
ing the period 1960-1964. Classical records represent the second most significant type of repertoire and have consistently accounted
for about 15 per cent to 18 per cent of the records produced. The
category of Jazz has ranged between 8 per cent and 14 per cent of TABLE 3
LP RECORDS RELEASED BY TYPE OF MATERIAL 1960 - 1964
1964 1963 1962 1961 1960 % o f % o f % o f % o f % o f Type Number T o ta l Number T o ta l Number Total Number T o ta l Number T o ta l
P o p u la r 1,388 3 9 .1 1,490 4 0 .4 1,370 37.5 932 3 1 .8 1,141 3 6 .7
C la s s ic a l 540 1 5 .2 509 13.8 469 12.8 469 1 6 .0 482 15.5
J a z z 288 8 .1 381 10.3 453 12.4 408 13.9 359 11.5
International 221 6 .2 211 5 .7 217 5 .9 202 6 .9 116 3 .7
Country and W estern 235 6.6 165 4.5 154 4 .2 82 2 .8 67 2 .2
Spoken word and Comedy 110 3 .1 103 2 .8 141 3 .9 127 4 .3 65 2 .1
Folk. 147 4.1 119 3.3 136 3.7 122 4 .2 104 3 .3
Low price Pop 69 2 .0 63 1 .7 92 2.5 34 1 .2 187 6 .0
Children's 30 0.8 37 1 .0 88 2 .4 46 1 .6 69 2 .2
Latin American 48 1 .4 66 1 .8 77 2 .1 84 2,9 53 1 .7 INJ TABLE 3—Continued
1964 1963 1962 1961 1960 % o f % o f % o f % o f % o f Type Number T o ta l Number Total Number T o ta l Number Total Number T o ta l
R e lig io u s 19 0 .5 67 1 .8 64 1 .8 50 1 .7 67 2 .2
S p e c ia lty 42 1 .2 43 1 .2 60 ■ 1 .6 13 0 .4 52 1 .7
S p i r i t u a l 34 1 .0 33 0 .9 57 1 .6 21 0 .7 37 1 .2
Sacred 118 3.3 71 1 .9 56 1 .5 46 1 .6 48 1 .5
C hristm as 48 1 .4 42 1 .1 48 1 .3 34 1 .2 39 1 .3
P o lk a 34 1 .0 28 0 .8 35 1 .0 26 0.9 31 1 .0 how p r ic e C la s s ic a l 68 2 .0 64 1 .7 33 0.9 39 1.3 60 1.9
Rhythm and Blues 21 0 .6 24 0 .7 24 0 .7 32 1 .1 , , 17 0 .5
Semi-Classical • • 19 0.5 19 0 .5 10 0.3 17 0 .5
Sound # # 4 0 .1 17 0 .5 57 1 .0 46 1 .5
Band 3 0 .0 8 10 0.3 13 0 .4 4 0.07 19 0 .4
Low p r ic e Children’s 57 1.6 92 2 .5 11 0.3 26 0 .9 11 0 .4 ro 0 0 Documentary 10 0 .3 1 0.03 5 0.1 11 0.4 0 0.0 TABLE 3—Continued
1964 1963 1962 1961 1960 % o f % o f % o f % o f % o f Type Number Total Number Total Number T o ta l Number T o ta l Number T o ta l
Low price Jazz 2 0 .06 1 0.03 1 0 .02 37 1 .3 17 o .s l
Novelty 1 0.03 3 0 .1 1 0 .02 9 0 .3 4 0 .1
Mis cellaneous 10 , 0.3 40 . 1 .1 14 0 .4 8 0 .3 5 0 .2
T o ta l 3,553 100.0 3,666 100.0 3,665 100.0 2,927 100.0 3,112 100.0
Source : 1965-66 International Music-Record Directory and Buyers Guide. New York : Billboard Publishing Co., 1965.
to (O TABLE 4
SINGLES RECORDS RELEASED BY TYPE OF MATERIAL 1960-1964
1964 1963 1962 1961 1960 ~ % o f % o f % o f % o f % o f Type Number Total Number Total Number Total Number Total Number Total
P o p u la r 4,965 74.8 5,087 77.7 5,311 79.4 4,590 7 6 .2 4,168 71.9 Country and Western 960 14.8 846 12.9 737 11.0 612 1 0 .1 651 11 .2 Spiritual 91 1 .4 180 2.8 182 2.7 135 2 .2 168 2 .9 Jazz; 68 1 .0 116 1 .8 126 1 .9 128 2 .1 127 2 .2 Rhythm and Blues 319 4.9 91 1 .4 119 1 .8 244 4 .0 336 5 .8 C h ristm as 41 0 .6 76 1 .2 54 0 .8 65 1 .1 81 1 .4 P o lk a 52 0 .8 43 0.6 39 0 .6 48 0 .8 43 0 .7 S acred 14 0 .2 21 0.3 31 0 .5 106 1 .8 44 0 .8 Children's 4 0.06 6 0 .1 31 0 .5 30 0 .5 45 0 .8 Latin American 6 0 .0 9 23 0 .4 24 0 .4 31 0 .5 89 1 .5 International 10 0.2 11 0 .2 17 0 .3 20 0 .3 13 0 .2 N o v elty 14 0 .2 9 0 .1 12 0.2 20 0.3 16 0.3 R e lig io u s 2 0.03 2 0.03 8 0 .1 1 0 .0 2 8 0 .1 Folk 18 0.3 10 0 .2 7 0 .1 3 0 .0 5 7 0 .1 Spoken Word 22 0 .3 2 0 .0 2 3 0.0 5 1 0.02
T o ta l 6,504 100.0 6,543 100.0 6,701 100.0 6,036 100.0 5,797 100.0
w S o u rce: 1965-66 International Music-Record Directory and Buyers Guide. New York: Billboard o Publishing Co., 1965. 31
total production during the five-year period under analysis and shows a decline in the proportion of total releases during the last
three years. International LPs have maintained a constant 5 per
cent to 7 per cent share of LP production since 1961. Country and
Western records are growing in acceptance, with the statistics in
dicating a steady increase in record production for this type of repertoire since 1960. The other twenty-one categories of reper toire listed in Table 3 maike up the remaining 20 per cent of records released that year.
Popular records are also the largest class of repertoire in
Singles records, accounting for an average of about 75 per cent of all Singles released during the 1960-1964 period. As is the case with LPs, Country and Western Singles account for a growing share
of record production during the last four years and presently con
stitute about 15 per cent of Singles' record production. Rhythm
and Blues as a repertoire class account for about 5 per cent of
Singles released in 1964. These three types of repertoire account
for almost 95 per cent of Singles production in 1964, with the other
twelve categories listed in Table 4 making up the remaining 5 per
cent of Singles released.
Perhaps no other criterion is more significant in its influ
ence on consumer buying, and thus marketing, than that of repertoire.
It is logical to assume that, in most cases, repertoire or editorial
content is the number one or most important reason for purchase.
For the teen-age girl, the record, "I Want to Hold Your Hand," by
the Beatles, an English quartet, is the product she wants in terms
of editorial content. In contrast, the religiously inclined adult 32 buyer desires a totally different editorial appeal, a group of spirituals on an LP by Mehalia Jackson, Neither of these buyers would be interested in the product repertoire group desired by the . other. Basic consumer classes or market segments are frequently built primarily around a repertoire classification. Germane to this market segmentation are such related key marketing decisions as channel selection, type of retail outlets to be utilized, and type of selling appeal. It could be concluded that second only to basic purpose in significance is the viewpoint of repertoire in marketing importance.
Phonograph records from ^ price viewpoint
Basic or standard price groups or lines are related pri marily to the three primary classes of records as described in the physical characteristic viewpoint. However, other criteria, such as repertoire and artist popularity or prestige, do sometimes in fluence the price factor. On LP records the list price for mono phonic standard records is quoted at $3.98, and for stereophonic standard records,.'$*+.98, Specials or so-called better quality stereo records often sell for $5.98 and $6.98, After $6.98, prices vary widely, for multi-record sets of twelve different records going up as high as $90. The type of repertoire w ill affect price as fol lows î popular LP records typically list for $3.98; LP jazz gener ally sell for $1.00 more; LP classical records list for $4.98, with some priced at $5,98 and $6.98; original cast albums list for $4.98 t o $ 6 .9 8 . 33
In one sense, the above quoted list prices are almost mythi cal because of the widespread discounting common at the retail level. The major value of such quoted list prices is to indicate the basic concept of price lining which does exist and to relate the differences between classes of records based on such important criteria as repertoire and number of tunes 6r minutes of play.
Standard list prices of Singles are quoted at 98 cents or
99 cents except for Kiddie Single prices, which run 29 cents, 49 cents, 79 cents and 98 cents. Discounted prices commonly are 79 cents or 89 cents on the standard Single. EP's monophonic standard price is $1.29 with stereophonic standard price at $1.49. Both are discounted at 98 cents.
Thus absolute price generalizations at retail are not feasible under present market conditions except to indicate that discounting from these suggested list prices by the manufacturer (which were previously quoted) is widespread at retail. Pricing policies and practices of manufacturers, wholesalers and retailers are treated in some detail in Chapters VI, VII, and VIII,
In a market-oriented economy like ours where normal market type pricing prevails, price is an important factor in governing consumer buying habits and patterns. Different market segments patronize different types of retail outlets based in part on price offerings and type of repertoire (which is partly based on and/or related to price). In fact, few market segments are immune to price appeal on record products, so that price could be said to be a major factor in the overall marketing strategy mix. Price can be an • iijçortant advertising or selling tool and a potent patronage 3»f motive for use by a retailer. Also important to the marketer from
an operational standpoint, price has to cover the cost of the prod uct, the expenses of doing business and the net profit ma,rgin.
Phonograph records from ^ sound reproduction v ie w p o in t
Phonograph record sound reproduction is classified into two
types, monophonic and stereophonic. While these two terms also
connote the type of phonograph player or machine on which records
are played, records are made to "fit" or to be played on one of
these two systems and thus should be classified as either a stand
ard mono record or a stereo record. A brief non-technical descrip
tion of how each type of sound reproduction works w ill illustrate
the basic difference between these two systems.
In stereophonic sould reproduction the playing needle is two-
sided and picks up sound from both sides of the groove in the disc
and then puts the sound through two speakers. Below is a brief
graphic illustration:
n e e d le speaker speaker #1 #2
record disc groove
Stereo greatly enhances the quality of reproduction of sound
giving the listener a feeling of presence, i.e. being in the middle 35 of sound. Stereo records cannot be played on a mono system without 8 sooner or later destroying the record.
In monophonic sound reproduction, which is the standard sys tem, the playing needle picks up sound only from the bottom of the groove in the disc. Below is a brief graphic illustration;
Speaker Sound is picked up r — 1 y/\ needle from the bottom of - \ \ the record disc g roove.
In the monophonic system, sound is picked up from only one source point and projected to the speaker as illustrated. The resulting sound appears to the listener's ear to be coming from only one cen tral point in contrast to the stereophonic system where the listener has a feeling of being in the midst of the sound. Monophonic rec ords can be played on stereo systems without ill effects to the 9 record or player.
This viewpoint of the phonograph record is important because a basic criterion of quality is involved. The quality of sound re production affects product desirability and all of the marketing ramifications involved in substantial degrees of product quality differentiation. Such marketing decisions as pricing, product pro motion, product form, and market target are affected by whether the re c o rd i s to be mono o r s te r e o .
®G, S, S lott, From Microphone to Ear, 3rd edition (Eindhoven, Holland; Centrex Publishing Company, I960), pp. 174-196,
^ Ib id , 36
Phonograph records from £ terminology usage view point
This viewpoint on the phonograph record is requisite because
of a change in the connotation of key terminology used to designate
basic product offerings during the last twenty years. In the in
dustry today, the terms Singles and Albums designate the two basic
classes of records sold. Because the connotation of one of these
terms has changed, it is desirable to define both terms in the light
of their current and historical meanings.
P rio r to 1949 th e re was nothing but 78 rpm S ingles w ith one
tune on each sid e of th e d is c . At th a t tim e an Album meant more
than one disc and it was common to have a group of six records mar
keted as an Album in a single package at an Album price. Thus a
Glen Miller Album consisted of six records, with all the songs re
corded by the Glen Miller orchestra. Today, a Single is any record
with one tune on each side playing at 45 rpm.
In contrast to its historical meaning, the term Album is
currently used in the industry to designate a single record with a
number of tunes, usually six to eight on each side. It is synony
mous with the term LP or long play record. Sets, consisting of
more than one record, such as symphonies, are called multi-record
sets by the industry.
Tapes—^A Special Case of Sound Reproduction
As previously pointed out, tapes are not included under the
definition of phonograph records per se but are considered to be an
adjunct type of sound reproduction technique and an accessory product 37 carried by most record dealers. In the light of the tape's close relationship to records, we w ill comment briefly on its develop ment, uses and potential.
As a device for sound reproduction, magnetic tape is not new. In 1900 a Danish engineer, Vladimir Foulsen, developed a type of electro-magnetized wire and a recording head which was capable of reproducing sounds with varying electrical impulses that were then converted into audible sound by a telephone receiver.
The major drawback, and it was a major one, of the Poulsen Tele- graphone (as he called it) was that it could speak no louder or more distinctly than an ordinary Bell telephone of 1900 vintage.
A German s c ie n tis t named Pfleum er made g re a t headway in the 1920's and 1930's in developing a paper tape coated with iron oxide sensi tive enough for recording purposes,The 1935 German Magnetophones were perfectly adequate as dictating machines, but they could not rival the phonograph when it came to reproducing the full spectrum of orchestral sound. Under the stimulus of wartime needs, German technicians in the early 1940's made some startling advances in mag netic tape relative to the frequency response- heretofore a major limitation with the magnetic tape. These German technicians devel oped a tape which could record sounds up to 10,000 cycles with superb realism and thus attain a fidelity equal to if not surpassing the finest phonograph records then in existence. The potential of magnetic tape had thus been developed to a practical stage.
^^Roland G ellatt, The Fabulous Phonograph (Philadelphia: J. B. L ippincott Company, 1955), pp. 284-286. lllb id . - 38
In the early post World War II period Minnesota Mining and
Manufacturing Company tackled the problem of transforming magnetic tape into a really salable commodity, and after three years and
$700,000 in expenses, succeeded in creating an improved magnetic
tape that could record sounds up to 15,000 cycles at a speed of
7.5 inches per second. The first important commercial use other
than for dictating machines was employed in 1947. Radio celebrity
Bing Crosby, intent on recording his shows in advance, found the new tape an answer to his needs and, in addition, it produced a better quality of sound reproduction. In a short time after its
adoption in 1947 by Crosby, magnetic tape became standard for tran
scribing original broadcasts of radio in place of the disc.
While it has carved out for itself an important niche in the market, magnetic tape has not replaced the phonograph record in the home entertainment market as some tape proponents predicted. De
terrents to the home market include the cost of a recorder, which
starts at $80 and goes up to $300 or more, the cost of good quality
tape, and the necessity of the consumer operating somewhat more
complicated equipment than the phonograph.
The first tapes, produced on paper, were crude and wore out
quickly. In time, cellulose acetate was found to wear better and
to be easier to coat than the original paper base. Acetate tapes
could be damaged by extremes of temperature or humidity and also
tended to flake at the ends of the reel and, if enough stress is
l^Ibid., pp. 287-288. 39 applied to them, to break. More recently mylar has been used as a tape base. This substance can withstand drastic changes in heat and humidity and because of its strength can be manufactured as thin as 0.5 mil. Tapes can be secured in various sizes of reels, ranging from playing time of a few minutes to up to 60 minutes.
Prices are predicated on the size of the reel and the material used.
Mylar tape is more expensive than acetate tape.
Today magnetic recording tape is a very versatile product; it has hundreds of uses in business, education and home entertain ment. As an illustration of the "tremendous versatility of this prod uct, three examples for five different potential market segments are cited below:
Businessman
1. Top salesman can record sales talk for playback to beginning salesmen.
2. Beginning sales people can record their talks for analysis of their sales techniques.
3. Recordings of meetings and conferences can be played back for absentees.
D octor
1. Laboratory and library research work can be speeded by recording facts,
2. Lengthy case reports can be recorded and transcribed l a t e r ,
3. The recorder can be used as a dictation machine for getting out b ills and other correspondence.
13"Profiles of The Tape Buyer,” Billboard (March 9, 1963), P» 52. 40
T eacher
1, Can improve lectures by recording and listening to how they sound.
2, Educational shows on all subjects can be recorded for replay in classroom.
3, Many recorded lectures by experts in various fields are available for classroom use.
R e ta ile r
1. Inventory-taking is speeded by recording it.
2. Tape-recorded telephone orders avoid mistakes and keep records.
3. A display-window microphone with on-off switch allows customers to order after closing time.
M in is te r
1. Talks or sermons can be recorded for playback to the shut-ins or hospitalized members of congrega t i o n .
2. A minister can improve his pulpit delivery by listening to recordings of himself.
3. Choral and organ music can be recorded to improve performance and for actual playback in church.
The tape recording has also found favor with some consumer groups as a means of recording memorable family events such as baby's first words and for use at social events. Another common use of tape by the consumer is to record his favorite opera or musical number from radio play.
One of the most interesting innovations in tapes which appears to hold substantial potential for the "home" entertainment market is the new Lear eight-track continuous loop stereo tape cartridge system
^^"Profiles of the Tape Buyer," Billboard Magazine (March 9, 1963), pp. 54-55. 41 designed for use in both automobiles and homes. The new cartridge and tape playback system was developed by the Lear Jet Corporation,
Wichita, Kansas. The tape playback-radio combination is small enough to integrate into a car dashboard and has a capacity of one hour and twenty minutes of recorded music or other sound,Because of its small size and other technological features, this Lear tape system appears to have a substantial market demand, particularly in the automotive market. Ford Motor Company w ill offer the playback
Lear tape unit as an optional feature on its 1956 model, and this playback unit is reported to be under consideration by all major automobile manufacturers. Currently, RCA w ill market this product and handle tape duplication. While tapes are an important system of sound reproduction, trade sources generally agree in predicting that they w ill not supplant the phonograph record in the foreseeable future with present known technology.
Numerous characteristics of the phonograph record complicate the task of marketing management. The product's intangible charac ter; the difficulty in forecasting consumer reaction and demand for a given recording; the rapid change in consumer tastes and demand for the large group of records classified as popular records; and the wide variety of consumer tastes to be satisfied—all complicate the job of marketing phonograph records. In subsequent chapters consumer demand for records, the different types of institutions en gaged in marketing this product, and the marketing practices and policies of these institutions w ill be examined in detail.
. 15"RCA Will Market Lear Type System for Industry,” Billboard Magazine (March 27, 1965), pp, 1, 8, CHAPTER I I I
HISTORICAL DEVELOPMENT OF THE PHONOGRAPH RECORD
Phonograph records as we know them today are a relatively
"new product." Since the late 1940*s two major innovations have transformed the physical nature of the product and its sound re production capabilities from that of the records prevalent in the
1920*s, 30's and early 40’s. Accompanying this technological breakthrough has been a concomitant marketing revolution which has helped to lift the product from the specialty goods class, to which it was generally restricted prior to 1949, to a mass product found today in many mass retail merchandising outlets.
It is the purposecf this chapter to highlight briefly those historical developments in the phonograph record which relate to the marketing phase of this product. Interwoven into such an his torical narrative are people and market events significant to this industry. In an historical discussion of this product, it is dif ficult to separate the development of the phonograph record from that of the phonograph record player, since they are really two mutually interdependent parts of a sound reproduction system. The historical acceptance of the record player as a part of the American standard of living is, therefore, briefly traced in a subsequent part of this chapter.
42 43
The Acoustical Recording Period Prior to 1925
To Thomas Alva Edison goes credit for the invention of the phonograph record and player in the year 1877. History, however, records that Charles Gros, a Frenchman, deposited a paper describ ing a talking machine with the Académie des Sciences in Paris in the Spring of 1877, a few months prior to Edison’s announcement of his invention. Apparently neither of these men was aware of the other's e f f o r ts . ^
Edison’s first record was a cylinder covered with tin foil on which a stylus cut indentions into the foil according to the vi brations set up by the sound of the voice being transmitted through diaphragms. Edison in 1888 took steps to improve upon this process and his later experiments resulted in a cylinder made of a soap like substance which resembled wax in texture. The first Edison cylinders were recorded at about 100 grooves per inch, and the speed of rotation was 160 rpm. Playing time was two minutes « ^
Product quality of these early cylinders varied considerably as a result of the method of recording in this period. The artist spoke or sang into a bank of record machines, each of which con tained a cylinder. Since this was the only known way of recording at that time, the artist had to sing over and over again. Thus in dividual cylinders of the same song varied widely in quality. Later, a machine was devised on which duplicates could be turned out. The
^Gelatt, op. c it.. pp. 20-24,
^Oliver Read and James Riley, ’’Evolution of the Phonograph, Part 1," Radio and Television News (November, 1955), pp. 59, 149, 150, 151, 152. 44
"best record" of a series was chosen as a "master" and from this 3 master record, others were cut on the duplicating machines.
For the next step in the evolutionary development of the phonograph record to the flat disc form we know today, credit must go to Emile Berliner. In 1891 Berliner perfected his flat disc and the so-called lateral method of recording, both of which rep resented a giant step forward in the improvement of sound repro duction. For the technically oriented reader, a full description of his method is carried in the article, "Evolution of the Phono graph Record, Part 2," published in Radio and Television News,
December, 1955.^ The improved disc record soon took over the mar ket, and by 1912 the industry had abandoned the cylinder recordings entirely except for those produced by the Edison Company.
Because of the initial enthusiastic reception accorded the record by the public, Edison formed a company in 1878 to control the manufacture and sale of his new invention. The first advertise ment pictured the product solely as a novelty. This inability by
Edison to visualize his invention’s greatest market potential as a home entertainment medium retarded its public usefulness and initial acceptance. This lack o f m arketing acumen was only one of a number of m arketing m istakes Edison was to make before the company closed its doors in 1929. In defense of Edison it should be pointed out
For a more complete discussion of this early process of rec ord reproduction see Read and Riley's article, "Evolution of the Phonograph Record," cited in footnote 2.
^Read and Riley, op. c it. (December, 1955), pp. 56, 57, 149, 154. 45 that he was remarkably accurate in predicting the ways in which his invention was to benefit mankind. In an article in the North
American Review of June, 1878, Edison predicted ten ways in which his invention could be of benefit, as follows:
1. Letter writing and all kinds of dictation without the aid of a stenographer.
2. Phonographic books, which w ill speak to blind people without effort on their part.
3. The teaching of elocution.
4. Reproduction of music.
5. The ^Family Record*—a registry of sayings, reminis cences, etc., by members of a family in their own voices, and of the last words of dying persons.
6. Music-boxes and toys.
7. Clocks that should announce in articulate speech the time for going home, going to meals, etc.
8. The preservation of languages by exact reproduction of the manner of pronouncing.
9. Educational purposes; such as preserving the explana tions made by a teacher, so that the pupil can refer to them at any moment, and spelling or other lessons placed upon the phonograph for convenience in commit ting to memory.
10. Connection with the telephone, so as to make that in strument an auxiliary in the transmission of permanent and invaluable records, instead of being the recipient of momentary and fleeting communication.®
It is somewhat paradoxical that in his predictions Edison pointed out the entertainment potentials but failed to implement them in his early company's efforts.
®North American Review (June, 1878). 46
In the early years, the phonograph record and player were
being sold primarily as dictating machines and marketing efforts
were directed toward businessmen and government adm inistrators for
this purpose. Because of this lack of ability to assess market
potential of the phonograph record as a home entertainment device,
the industry was floundering by 1890, Some unsung genius conceived
of a new market dimension, that of entertainment in public places.
Prototypes of present day juke boxes were placed in public places
such as drugstores, and this nickel-in-the-slot phonograph player
revived a faltering industry by stimulating demand for records with
the latest tunes and popular artists of the day.
Edison s till failed to grasp the marketing implications of
his product and in his house organ. The Phonogram, deplored this
turn of events with an editorial which stated:
Those companies who fa il to take advantage of every opportunity of pushing the legitimate side of their busi ness, relying only on the profits derived from the ’coin- in-the-slot,* w ill find too late that they have made a fatal mistake. The •coin-in-the-slot’ device is calculated to injure the phonograph in the opinion of those seeing it only in that form, as it has the appearance of being noth ing more than a mere toy, and no one would comprehend its value or appreciate its utility as an aid to businessmen and others for dictation purposes when seeing it only in that form,®
A definite contributing factor to the failure of the early
record to develop into a mass home entertainment consumption item was a series of such technical difficulties as (a) poor quality of
reproduction—only a fraction of the tonal spectrum could be caught
in wax; (b) length of time of the cylinder, which was only of two
® G elatt, 0£^. c it., p. 45. 47 minutes duration; and (c) no method of duplicating cylinders so that every recording sold was necessarily a custom-made product with coneomitant high costs.
By 1894 Edison had to admit that his objectives needed an overhauling and finally agreed that the future of the phonograph record lay in its capability as a home entertainment device. The basic market had finally been properly defined.
In the late 1890*s records marketed were usually either the two-inch cylinder or a four and one half-inch cylinder (first de veloped by Columbia in 1898) or the flat discs. Although large and cumbersome, the advantage of the four and one half-inch cylinder lay in its greater volume of sound reproduction. The advantages of the discs lay in mass reproduction capabilities and in the conven iences of storage and handling, a factor so important to the con sumer that by 1912 the industry had abandoned the cylinder recording entirely except for the Edison Company. Thus the marketing factor of convenience and better acceptability to the consuming public helped to seal the doom of the first record form,the cylinder.
By 1897 distinct types of repertoire quality in records had developed. An Italian named Bettini began to offer cylinders with serious (classical) music by internationally known artists. These records were aimed primarily at two market segments, the serious music lover and the carriage trade, and carried prices ranging from
$2.00 to $6.00 per cylinder—at a time when other companies were offering cylinder recordings at fifty cents each.^ Thus these early
?Ibid., p. 78. 148 attempts at market differentiation were based primarily on differ ences in product quality.
The phonograph record’s assault on the American home began in earnest in the winter of 1895-96 when Columbia Phonograph Com pany embarked on a mass advertising campaign in leading magazines.
The typical Columbia advertisement pictured a family in a moment of rapt delight—the family circle of grandfather, son, daughter-in- law and grandson—with the attention of all four directed to the horn protruding from a small phonograph on a near-by table. Copy extolled the entertainment virtues of the phonograph and made a free offer of an illustrated catalogue and a list of thousands of cylin- 8 der records. Public acceptance of phonograph records and the phonograph player by 1900 was due primarily to (a) the judicious utilization of marketing technique by the Columbia Company; (b) re duced costs resulting from larger scale consumption making possible mass production economies; and (c) technical improvements in rec ords and in sound amplifying horns.
By 1906 a distinct dichotomy of market-product relationships had developed. The disc record catered to the more sophisticated city markets while the cylinder form catered primarily to the rural- small town market and to those on the wrong side of the tracks in towns. This country-small town market was a large one in the 1900-
1910 period when America was s till dominantly agricultural. By this time the Edison Company had developed considerable acumen in two important facets of marketing, namely, Ca) determining the type
8lbid., pp. 69-70 49 of repertoire this basic rurally oriented market segment liked and wanted; and (b) developing a dealer organization sufficiently
Icirge enough and competent to distribute the Eidson cylinder on a wide scale.
In an effort to capture a share of the city market and to round out its product offerings, the Edison Company developed the
Amberol Records, which were cylinders that played for four minutes, twice as long as the standard cylinder. This was accomplished by cutting 200 grooves per inch instead of the standard 100 grooves in the standard cylinders. The Amberol Records were used primarily to try to appeal to the culture-conscious record buyer and a series of
Grand Opera Amberols was launched. In an attempt to stimulate its dealers to work at cultivating both market segments, the Edison
Company published the following sales memorandum to its dealers in
February, 1910.
Now that you've got Slezak and the Amberola to take care of one class of your customers, and all the other styles of Phonographs and a ll the other Records, both Standard and Amberol, to take care of the other classes, you're equipped to take out all the profit there is in the business. . .
That's what we mean when we say, 'two strings to your bow. '
Because while the Amberola class is resting and the Grand Opera lovers are saving up to buy more Records, the good old 'ragtime-coon songs-Sousa-Herbert-monologues-sentimental balbds' crowd w ill s till be on the job buying Phonographs of the other styles, and Standard and Amberol Records, until there's frost on the sun.®
About this time in Europe a product innovation was made by
F. M. Prescott, an American and a former United States record
®Ibid., p.154. 50 m anufacturing executive now head o f th e German Odeon Company. Up to this time, record discs had been stamped only on one side. In
1905 Odeon records pressed both sid e s o f th e ir re c o rd s, thereby offering double the amount of recorded entertainment per disc.
This innovation proved to be quite a selling point, and his compet itors soon paid Prescott the compliment of imitation.
In reviewing the history of the record, it is difficult to determine the impact of social custom on a product and its accept ance ■ and degree of usage as compared to what degree the product influences social customs and habits. It is the old story of which comes firs t, the chicken or the egg. A good example of this is the dance craze which overnight swept the country in 1913. Two leading companies of the day, Victor and Columbia, promptly hired the biggest name dance masters in the country to direct and super vise the repertoire of dance records which spewed forth from the companies* cutting plants. The dance mania stimulated the record business as nothing else ever had. As empirical evidence of this fact, Victor’s assets jumped from $13,940,203 in 1913 to $21,682,055 10 by 1915. In fact, the whole record industry prospered despite depressed business conditions in the country as a whole.
The sound reproduction of phonograph records during the period from 1880 to 1924 was, measured by today's standards, extremely limited and poor. Prior to 1925 phonograph records were cut by the acoustical recording process which was limited to a range of 168 to
2,000 cycles as compared to a range of 20 to 20,000 cycles audible
^°Ibid.. pp. 188-189. 51 in the concert hall. The musical limitations of the record repro ducing sound by the acoustical recording process are thus obvious.
Not only did the acoustical method restrict the range of high and low sound that could be reproduced but it also imposed another serious limitation in that it restricted the size of the performing group of artists. The phonograph record had reached the limits of its capabilities under the acoustical method of recording.
The Electrical Recording Period from 1925 to 19%8
The next step in the evolution of the phonograph record rep resented a substantial advance in product capability, A major technological breakthrough occurred in 1925 when electrical record ing vastly increased the fidelity and tonal range of the phonograph record. Experimental work in electrical recording was begun in the fall of 1919 by the Bell Telephone Laboratories of Western Electric.
After years of trial and error. Bell Laboratories in 1924 developed an electrical recording process that was to become the first really major advance in the recording industry in thirty years. Electrical reproduction replaced acoustical reproduction. The recording horn gave way to the microphone. The recording stylus (needle) was ac tuated not by sound waves but by electrical impulses, making it pos sible to record high and low frequencies never before heard on a record. No longer were recordings confined to small groups, With one microphone, and w ith very good f i d e l i t y , symphony o rch estras could be recorded,
History of Columbia Records and Related Companies, an unpublished monograph prepared by Florence Gilbert for William Gallagher, Vice President of Marketing, Columbia Records, 52
In the face of growing public interest and acceptance of radio, the survival of the record industry in the twenties rested primarily on two events. One, product improvement achieved in the record via the electrical recording process. The new record pro duced by the electrical recording process received tremendous public acclaim for the very obvious improvements in sound reproduction.
With the electrical recording process, records now had a sound range of from 100 to 5000 cycles compared to the previous range of
168 to 2000 cycles under the acoustical method.
Two, the marketing efforts expended by major industry lead ers such as the Victor Company were a factor in the industry's continued existence. As an example, in 1925 Victor spent $6,000,000 in advertising and sales promotion on its new line of Victrolas and in introducing its electrical recordings. Other industry leaders such as Brunswick and Sonora spent considerable effort in developing attractive cabinet designs in an effort to stimulate consumer demand.
On September 17, 1931, RCA, Victor Division, introduced a new revolutionary product, a phonograph record pressed in a flexible plastic, twelve inches in diameter and rotating at 33 1/3 revolu tions per minute. This product innovation represented a substantial physical change from the then standard disc record which was ten inches, and carried between three and four minutes of playing time on each side, and played at 78 rpm. This new record had double the grooves per inch of a conventional 78 rpm record, and played up to fourteen minutes per side. The initial enthusiastic press reception
^^Gelatt, 02« c it., p. 227 53 was short lived as a result of the lack of consumer acceptance.
As expected sales failed to materialize in the face of an extensive advertising campaign introducing the new LPs, the project was aban doned by RCA Victor in 1932, As Gelatt so succinctly put it, "When the dud failed to go off, the company simply buried it instead of 13 attempting to discover what was wrong."
Hindsight indicates a combination of marketing mistakes and technical product problems as the cause for RCA's long play record's failure to secure consumer acceptance. First, a technical problem still existed regarding the form of plastic used—the records lacked durability in terms of repeated playings, and thus did not
Icist long. Far more important were the marketing mistakes;
1) Many of RCA's LPs were dubbed from existing three-minute recordings with a resulting second hand sound. This mistake in tonal quality of the new LP was responsible for cutting down on the consumer's potential enthusiasm for the product.
2) While the LP records themselves were attractively priced, a special turntable was needed to play the 33 1/3 speed.
This meant the consumer had to invest in a new phonograph. For some unexplainable reason, RCA failed to produce an inexpensive player, either a new one or some type of attachment that could con vert the standard phonograph to the new slow speed. In fact, one had to buy an elaborate RCA Victor radio-phonograph priced anywhere from $247 to $995 in order to get a two-speed turntable. Perhaps in better economic times RCA mi^ht have been able to persuade
ISlbid., p. 254 54 consumers to invest a large capital outlay in equipment to play the new record, but this point in time was the bottom of the great depression and most people were either not in a position to make such capitcuL outlays for semi-luxury items, or were unwilling to spend that kind of money in the face of the general depression psychology that prevailed during this period. Thus the two market ing mistakes of failing to provide an inexpensive record player and the bad timing of trying to push expensive phonographs in the face of general widespread depressed economic conditions contributed to the failure to gain public acceptance.
3) After the first initial failure there was little mar keting enthusiasm and perception on the part of RCA executives.
Rather than attempting to analyze the situation and find out what was wrong and correct it, they gave up and abandoned the whole proj ect. The depression psychosis apparently robbed them of incentive.
4) Timing of the introduction of the product was also a minus factor in the total marketing strategy. Two factors worked against the LP. One, the general depressed buying mood of the public which prevailed during this period of the great depression of the thirties, and second, the continued growth in popularity of radio. Radio entertainment was free after one bought a radio and radios could be bought at a relatively low price. Thus the orig inal LP of the early thirties died a premature death due primarily to marketing mistakes.
During this period from 1925 to 1948 an important marketing I facet of the phonograph record was the degree of price sensitivity.
Empirical evidence indicates that the demand for records is elastic. 55 and certainly the product was highly competitive in price during this twenty-three year period. Two illustrations of this phenom enon could be cited. One was the success of Decca Records, which in four years after its inception in 1934 rose to second place in the industry in«,dollar volume. This rise was predicated primarily on the marketing strategy of selling a quality product at well be low prevailing market price for comparable products. When Decca introduced its name-brand artists on records selling for 35 cents, the standard price prevailing in the industry for comparable quality was 75 cents. It can be noted that most major record companies soon met this price competition head on but not before Decca had carved itself a substantial share of the market.
Second, even classical records appear to be price sensitive.
In 1940i Columbia and RCA's Red Label c la s s ic a l records sold fo r two dollars each. Without any advanced warning, Columbia reduced the price of every twelve-inch record in the catalogue to $1.00.
The reaction was immediate and decisive; record collectors flocked into the stores and bought Columbia merchandise to the exclusion of practically all else. RCA Victor had no recourse but to meet this price competition, and fifteen days later the price of all twelve- inch Victor Red Seal Records came down also to $1.00 each,^''
Brand-name prestige was also a pertinent marketing factor during this period. Brand-name records could command better prices.
^*^The History of Columbia Records and Related Companies, lo c . c i t .
^^G elatt, 0£. c it., pp. 274-275. 56
For example, during the period from the early twenties to the mid
1930's, the big three, Victor, Columbia, and Brunswick charged 75 cents for their labeled bread and butter ten-inch dance records.
Their subsidiary lines or labels sold for 25 cents and 35 cents.
As illustrations, the Blue Bird label, a subsidiary of RCA Victor, sold in the m id-thirties for 35 cents and OKeh, the subsidiary label of Columbia, sold for 35 cents. None of these lower priced records offered brand name artists.
By 1947 78 rpm records were technically old fashioned—s till played less than four minutes, used essentially the same size and grooves of a 1903 record, showed real signs of wear after about, thirty some playings, and still had surface scratch noise. At this time, magnetic tape appeared to be ready seriously to challenge the phonograph record for home entertainment use, for tapes enjoyed cer tain advantages as follows;
(a) Uninterrupted play time of thirty minutes to one hour
Cb) Better reproduction and fidelity of sound
(c) Did not wear out
(d) A broken tape could easily be spliced by anyone.
The more rabid of the tape proponents prognosticated the de mise of the phonograph record at the hands of magnetic tape but history is an ever changing picture and at that point in time, fortuitous circumstances enabled the phonograph record to meet tapes on their own terms. 57
The Successful Commercialization of the Long Play Record—1948 to the Present
In 1944 Dr. Peter Goldmark and his staff of Columbia engi neers had locked the doors of their laboratories and were secretly engaged on a project known as "roulette." The goal of Columbia's engineers in this project was the development of a record and re producing system that would eliminate the shortcomings of the con ventional 78 rpm records and phonograph systems and incorporate the advantages made possible by the increased knowledge of electronics, m aterials, recording techniques and instrument engineering. The goal had been reached in the fall of 1947, but was to be a secret— and remarkably well kept—until all plans were completed and the new records and phonograph attachments were ready for the market.
On June 21, 1948, the first long-playing 33 1/3 rpm micro groove record was dramatically introduced and demonstrated to the
Columbia sales force and to a skeptical press. In a real piece of showmanship, Edward W allerstein, President of Columbia, had 101 of the new LPs in one stack which was fifteen inches ta ll and a stack of conventional records containing an identical amount of music,
325 selections. This stack of conventional records of comparable music quantity was nearly eight feet ta ll, and the comparison got across its selling message effectively. This new LP was twelve 1_6 inches, cut into a form of plastic, and played at 33 1/3 rpm.
The LP marked a milestone in the record industry’ as far as product development was concerned, for it offered the consumer
IGlbid.. p. 290. 58 twenty-three minutes of uninterrupted playing time on each side of the disc. In accomplishing this basic objective of making a flat disc play longer, Columbia used two techniques? first, a slow down in the rate of revolutions on the turntable; second, the width of the grooves was diminished and their number consequently was in creased. Serious musical works that heretofore had not been prac tical to record for home entertainment were now possible—whole new vistas in recorded music were opened up for home consumption.
The advantages of the new LP over conventional 78 rpm rec ords were many:
1) The satisfaction of hearing recorded performances with out breaks in continuity.
2) The reduction of record wear and surface scratch by using plastic vinlite rather than shellac.
3) Helped alleviate the problem of storage.
4) Provided more music than ever before per consumer rec ord dollar. For example, the Ormandy-Philadelphia Orchestra record ing of Tchaikovsky’s Fourth Symphony sold for $7.25 (for five 78 rpm records), as compared to one LP which sold for $4-,85. By 1955 this figure for an LP was $3.98.
A few months after Columbia introduced its new 33 1/3 LP record, one of its major rivals, RCA Victcr, reacted by introducing a second type of record which ran at a speed of 45 rpm. This new
RCA 45 rpm record was not a long play record, for the discs were seven inches in diameter and played for the same time (less than 4 minutes per side) as a standard size 78 rpm disc. These 45’s were designed to operate with a new highly efficient fast changing 59 mechanism incorporated in the turntable spindle. Since the 45 rpm record had a much larger center hole than the standard 78 rpm or the new LP 33 1/3 rpm record, it required a special large spindle on the record player turntable. RCA and other manufacturers began simultaneously to market a phonograph record player designed to operate at 45 rpm's as well as the standard turntable speed of 78 r.pm,^^
The "battle of speeds," as this hectic period became known, was on. This spectacle of America's two largest record companies struggling over competing speeds and types of records bewildered most onlookers and certainly had serious meirket ram ifications.
While the battle raged, record sales at retail slipped from an all- time post war peak of 204 million dollars in 1947 to 158 million dollars in 1949, The big question was which of the new types of records would survive? The in itial battle resulted in an expensive draw for both companies. After spending some five million dollars promoting the 45 rpm disc, Victor was forced in 1950 to adopt the
33 1/3 rpm microgroove disc for its longer classical selections.
On the other hand, because of the obvious practicality of the Vic tor center spindle-operated, drop-type changer and the records de signed for it, Columbia had to adopt the 45 rpm disc for its popular and shorter selections. Within two years authorities conceded that it was neither the 33 1/3 rpm nor the 45 rpm, but the 78 rpm discs that would have to go, and by 1956 the 78 rpm record as a record
^^"The 50 Year Story of RCA Victor Recordà," Department of Information (New York; Radio Corporation of America), 1953, 60
form was no longer made and marketed in the United States. Thus,
the physical form which had characterized the record for over thirty years died a natural death at the hands of technological change and
a shift in consumer preferences.
The Dimension of Stereophonic Sound Is Added to the Record—1958 to the Present
Up to 1957 all records were monaural; that is, they were pro duced by the monophonic sound reproduction process. Under this process a ll sound from the record appears to be coming from one place or a central point. In 1957 the dimension of stereophonic recording was added, and this technical innovation marked another
important milestone in the development of the phonograph record.
Stereophonic sound in records can be defined as "high-fidelity sound with an added dimension—a concert-hall awareness of depth of
sound coming from different directions rather than from a limited Tfi central source." The difference between monaural and stereo records is the way in which the recording is done and the way in which record grooves are cut. As an illustration, suppose that an orchestra is being recorded for stereo, then one microphone is placed in front of the left side of the orchestra, another micro phone in front of the right side. When the stereo record is cut,
one wall of each groove receives all the sounds picked up by the
left microphone and the other wall gets the signals registered by
the right microphone. (On a monaural record both walls of the groove
^®"Your Wonderful World of Records" (New York: Record Industry Association of America, Inc., 1963). 61
19 are impressed with identical sound information.) Thus when the stereo record is played, sound from one wall of the record groove is fed to the left speaker (reproducing what the left microphone had picked up); sounds from the other wall are fed to the right speaker. Basically, stereo was developed from the simple fact that people hear with two ears. The results are such that depth, direc tion and fullness of sound are added to the ”liv^' quality of the recording which far surpass the monaural record. Stereophonic rec ords account for a substantial portion of the totcil record produc tion today, particularly in the LP record.
The Phonograph Record Player—A Necessary Adjunct to the U tilization of Phonograph Records
A necessary adjunct to the utilization and enjoyment of the phonograph record is possession of a, phonograph record player. Thus, no study of the phonograph record as a product can ignore at least a brief examination of the phonograph record player in terms of its general acceptance as part of the American standard of living. The growing acceptance of phonograph records since 1950 is attested to by the statistics shown in Table 5. In 1950, approximately 44 per cent of electrically wired homes had phonographs. By the m id-sixties, this figure had grown to the point that over 75 per cent of elec trically wired homes had record players. Thus over the fourteen- year period, 1950-1964, the number of electrically wired homes hav ing record players increased 70.4 per cent. This represents an annual growth rate of 5 per cent. Sales of phonograph players in
l^Ibid. TABLE 5
SALES OF PHONOGRAPHS AND PERCENTAGE OF ELECTRICALLY WIRED HOMES WITH PHONOGRAPHS 195d - 1964
Item 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964
Units Sold^ (millions) 1.3 1 .6 2.7 3 .0 4 .1 4 .9 4 .1 4.6 4 .6 4 .0 4 .8 5 .0 5.2
P e r c e n t Change from Prev. Year& +13 +67 +12 +36 +19 -16 + 7 + 4 -13 +20 + 4 + 4
In Use^ (millions) 16.8 18.0 19.5 20.8 22.4 24.0 25.6 27.1 29.9 32.0 34.0 35.7 3 7.0 3 9.0 NA P e r c e n t Homes with Phonos^ 44 46 49 50 52 54 56 61 63 64 71 75 75 76 NA
Stereo Phono S a le s ^ ( m i lli o n s ) 1 .2 2 .7 3 .4 2.9 3 .5 3 .6 3 .6 Stereo Per cent of All Phono S a le s ^ 30 62 74 76 73 72 69
S o u rces : &1965-6G International Music-Record Directory and Buyers Guide. New York; Billboard Publish ing Co., 1965, o> ^1964 E lectrical Industry Association's Year Book. New York: Merchandising Week, McGraw- NJ H ill Publications, 1964. 63
1964 were approximately 5.2 m illion units compared with 1.3 million units sold in 1952. The annual sales rate of phonograph records by
1964 was 300 per cent greater than the annual sales rate in 1952.
While the statistics in Table 5 show a reasonably consistent growth pattern in the sales of phonographs, the years 1954, 1956 and
1957 stand out as "growth years." Apparently, the buying public was waiting on the outcome of the "battle of the speeds" between RCA and Columbia before buying their record players. By 1953 it was ap parent that the battle had ended in a draw and that the loser was the old 78 rpm record. Thus consumers were faced with the need for a new record player to accommodate the new 33 1/3 rpm and 45 ipm records. As an illustration of consumers' buying behavior during this period, sales of record players showed a year-to-year growth of 67 per cent in 1954.
A breakdown on phonograph record factory sales by types is contained in Table 6, Analysis of this data reveals that there is an increasing consumer demand for the radio-phonograph combination as opposed to the single phonograph. For example, statistics over the last four years show a definite trend toward the radio-phono graph combination:
Radio-Phonograph Combinations As a % of Total Phonographs Year Produced
1960 . 18.5
1961 2 5 .1
1962 2 6 .1
1963 28.2 64
TABLE 6
FACTORY PHONOGRAPH SALES BY SELECTED YEARS 1940 - 1963 Cadd 000 units)
T able S in g le Radio S e le c te d and Phono Phonograph T o ta l Y ears P o rta b le graphs® Console Combinations U n its
1940 • # 350 • • 964 1,314 1941 # # 237 • • 1,753 1,990 1942 • # 121 792 913 1946 # # 917 # # 2,165 3,082 1947 # # 468 # • 3,045 3,513 1948 351 • • 2,229 2,580 1949 # * 384 • • 1,286 1,670 1952 # # 322 • • 538 860 1953 724 • • 491 1,215 1954 1,886 » # 358 2,244 1955 2,098 # # 136 393 2,627 1956 2,959 • • 379 526 3,864 1957 3,008 • # 709 1,048 4,765 1958 2,541 671 801 4,013 1959 2,683 792 829 4,304 1960 2,840 841 842 4,523 1961 2,396 583 1,010 3,989 1962 3,197 464 1,294 4,955 1963 3,372 319 1,451 5,142
S ources :
Bprior to 1955 data on sale of single phonographs were not broken down into table and portable categories and the con sole category. Therefore, a single column of figures is shown for the years, 1940-1954.
^1964 Electrical Industry Association's Year Book. New York; Merchandising Week, McGraw-Hill Publications, 1964, 65
The phonograph record in the form of today’s hi-fidelity stereophonic LP record has progressed a long way from the crude tin foil cylinder Edison first unveiled to the world in August of
1877. Progressing from the acoustical recording stage to the electrical recording stage, the reproduction qualities of the rec ord and its fidelity have shown steady improvement since its incep tion in 1878. With the perfection of the LP, tremendous product advantages were gained in the form of lower product cost per minute of playing time, greater consumer convenience in storage and handling, and the feature of longer uninterrupted playing time, thus providing greater possibilities in the area of serious music.
The ushering in of the stereophonic sound dimension in 1958 added greatly to consumer,listening enjoyment by increasing the fidelity and tonal qualities of recorded music. This product also reflects a high degree of sensitivity to numerous marketing phenomena such as market segmentation changes, price elasticity, general economic conditions, and advertising and promotional efforts. CHAPTER IV
THE CONSUMPTION OF PHONOGRAPH RECORDS
It is the burden of this chapter to present an examination of the consumption of phonograph records. Consumption must be viewed in several different ways. Since marketing decisions have interrelated ramifications, each facet of consumption examined is necessarily a major area of marketing interest. Consumption is therefore examined in terms of (1) historical industry sales pat terns, in dollars and units and by basic types of records; (2) sales patterns by geographical market areas; (3) consumption, pat- ' terns; and (M-) consumer motivation in record buying.
Historical sales data afford the opportunity for useful macro analysis from which the influence of such factors as product inno vation, marketing acumen, and the vicissitudes of the business cycle can be correlated to consumption. Macro analysis also reveals consumption trends over time relative to different basic classes of records and other types of data which are useful to the firm in micro a n a ly s is .
Examination of consumption by geographical market areas is requisite for performing such basic marketing tasks as determining market potentials and sales potentials, establishing sales quotas, and channeling advertising and personal selling efforts. A common
56 67
method of organizing marketing efforts is by geographical areas
and if the firm's marketing efforts are to be effectively planned
and executed, industry sales data by defined geographical market
areas must be available to management. This study presents record
sales broken down by metropolitan and non-metropolitan areas.
Also, retail sales patterns are shown by regions and states for retail record shops, the marketing institution historically and
currently accounting for the largest share of record sales at retail.
Consumption patterns for phonograph records are indicated by
important economic and demographic factors such as consumer income, age, educational level, and occupation. Such criteria obviously
affect the quantity and types of records purchased. Therefore, mar keting management, in order to do an adequate job of defining market
segments for purposes of directing its marketing efforts, must have this vital information on which to base such a definition,
A brief examination of consumer motivation is made, since marketing management needs to gain as much insight as possible into motives behind consumers* purchases of this product.
Historical Sales Patterns of Phonograph Records
D ollar sa le s volume o f phonograph records shown in Table 7
and Figure 1 for the forty-three-year period 1921-1964 reflects the
degree of public acceptance of this product over the four and a half decades covered by the data. By 1921 the phonograph record had established itself as a prime means of home entertainment, with
its annual sales volume reaching an all-time high of 106 million
dollars. Beginning in 1922 sales volume of records turned down 68
sharply for four consecutive years, registering the impact of the
new medium of radio and its almost overnight acceptance by the
American public as a means of home entertainment. Marketing manage
ment in the phonograph records industry feiled to react adequately
in the face of a market environment altered drastically by product
innovation. By 1925 consumption of records had dropped almost 50
per cent from its 1921 level.
In 1925 the technological breakthrough of electrical record
ing so improved the quality of the record that the downward trend
in record consumption was reversed. From 1926 to 1929 industry sales
turned up as a result of this improved product quality and heavy ad
vertising expenditures by the industry.
With the onset of the depression in 1930 sales volume of
records fell drastically. Few industries suffered the drop in con
sumption experienced by the phonograph records industry in the early
1930*s, and most observers despaired of the continued existence of
the industry. By 1933 industry sales had dropped to six million
dollars, a mere 6 per cent of its 1921 volume. What accounted for
this"greater than average" drop in the consumption of phonograph
records during the Great Depression of the 1930's? It is difficult
•to arrive at a conclusive answer by singling out one factor, since
several forces were at work. While most knowledgeable students
agree upon the general effect of the Great Depression on demand for
records, many analysts feel that a basic underlying market shift in
home entertainment from the phonograph to the radio was the prime
cause for the type of,drop which occurred in sales, Roland Gelatt,
one of the foremost students and writers on the industry, says that 69 TABLE 7 U .S. PHONOGRAPH RECORD SALES IN DOLLARS OVER A FORTY-THREE YEAR PERIOD, 1921-1964
S a le s Sales Index Y ear (in millions of dollars) 1951-53=100
1921 106 5 1.4 1922 92 4 4 .6 1923 79 38.3 1924 68 33.0 1925 59 28.6 1926 70 3 4.0 1927 70 34.0 1928 73 3 5 .4 1929 75 3 6 .4 1930 46 22.3 1931 18 8 .7 1932 11 5.3 1933 6 2.9 1934 7 3 .4 1935 9 4.3 1936 11 5.3 w. 1937 13 6.3 1938 26 12.6 1939 44 21.3 1940 48 23.3 1941 51 24.7 1942 55 26.6 1943 66 3 2.0 1944 66 32.0 1945 109 52.9 1946 218 105.8 1947 224 108.7 1948 189 9 1 .7 1949 173 84.0 1950 189 91.7 1951 196 9 5.1 1952 208 100.9 1953 210 101.9 1954 199 9 6.6 1955 250 121.3 1956 336 163.1 1957 405 196.6 1958 445 216.0 1959 518 251.4 1960 521 252.9 1961 587 284.9 1962 651 316.0 1963 658 319.4 1964 693 336.4 S ource : 1965-66 International Music-Record Directory and Buyer* s Guide; New York, Billboard Publishing Co., 1965, 70 a definitive answer can never be given on the relative impact of these various factors, but he feels that a major shift in market demand was the real influence at work;
Radio alone could not have brought the phonograph to its sad state in the early 1930*s nor could the indifference and apathy of RCA, nor the inflated prices at which most records and equipment continued to be quoted. These were surely contributory. But there was in addition, something else, something intangible; a sudden disenchantment on a country wide scale with phonographs, needles, records and the whole concept of canned music.1
The phonograph record industry failed to perceive this shift in consumer demand, or at least there was little evidence that it did, for no combative marketing strategy or efforts were visible until the middle and late 1930's. In 1934 a much needed new mar keting strategy was conceived by Jack Kapp, president of the newly formed Decca Company. Kapp’s marketing strategy called for the creation of a qusdity product with name-brand artist performers
(like Bing Crosby, Guy Lombardo and the Dorsey Brothers) to sell for thirty-five cents. Mass consumption was to be induced not only by the offering of a quality product at half the prevailing market price for name-brand artist records, but was to be stimulated by the liberal use of advertising, Kapp's marketing strategy succeeded in reviving consumer interest in and demand for phonograph records.
The failure of the large industry leaders to recognize the need to adjust product and price in a changed marketing environment thus enabled Decca to become, in four years, the second largest record company.
^Roland G elatt, The Fabulous Phonograph. Philadelphia; J. B, Lippincott Co., 1955, pp. 255-256, 71
By 1935 dollar sales of records had turned up and this up ward trend in demand continued unbroken for the next twelve years.
After its near demise during the Great Depression, the phonograph record industry has made a good recovery. From 1933 (the low point in sales) to 1949 (before the introduction of the LP) industry sales volume experienced an annual average growth rate of 11,4 per cent. Following a brief two-year decline in the 1948-49 recession, industry dollar sales volume continued this upward trend for the next fifteen years except for a brief turndown in the recession of
1954,
The import of the major product innovations of the LP in
1949 and stereophonic sound reproduction in 1958 on consumer demand are attested to by the rise in dollar sales volume during the period from 1950 to the present. Over this fourteen-year period sales volume of phonograph records has risen some 420 million dollars, an increase of 242,7 per cent. Thus, since the introduction of the LP in late 1948, the annual average rate of growth in sales has been
15,2 per cent. This represents an average annual growth rate 33 per cent greater than that experienced during the previous sixteen- year period—1933-1948,
Since 1950 records have been marketed in three forms:
Singles, Extended Play, and Long Play, All of these forms repre sented a different physical product from that of the old 78 rpm which dominated the market almost entirely prior to 1950 and which ceased to be marketed after 1956,
The data in Tables 8 and 9 indicate that over the ten-year period 1951-1961 the LP as a product type grew steadily in consumer 72
1200
600. 5 40 480 420 360
300
240
ISO to q : < 120 o o IL o
CO z 54 o _ l
30
1920 1930 1940 1950 I960 1970 Figure I. U. S. PHONOGRAPH RECORD SALES IN DOLLARS OVER A FORTY-THREE YEAR PERIOD, 1 9 2 1 -1 9 6 4 . Source: Table 7 73
TABLE 8
DOLLAR SALES AND PER CENT OF CHANGE BY TYPE OF RECORD—L P 'S , SINGLES AND E P 'S , 1961-1964 (reported in millions of dollars at retail selling prices)
D o lla r S a le s P e r C ent Change Type of Record 1961® 1962^ 1963^ 1964^ 1961-1964
LP's (12"-33 1/3 rpm) 441 486 485 515 +16.8
Singles (7"-45 rpm) 141 161 170 175 + 2 4 .1
EP's (7"-45 ipm) 5 4 3 3 -4 0 .0
Industry Total 587 651 658 693 + 18.1
S o u rces:
&1964-65 International Music-Record Directory and Buyer's Guide, New York: Billboard Publishing Co., 1964.
^1965-66 International Music-Record Directory and Buyer's Guide, New York: Billboard Publishing Co., 1965. acceptance. Three years after its inception, the LP accounted for almost 30 per cent of the dollar volume of record sales. Ten years
I later, it had succeeded in capturing 75 per cent of theRecord dol lar volume and since 1961 has accounted for approximately three- fourths of record dollar volume.
Singles have steadily dropped in their share of the record sales dollar during the ten-year period 1951-1961. In 1951 Singles accounted for approximately 70 per cent of the record sales dollar— by 1961 the share held by Singles amounted to approximately 25 per cent of the record sales dollar. While this drop in the relative share of the record dollar by the Single is due primarily to a shift 74
TABLE 9
PER CENT OF TOTAL DOLLAR SALES BY TYPE OF RECORD—L P 's , SINGLES AND E P's, 1951, 1957, 1961-64
Per Cent of Total Record Sales Type of Record 1951“ 1957" 1961° 1962° 1963° 1964°
L P 's 29.6 45.0 75.0 74.7 73.7 74.3
Singles 70.4 40.0 24.0 24.7 25.8 25.3
E P 's 10.0 1 .0 0.6 0 .5 0 .4
Industry Total 100.0 95.0 100.0 100.0 100.0 100.0
S ources :
^hese data were compiled from the Music Performance Trust Fund figures and reported to the 1952 American Federation of Musi cians Convention at Santa Barbara, California,
^"Records," Electrical Merchandising, January 1958, pages 138-143. It should also be noted that the figures for 1957 add up to 95%—the other 5% being reported as 78 rpms.
^1964-65 International Music-Record Directory and Buyer's Guide, New York: Billboard Publishing Co., 1964.
*^1965-66 International Music-Record Directory and Buyer's Guide, New York: Billboard Publishing Co., 1965. 75 in consumer preference to the LP * part of the drop can be explained by the higher price per record for the LP compared with the Single.
Extended Play records have never captured a significant share of the market, and are apparently a "dying" product type, having dropped from 10 per cent of the dollar record market captured in 1957 to less than one-half of one per cent in 1964.
Unit sales patterns by record types in Table 10 reflect the same basic trend in consumer preferences as is shown by the dollar sales data. Singles accounted for 81 per cent of the unit volume in 1951 with the LP’s share amounting to 19 per cent. By 1961 the
Singles’ share of total unit sales was down to 54 per cent while the LP’s share had risen to approximately 46 per cent.
Marketing institutions must continually analyze sales data to meet changes in consumer tastes and to try to anticipate future changes in consumer product demand. To the extent that marketing institutions anticipate and respond to shifts in consumer demand, they perform a useful economic function in providing consumers with desired utilities.
Dollar Sales Patterns by Geographical-Market Areas
Few problems in marketing are more important to marketing management than adequate geographical definition of the market, for upon this definition rest such basic marketing efforts as determining market potentials, sales potentials, setting of sales quota; direct ing of advertising and other selling efforts; and exercising of sales 76
TABLE 10
PER CENT OF TOTAL UNIT SALES BY TYPE OF RECORD— LP's, SINGLES, 1951, 1960-1964
Per Cent of Total Sales Type of Record 1951® 1960b 1961^ 1962® 1963® 1964d
Singles 81.0 6 1 .8 58.0 52.4 54.4 5 4 .1
L P 's 19.0 3 8 .2 42.0 47.6 45.6 45.9
Total Sales 100.0 100.0 100.0 100.0 100.0 100.0
S o u rces:
&These data were compiled from the Music Performances Trust Fund Figures and reported to the 1952 American Federation of Musi cians Convention at Santa Barbara, California.
^1962-63 Buyer's Guide and Market Data, New York: Billboard Publishing Co., 1962,
°1964-65 International Music-Record Directory and Buyer's Guide, New York; Billboard Publishing Co., 1964
^1965^66 International Music-Record Directory and Buyer's Guide, New York: Billboard Publishing Co., 1965. 77 control. As an aid to market definition, an analysis of historical consumption patterns is presented by: 2 (a) metropolitan and non-metropolitan areas
Cb) regional areas of the United States
(c ) s t a t e s
Consumption patterns in 1956 for metropolitan and non-metro politan areas are shown in Table 11 and an analysis of these data reveals the following conclusions:
1) Metropolitan areas are the "best” markets, accounting for 74 per cent of the total sales volume while having only 59 per cent of the total households in the country,
2) Non-metropolitan areas, which contain 41 per cent of the population, account for only 26 per cent of the record market.
3) It can also be concluded that in market definition no differentiation need be made between the central city and the rest of the metropolitan area, for data reveal no differences in the average dollar expenditure rates for records between the two in either cities of over 500,000 or under 500,000.
Consumption patterns in 1956 by geographical regions are set forth in Table 12. The North Central area accounts for the largest share of the United States market, with 35 per cent. Its average yearly household dollar expenditure figure of eleven dollars is the highest of any region. The Northeast also represents a better than
2 Metropolitan areas are defined in this instance as cities of 500,000 population or more and non-metropolitan areas as cities of less than 500,000 population. This is the "definition" used by Alfred Politz in the Life Study on Consumer Expenditures from which these data were taken. 78
TABLE 11
CONSUMER EXPENDITURES FOR PHONOGRAPH RECORDS BROKEN DOWN BY MARKET LOCATIONS, 1956
Expenditures For Phonograph Records A ll U. S. P e r C ent o f Households Average Dollar Total Dollar Number Per Cent Expenditures Record Market Location (000) of total Per Year Market
A ll U. S. H ouseholds 49,140 100 7 100
All metropol itan areas 29,240 59 10 74
W ith c i ty 500,000 or more Central city 10,100 20 10 30 Rest of area 7,330 15 10 20
With city under 500,000 Central city 5,960 12 8 13 Rest of area 5,850 12 7 11
All non-metro politan areas 19,900 41 5 26
Communities of: 2,500 or more 7,490 15 5 11 L ess th a n 2,500 12,410 26 5 15
S o u rc e :
Special release to the author from Life's Study of Consumer Expenditures, Volume I, 1956. (Research conducted for Life by Alft?ed Politz Research, Inc.) New York; Life, 9 Rockefeller Plaza, 1957. 79
TABLE 12
CONSUMER EXPENDITURES FOR PHONOGRAPH RECORDS BROKEN DOWN BY GEOGRAPHIC REGIONS, 1956
Expenditures For Phonograph Records A ll U. S . Per Cent Of Households Average Dollar Total Dollar G eographic Number Per Cent Expenditures Record L o ca tio n (000) of Total Per Year Market
A ll U. S. H ouseholds 49,140 100 7 100
N o rth e a st Metropolitan areas 10,530 21 10 28 Non-metro, areas 2,280 5 4 4
North Central Metropolitan areas 8,480 18 11 25 Non-metro, areas 6,480 13 5 10
S outh Metropolitan areas 5,550 11 6 9 N6n-?metro. areas 8,860 18 4 9
West Metropolitan areas 4,680 9 9 11 Non-metro, areas 2,280 5 7 4
Source :
Special release to the author from Life's Study of Consumer Expenditures, Volume I, 1956, (Research conducted for Life by Alfred Politz,Research, Inc.) New York: Life, 9 Rockefeller Plaza, 1957, 80 average consumption rate, achieving 32 per cent of record sales with only 26 per cent of the total number of households. The West represents an average consumption rate relative to its population.
The South has the lowest relative sales share of the record market, accounting for only 18 per cent of the market with 29 per cent of the household population. From the data in Table 12 it can be con cluded that the North Central and Northeast areas represent the most fertile record markets, followed by the West and South in that order.
Dollar sales patterns of phonograph records by states on an institutional basis as reported by the Census of Business, Re ta il Trade, for 1958 and 1963 are shown in Table 13. The Census of
Business reports essentially on an institutional basis and includes in its SIC code 5733 a breakdown for retail record shops. For the years 1958 and 1963 record shops are the marketing institution at retail which accounted for the largest share of the record sales dollar. The limitations of the use of sales data for a single in stitution at retail for the purposes of defining market fertility are recognized; however, the statistics in Table 13 should be useful in providing an insight into consumption patterns and market fe rtil ity on a state by state basis. They are the only statistics avail able from the Censuses of Business. Analysis of the data in Table
13 reveals that the sales of phonograph records are heavily concen trated, with nine states, New York, California, Illinois, Ohio,
Pennsylvania, New Jersey, Texas, Michigan and Massachusetts, in that order, accounting for 58.0 per cent or two-thirds of the United
States total sales volume. Two states. New York with 16.7 per cent, and California with 21.2 per cent, accounted for 37.9 per cent or 81
TABLE 13
DOLLAR SALES PATTERNS OF PHONOGRAPH RECORDS SOLD THROUGH RECORD SHOPS FOR THE YEARS 1958 AND 1963
1958^ 1963^ Per Cent Of Per Cent Of Dollar Sales Dollar Sales D o lla r Volume D o lla r Volume S a le s A ccounted S a le s A ccounted Volume F or By Volume F or By S ta te s (000) Each S ta te (000) Each S ta te
U, S. Total 141,333 100.0 153,498 100.0
New England
Maine 436 0 .3 547 0 .3 New Hampshire 493 0.3 386 0 .2 Vermont 565 0.4 321 0 .2 Massachusetts 4,531 3.2 4,532 3.0 Rhode Island 759 0.5 777 0.5 Connecticut 3,582 2.5 2,517 1.6
Middle A tlantic
New York 25,310 17.9 25,699 16.7 New J e rs e y 7,185 5.1 7,811 5.1 Pennsylvania 8,830 6 .2 8,046 5 .2
East North Central
Ohio 8,968 6.3 6,583 4 .3 Indiana 2,676 1.9 2,835 1 .8 Illinois 9,504 6.7 8,826 5.8 M ichigan 5,529 3 .9 4,679 3 .1 W isconsin 2,525 1 .8 2,584 1 .7
West North Central
Minnesota 2,328 1.6 1,561 1.0 Iowa 1,072 0 .8 796 0 .5 M isso u ri 1 ,974 1 .4 1,512 0 .9 North Dakota 201 0.1 132 0 .1 South Dakota 104 0 .1 325 0 .2 Nebraska 186 0 .1 321 0 .2 Kansas 1,098 0 .1 1,280 0 .8 82
TABLE 13—Continued
1958® 1963^ Per Cent Of Per Cent Of Dollar Sales Dollar Sales D o lla r Volume D o lla r Volume S a le s Accounted S a le s A ccounted Volume F or By Volume F or By S ta te s (000) Each S ta te (000) Each S ta te
South Atlantic
Delaw are 303 0 .2 489 0.3 M aryland 1,836 1.3 2,695 1 .7 D istrict of Columbia 2,345 1.7 3,644 2 .4 Virginia 2,923 2.0 2,612 1 .7 West Virginia 420 0.3 328 0 .2 North Carolina 1,568 1 .1 2,032 1.3 South Carolina 811 0.6 965 0 .6 G eorgia 1,283 0.9 1,869 1 .0 F lo rid a 3,990 2.8 2,579 1 .7
East South Central
Kentucky 877 0.6 1,294 0 .8 Tennessee 1,152 0.8 1,861 1 .2 Alabama 800 0.6 1,406 0.9 M ississippi 350 0 .3 601 0 .4
West South Central
Arkansas 745 0.5 236 0 .1 Louisiana 1,686 1.2 2,511 1 .6 Oklahoma 897 0.6 486 0.3 Texas 5,647 4 .0 5,550 3 .6
M ountain
Montana 163 0 .1 349 0 .2 Idaho 273 0 .2 373 0 .2 Wyoming (D) 143 0 .0 C olorado 910 0.6 1,019 0.6 New Mexico 643 0.5 545 0.3 A rizona 727 0.5 1,204 0.9 Utah 210 0 .2 (D) Nevada (D) (D) 83
TABLE 13—Continued
1958^ 1963^ Per Cent Of Per Cent Of Dollar Sales Dollar Sales D o lla r Volume D o lla r Volume S a le s A ccounted S a le s A ccounted Volume F or By Volume F or By S ta te s (000) Each S ta te (000) Each S ta te
P a c if ic
W ashington 2,597 1.8 2,257 1 .4 Oregon 1,332 0.9 464 0 .3 California 18,957 1 3 .4 32,606 21.2 A laska 378 0.3 269 0 .1 Hawaii 762 0.5 746 0.4
S o u rces:
^U.Sé Bureau of the Census, Census of Business, 1958, Retail Trade, BC58-RA1, U.S. Summary (Washington, D. C.: U.S. Government Printing Office, 1960).
^U.S. Bureau of the Census, Census of Business, 1963, Retail Trade, BC63-RA1, U.S. Summary (Washington, B.C.: U.S. Government Printing Office, 1965). 84 more than a third of the United States total sales in 1963 (as re ported for this institution). The biggest change noted between the sales data for 1958 and that of 1963 is the rapid growth in sales recorded for California, which increased its share of the United
States mcu?ket from 13.4 per cent in 1958 to 21.2 per cent in 1953.
Management must consider the implications of the relatively high- degree of geographical concentration of demand in its definition of the market.
The Influence of Selected Economic and Demographic Factors on The Consumption of Phonograph Records
No books published in this country treat, either on a quanti tative or qualitative basis, the problem of definition of market segments or the definition of consumer buying motives for phonograph records. Yet, adequate measurement of the effects of factors such as income, age, and occupation on the consumption of phonograph rec ords is essential to marketing management. It is the purpose of this section of the study to deal with the marketing problem of definition of consumer market segmentation and, second, to explore briefly consumer buying motives. The influence on the consumption of phonograph records of the following economic and demographic fac tors are examined: Cl) household income, (2) age of household head,
(3) educational level of household head, (4) occupational group.
Table 14 shows the share of total sales of records accounted for by annual household income classes for the year 1956. Several significant conclusions may be drawn from these data in Table 14:
1. Records are a mass-consumed product with nearly 75 per cent of the total dollar volume being bought by middle income 85
TABLE 14
CONSUMER EXPENDITURES FOR PHONOGRAPH RECORDS BY ANNUAL HOUSEHOLD INCOME CLASSES, 1956
Expenditures for Phonograph Records A verage Per Cent Of Annual All U* S. Households D o lla r Ex Total Dollar H ousehold Number P e r Cent penditures Record Income ( 000) o f T o ta l P e r Y ear M arket
A ll U. S. H ouseholds 49,140 100 7 100
Under $2,000 8,610 18 2 5
$2,000 - $2,999 8,080 14 3 6
$3,000 - $3,999 7,510 15 6 13
$4,000 - $4,999 9,250 19 7 16
$5,000 - $6,999 9,680 20 11 29
$7,000 - $9,999 4,680 9 11 15
$10,000 and over 2,330 5 25 16
S ource ;
Special release to the author from Life's Study of Consumer Expenditures, Volume I, 1956. (Research conducted for Life by Alfred Politz Research, Inc.) New York: Life, 9 Rockefeller Plaza, 1957. 86 classes. Approximately 73 pe: cent of the record dollar volume is purchased by annual income classes ranging from $3,000 to $9,999.
2. Average annual dollar expenditures rise substantially as income goes up. For example, the $4,000 to $5,000 group spends an annual average of seven dollars on records; the $7,000 to $9,999 group spends 50 per cent more, or eleven dollars; and the $10,000 and over group spends twenty-five dollars annually.
3. To the lower income groups, the phonograph record is something of a luxury. As evidence of this fact, the income groups under $3,000 accounted for 32 per cent of the households but only
11 per cent of the record market.
Consumption of phonograph records by households grouped by age of the household head is shown in Table 15. Data in this table indicate the following:
1. Households headed by the 40-49 age group have the high est relative consumption rate. This group, while constituting only
21 per cent of the total households, accounted for 29 per cent of the market and had the highest average annual expenditures figure for records, ten dollars.
2. The 30-39 age group households bought 30 per cent of the records and had the second highest average dollar expenditure for records, nine dollars.
3. Households headed_by those over 50 and under 30 are con siderably less fertile record markets. The annual dollar record expenditures of these two groups are substantially below those of the age group of 30-50. 87
TABLE 15
HOUSEHOLD CONSUMER EXPENDITURES FOR PHONOGRAPH RECORDS BY AGE OF HOUSEHOLD HEAD, 1956
Expenditures For Phonograph Records All U. S, Per Cent Of Households Average Dollar Total Dollar Age o f Number P er Cent Expenditures Record Household Head (000) o f T o ta l P e r Y ear M arket
A ll U. S. Households 49,140 100 7 100
Under 30 years 6,360 13 7 13
30 - 39 years 12,030 24 9 30
40 - 49 y e a rs 10,290 21 10 29
50 - 64 y e a rs 12,700 26 6 23
65 y e a rs and o ld e r 7,760 16 3 5
S ource:
Special release to the author from Life*s Study of Consumer Expenditures, Volume I, 1956. (Research conducted for Life by Alfred! Politz Research, Inc.) New York: Life, 9 Rockefeller Plaza, 1957. 88
Data in Table 16 deal with the influence of educational level achievement on the consumption of phonograph records. Several con clusions can be drawn as follows:
1. The more formal education the household head has achieved, the higher the per household consumption of records, The average annual dollar expenditure was thirteen dollars for the college edu cated group, a rate almost twice that of all households and more than four times that of the three dollars spent by households headed by those having a grade school education or less.
2. The households whose head had some college or beyond can- pose the largest single market, accounting for 35 per cent of the total record dollar.
3. Households whose heads have only finished grade school or less represent the poorest market. These groups account for 40 per cent of the households but buy only 24 per cent of the records.
This correlation between consumption of phonograph records and level of formal education achieved is based on two interrelated facets of formal education—income level attained and cultural level achieved. In general, empirical evidence has indicated a direct correlation between income level and educational level. Also, cul tural level attained tends to be tied directly to educational level achievements.
Table 17 treats consumption patterns of households whose heads are in different basic occupational groups. From the data in this table the following facts can be established: 1. The consumption of phonograph records is highest in the professional and managerial households. The average dollar annual 89
TABLE 16
HOUSEHOLD CONSUMER EXPENDITURES FOR PHONOGRAPH RECORDS BY EDUCATIONAL LEVEL ACHIEVEMENT OF HOUSEHOLD HEAD, 1956
Expenditures For Phonograph Records A ll U. S. Per Cent Of E d u ca tio n Households Average Dollar Total Dollar o f House Number Per Cent Expenditures Record h o ld Head Coco) o f T o ta l P e r Y ear M arket
A ll U. S. Households 49,140 100 7 100
Grade School or less 9,380 19 3 9
Finished grade sc h o o l 10,170 21 6 15
Some h ig h sc h o o l 9,080 18 8 19
Finished high sch o o l 10,860 22 8 22
Some c o lle g e o r beyond 9,650 20 13 35
S ource :
Special release to the author from Life's Study of Consumer Expenditures, Volume I, 1956. (Research conducted for Life by Alfred Politz Research, Inc.) New York: Life, 9 Rockefeller Plaza, 1957. 90
TABLE 17
CONSUMER EXPENDITURES FOR PHONOGRAPH RECORDS BY OCCUPATION OF HOUSEHOLD’S HEAD, 1956
Expenditures For Phonograph Records A ll U. S. Per Cent Of O ccupation Households Average Dollar Total Dollar o f House Number P e r Cent Expenditures Record h o ld Head (000) o f T o ta l P e r Y ear M arket
A ll U. S. H ouseholds 49,140 100 7 100
Professional, s e m i-p ro f. 4,000 8 13 14
Mgr,, official 4,750 10 13 18
Clerical, sales 5,750 11 10 17
Craftsman, forem an 8,240 17 8 18
Operative, non farm laborer 10,210 21 6 17
Service worker 2,930 6 6 5
Farmer, farm la b o re r 4,420 9 3 3
Retired or not employed 8,840 18 3 8
S ource:
Special release to the author from Life*s Study of Consumer Expenditures, Volume I, 1956, (Research conducted for Life by Alfred Politz Research, Inc.) New York: Life, 9 Rockefeller Plaza, 1957. 91 expenditure of these two groups for records amounted to thirteen dollars, a rate almost twice the national average of seven dollars for all households.
2. Clerical and sales household groups also represent a better than average market, comprising 11 per cent of the total households yet accounting for 17 per cent of the record market.
3. Operatives, non-farm laborers, service workers, farmers and farm laborers as occupational groups represent relatively poor markets for records.
When applying one of these basic economic or demographic factors in the process of defining market segments, marketing man agement may further sophisticate the definition of a particular segment by the use of sub-segments. For example, in utilizing the age factor, one age segment might be defined as the market under twenty-two. Then this market segment under twenty-two can logically be subdivided into (a) the teen-age market (non-college) and (b) the collegiate market. The teen-age segment currently represents a ten-billion-dollar market composed of some 15,000,000 non-college teen-agers who are typically heavy record buyers, especially for teen beat music and pops. Chief characteristics of this sub-market segment are their fickle tastes in artist acceptance and music styles and the high degree of conformity of tastes. These charac teristics often result in "feast or famine" for producer and mar keter as a particular song and/or artist catches their fancy. This teen-age market is also characterized by a higher than average con sumption rate of Singles. In one recent study the fact was brought out that ownership of a good (defined here as large) record 92
collection for a teen-age girl is a status symbol which parallels
the omting of a car among teen-age boys.^
The other sub-segment of the under twenty-two market is the
collegiate market composed of some 5,000,000 collegians enrolled in more than 2,000 institutions. A recent study of Billboard Magazine points up the fertility of this market segment which bought about
18,000,000 Albums and 6,000,000 Singles in 1964.^ As a group,
collegians are avid record fans and well above average record pur
chasers, Billboard's study indicates that the average phonograph-
owning undergraduate is a record collector, having a library of C sixty-one Singles and thirty-six Albums.
A knowledge of consumption patterns by repertoire would also be useful to both producers and marketers as a possible basis for market segmentation definition. Two approaches may be used in such
an analysis. One is simply a breakdown of total sales by repertoire groups such as rhythm and blues, country and western, classical, and popular. Such data for the United States, which are shown in Tables
3 and 4 in Chapter II are valuable to the national marketer in de veloping general perspectives and to the local marketer in terms of national trend information. If adequate stock control records are maintained, any marketer can ascertain this type of information for
^S, E, Makle, "Building Sales to Younger Customers," A Small Marketeer Aid, The Small Business Administration, Washington, D.C,, 1962,
Aaron Stem field, "Record Marketplace, Talent Proving Ground," Billboard Magazine on Campus (March 27, 1965), pp. 7-10,
S ib id , 93 his own scope of marketing operations. It would be logical to as sume that wide variations in consumption patterns of different repertoire exist among different marketing institutions based on clientele differences and regional preferences. The only data re lating repertoire demand to various economic and demographic factors such as age and income this research has been able to uncover is in a monograph published by the Record Industry Association of America.
The data contained in the RIAA monograph do treat with the factors of age, sex and income relative to repertoire but these data appear to be estimates and are not documented,®
In an effort to develop some broad general guide lines on the relationship between age and repertoire demand, opinions of re tailers and record producers were sought as part of this research effort and the results are shown in Tables IS and 19.
Data in Tables 18 and 19 indicate that manufacturers define the basic market segments for the different types of repertoire es sentially the same as do retailers. Opinions of both retailers and manufacturers on basic market segmentation by repertoire are summa rized as follows:
R e p e rto ire "B e st" M arket by Age Group Current Hits on 45's 13 - 20 Teen Beat Music 13-20 Easy Listening LP’s All age groups over 21, but p a r t i c u l a r l y th e 31 - 50 group
®Heniy B rief, Radio and Records : _A Concert in Sound, a mono graph published by the Record Industry Association of America, Inc., 1 East 57th S t., New York 22, New York, 1964. An investigation on the nature of the data presented in this monograph revealed that these estimates were based on research efforts of a major record m a n u fa c tu re r and s u p p lie d to RIAA. 94
R e p e rto ire "B est" M arket by Age Group
J a z z 2 i = 30 F olk Under 30 Country LF's All age groups over 21, but particularly the 31-50 group R and B LP’s Under 30 Classical All age groups over 21, but particularly the 31-50 group
By utilizing such information on the relationships between age and
repertoire demand, record producers and marketers are better able
to relate product demand to market potential.
Consumer Motivation in Record Purchasing
This study has been unable to discover anything published in
this country on consumers’ buying motives in the purchasing of phonograph records. A German, Robert Reichardt, treats this problem
of motivation in record buying in his book Die Schallplatte als
K ulturelles und okonomesches Phonomen, and entitled a chapter "How
and Why People Buy Records." Reichardt quotes a Frenchman, Alphons
Silbermann who differentiates two types of stim uli in record buying
as follows;
"(a) Primary stim uli—these come from the general need of society such as dance and a feel of community.
Cb) Secondary—these are connected with specific expe riences bound with music, i.e ., esthetics and mental experiences."?
In dealing with the consumer buying process, Reichardt makes
a definite distinction between buying and consumption, stating that buying is one act and consumption is another act. Consumption is
n Robert Reichardt, Die Schallplatte als Kulturelles und okonomisches Phonomen (Zurich: Polygraphischer Verlag A. G.. 1962), p. 48. TABLE 18
RETAILERS’ OPINIONS AS TO BASIC MARKET SEGMENTS BY AGE GROUPS FOR DIFFERENT TYPES OF REPERTOIRE
Per Cent of Firms Listing Age Groups as Constituting the Prime Market Segments for Each Class of Repertoire® C u rre n t Easy Listen. H its on Teen LP, Vocal and C ountry R and B Age Groups 4 5 's B eat Instrumental Jazz Folk LP’s LP’s Classical
13-20 88.H 85.3 24.6 54.6 3 3 .8
21 - 30 20.7 11.5 56.9 56.1 62.3 3 9 .2 30.0 41.5
31 - 50 • • 6 3 .0 23.8 20.0 41.5 • # 7 0 .7
Over 50 • • 56 .8 20.7 • ■ # 60,0
&Data do not add up to 100% as firms expressed opirdbns which often included two or more market segments for each basic class of repertoire.
S o u rce:
A survey of retailers conducted in July, 1965, as part of this study. See Appendix A for descrip tion of survey methods employed and questionnaire utilized.
to o i TABLE 19
MANUFACTURERS' OPINIONS AS TO BASIC MARKET SEGMENTS BY AGE GROUPS FOR DIFFERENT TYPES OF REPERTOIRE
Per Cent of Firms Listing Age Groups as Constituting the Prime Market Segments for Each Class of Repertoire^ C urrent Easy Listen H its on Teen LP, Vocal and Country R and B Age Groups 45*8 Beat Instrumental Jazz Folk LP's LP's Classical
13 - 20 70.0 76.9 15.7 28.5 • • 41.8
21 - 30 21.9 21.5 69.0 47.1 58.5 34.2 40.0 30.0
31 - 50 74.5 31.4 22.8 42.8 55.7
Over 50 69.0 27.1 42.8
^Data do not add up to 100% as firms expressed opinions which often included two or more market segments for each basic class of repertoire.
Source :
A survey of manufacturers conducted in July, 1965, as part of this study. See Appendix A for a description of survey methods employed and questionnaires utilized.
lO OI 97 defined by this German author as the actual act of listening to music, and he holds that consumption has not really,taken place until a consumer has listened to the record after purchase.
Reichardt divides the buying process into two components:
1, Before entering the shop—in every situation in which there is not buying from the home (telephone or mail order) the customer is predisposed by some stimulus to buy—e.g., advertising, window display, or air play. Reichardt admits there is a certain role also played simply by shopping.
2. After entering the shop—the gathering instinct takes over (presumablyKs phraseology the gathering instinct is what is often referred to in this country as possession instinct). Reichardt holds that the gathering instinct is the connecting link between the desire to shop or buy and the actual buying act.
In a somewhat metaphysical type of discourse on this subject,
Reichardt says that the four motives generally for buying records
in the shop are:
1. Impatience
2. Feeling to be obliged to buy
3. Thought of consuming the goods Û 4. Sensuous impression of consuming the goods.
While some perceptivity may be gained from reading his chapter on
this problem, Reichardt’s entire discussion of consumer motivation
tends to be psychological.
^Ibid., pp. 72-74, 98
Since most phonograph records purchased can be classified into the category of consumer goods bought by the ultimate consumer for the purposes of personal use and satisfaction, general insights may be gained by applying concepts on consumer motivation expounded in a standard text such as Beckman and Davidson's text. Marketing, Q 7th Edition, In their text, Beckman and Davidson point out that the classification of consumer buying motives into a universal set of explanatory motives is not possible because of the vast number of variables usually at work in individual buying situations. Nev ertheless, these two authorities feel that the use of classifications in analyzing consumer motives provides useful insights for the mar keter and in their discussion of this subject develop four helpful classification concepts. These concepts are discussed under the headings of primary and selective buying motives, emotional and rational motives, conscious and dormant motives, and patronage m o tiv es.
Recognizing that these different classes of motives often operate in combination with one another, we can say that the fol lowing motives probably account for the most common reasons behind record purchasing:
1) Pleasure is probably the single biggest consumer motiva tion since listening to records is a basic form of home entertainment.
2) Emulation or conformity is a common motive of many con sumers in the purchase of a particular record by a special artist.
Such a purchase is often based on the desire to have X record because
^Beckman and Davidson, op. c it., pp. 79-80. 99 the reference group has it, or because an artist is the rage and everyone in the group is buying his records. This motive is strongest in the age group under twenty-two.
3) The prestige motive often lies behind the purchase of certain types of records as a result of the individual's desire to appear to be "high brow" and impress friends with his cultural level attainment. ' An analogy could be made to buying the "right" books. The acquisition of a particular quantity and quality rec ord collection may be based on the prestige motive.
4) The rational appeal of economy or monetary savings is a fairly universal buying motive. Thus savings offered by cut prices
(prices below manufacturer's suggested list) may attract many b u y e rs .
5) Convenience is another appeal significant to consumer motivation.
While these five motives by no means exhaust the possibilities, they represent some of the most common ones in record purchasing.
The most significant motives for patronage by record buyers in choosing a source of supply are breadth of assortment, price, and convenience of location. As in the case of product buying motives, patronage motives work in combination.
Analysis of sales data since 1920 and its correlation with historical events indicates that the consumption of phonograph rec ords is particularly sensitive to the vicissitudes of the business cycle, to product innovation, and to marketing strategy and efforts, good and bad. Records are essentially a semi-luxury item, and, as such, are more susceptible to violent fluctuation in consumption 100 than many product categories as a result of any or all of these forces mentioned in the preceding paragraph. Record consumption is definitely affected by various economic and demographic factors such as level of income, age, occupation and educational achievement.
Because of th is, marketing management must consider these factors in their definition of market segmentation. Empirical evidence de veloped in this study indicates that sales of phonograph records are concentrated geographically and thus marketing management must con sider this fact and the market potential of different areas in their definitions of sales potential and sales quotas for their companies.
Consumer motivation in record buying is a complex problem, defying hard and fast classification of motives for the purchasing of records. Nevertheless, marketing management must concern itself with trying to gain insights into what makes people buy records.
Management of record companies can gain considerable help by apply ing general consumer motivation concepts developed by marketing authorities to the problem of record buying. CHAPTER V
CHANNELS OF DISTRIBUTION
This chapter deals with the metamorphosis which has taken place in distribution patterns in the phonograph records industry during the 1950’s and 1960's and the implications of such changes to marketing management. Much of the analytical effort focuses on the channels of distribution utilized in the marketing of records.
A channel of distribution for a product or service can be defined as "the course through which title to, and control over, the prod uct or service passes from original producer to end user."^ Another group of authorities defines a channel of distribution as "the course taken in the transfer of title of a product." Channels of distribution have both vertical and horizontal dimensions. The vertical dimension deals with the levels or links of middlemen through which title to the goods is passed in its journey from pro ducer to industrial or ultimate consumer. Marketing establishments of integrated firms such as manufacturers' sales branches or retail outlets owned by a wholesaler are considered as separate links or levels, for they perform the same basic functions in the marketing
^John B. Matthews, J r., Robert D. Buzzell, Theodore Levitt, Ronald G. Frank, Marketing, An Introductory Analysis, New York: McGraw H ill Book Co., 1964, p. 19,
^Beckman and Davidson, opj cit., p. 44.
101 102 process as independent middlemen do. Thus, from a practical stand point transfer of goods to different kinds of establishments on different levels of the channel within an integrated company must be considered in the nature of sales transactions. As Beckman and
Davidson point out in their text. Marketing, 7th Edition, "Failure to consider them (integrated units) as links in the chain of distri bution would lead to confusion when comparing one channel with another or in comparing costs of distribution through alternative 3 c h a n n e ls ."
Channels of distribution also have horizontal dimensions which affect distribution patterns and which offer manufacturers and wholesalers different types of institutions through which to reach different types of market segments. For example, historically in the phonograph records industry, a single channel of distribution was utilized by the manufacturer, that of manufacturer to distri butor to record retail store. Currently, as a result of t>asic changes in the marketing environment, manufacturers sell not only to distributors but to sub-distributors such as one stops and rack jo b b e rs .
H istorical Patterns of Distribution from 1930 to 1962
In order to gain better insights into the present practices in distribution in the phonograph records industry, it is desirable to trace the historical patterns of distribution as they evolved in this industry. Also, such a background will help in understanding current problems relative to distribution.
®Ibid. For a more complete discussion of this concept, see the authors’ discussion on p. 46. 103
During the 1930*8 and most of the 1940's distribution pat
terns were relatively uncomplicated, Records moved down one of
two paths as illustrated in Figure 2. Four major record companies
—RCA Victor, Columbia, Decca, and Capitol—dominated the produc
tion of records and accounted for seventy-five per cent of the
total market. The most common distribution channel was:
Manufacturer to Independent D istributor to
Record Retail Specialty Store to Consumer.
The independent distributor was the backbone of the distribution
system through his performance of such requisite marketing func tions as merchandising and sales promotion, credit extension, physical storage, and as a distribution point from which merchan
dise needs of thousands of small retailers could be serviced. With
the exception of some department store or variety store record de partments, most records were marketed at retail through record specialty stores. The only other segment of the market was the
juke box operator who bought frcm the distributor. Some major rec ord companies used both, manufacturers’ sales branches and independent
distributors simultaneously as channels (Figure 2). For example, in 1948, Capitol Records had nineteen independent distributors and twenty-three company-owned branches.*^ During this era of the 1930’s
and 1940’s most of the independent distributors handling a major
company's line confined operations to that company's product. This
exclusive agency policy for a distributor handling a major brand
^"History of Capitol Records," an unpublished monograph supplied the w riter by Capitol Records, Hollywood, California. RECORD 104 MANUFACTURER
DISTRIBUTOR (MFC SALES DRANCH)
RETAIL RECORD lUKE BOX OPEBATOR DEALER
i 1 JUKE BOX ON bUndUMtNr n II cii u c 0 LOCATION
RECORD MANUFACTURER
INDEPENDENT DISTRIBUTOR
l U K E BOX RETAIL RECURS OPERATOR DEALER 4 JUKE BOX ON CONSUMER LOCATION
FIGURE JL Pattsris of Distribotioa of Phomogroph Rocords !■ the 1930'; aid 1940’s.
Soorco: Sidney Sheeel and M.W.Krosilovsky, This Rosine;; of Mosic
(New York: Billboard Pnbiishing (o^ 1964, p. xi. ) 105 product was feasible, since most major companies had a wide variety of product line.^ Up until the late 1940's or early 1950's distri bution patterns as shown in Figure 2 were relatively stable. Dol lar volume of record distribution is shown in Figure 3,
Appearance of the one stop sub-distributor
The period of the early 1950's ushered in a decade of tre mendous growth and expansion in the record industry. Demand for this product was spurred by such influences as the perfection of the
LP in 1949, the new 45 Single developed by RCA, greater consumer disposable incomes and other factors previously discussed. When this expanded demand for records manifested itself in the market place, small independent record producers mushroomed. As is fre quently the case when an industry experiences rapid growth, chan nels of distribution are profoundly affected. The record industry was no exception. In the ensuing competitive struggle and changing marketing environment, a new marketing institution subsequently labelled as a "one stop" evolved. One stops were sub-distributors whose main function originally was to buy from the distributor and in turn service the juke box operator. In this capacity, the one stop bought from many distributors, thus handling many different manufacturers' lines, and the juke box operator then needed to make
^These historical generalizations are based in part on per sonal interviews in the spring of 1965 with executives of major record companies such as Columbia, RCA, and other independent pro ducers who composed an industry committee to assist the author's research efforts and with Tom Noonan, Research Director, Record Market Research, Inc. Names of the Industry Committee are given in Appendix A. RECORD
100%
RECORD DISTRIBUTOR
75% 25%
RECORD OPERATORS RETAIL OUTLET (jukeboxes]
CONSUMER
H FIGURE 3. Record Distribvtioa—1948. o on Soerce: Tom Hoonon, Research Director, Record Market Research, Inc.
Personal Interview, February 26, 1965 and a Special Release to the Author. 107 only one stop to secure all his merchandise needs—hence, the name one stops. Gradually the one stops began to service some small retail dealer accounts which were not particularly attractive to the distributor because of the small volume of business the accounts offered. One stops received a functional discount ranging between five and ten per cent from the distributor. Generally this sub distributor charged the retailer and juke box operator a slightly higher price than the distributor's list, thus profiting from both the functional discount cited above and an additional mark up on the goods. Even though these sub-distributors generally charged a lit tle more per record than the distributor, their patronage by re tailers and juke box operators continued to grow because of the convenience offered to their customers in the performance of the buying function. Changes in the patterns of distribution that oc curred in the period from the late 1940's to 1955 are shown in
Figure 4. The two most significant changes in distribution during this period were:
a) a new type of sub-distributor, the one stop, evolved to meet a market need, that of providing the juke box operator with the regular convenience of assembly in one location of the products of various producers.
b) gradually this new sub-distributor began to sell to re ta il stores, thereby diverting part of the sales volume that formerly was the distributor^ market. In both cases, the one stop was meet ing a market need—the need of juke box operators and small retailers for greater convenience in performing the buying function. The flow of dollar volume of records through the various channels of distribution 108
DISTRIBUTOR (MFG SALES BRANCH]
O N E S T O P
RETAIL RECORD l U K E B O X DEALER OPERATOR
CONSUMER JUKE BOX ON LOCATION
INDEPENDENT DISTRIBUTOR
O N E S T O P
RETAIL RECORD DEALER
CONSUMER J U K E B O X I LOCATION figure Pottems of Pistribotioo of Pkooofroph Rocords, Tbo Late 1940's to 1955. Soorco: Sane as FIGURE 2 109
in 1955 is illustrated in Figure 5, By 1955 one stops had captured
12 per cent of the retail record store business.
Emergence of anot utor—the rack jobber, and the ina^uration by manufacturers of direct marketing policies
The year 1955 marks the visible beginning of a decade of
flux in the marketing of phonograph records. Traditional patterns of distribution began to crumble as the following developments in
dicate, First, manufacturers began to employ a short channel of
distribution for the first time by selling records direct to the ultim ate consumer. In 1955 Columbia Records inaugurated a record
club along the concepts of a book club. Consumers were invited by
advertisements in media such as magazines, direct mail and radio to
join a record club and buy records at reduced prices direct from
the manufacturer, Capitol, RCA Victor, and other manufacturers
followed suit with their own clubs shortly after Columbia's move.
The success of this new technique of distribution is substantiated
by the fact that in 1961, six years after their inception, record
clubs accounted for 100 million dollars of sales volume, or approxi
mately 15 per cent of the total annual dollar record volume at
r e t a i l .
Second, another new type of sub-distributor, the rack jobber,
emerged and by 1955 had captured approximately 5 per cent of record
dollar volume at retail. As a type of middleman, the rack jobber
was well established by the early 1950's in handling a variety of
product lines other than records, and servicing mostly supermarkets,
drug stores and various other types of mass merchandising outlets. RECORD RECORD MANUFACTURER CLUBS
RECORD O NE S T O P S 15% (ail lines] DISTRIBUTOR
l U K E BOX OPERATORS RECORD RETAIL OUTLET
l U K E B O X E S ON LOCATION CONSUMER
FIGURE 5. Record Distribution —1955, Source: some as FIGURE 3 I l l
In the ensuing competitive struggle for a share of this increased consumer demand for records, manufacturers, and even distributors, sought ways to increase the exposure of records to the public.
Rack jobbers provided the solution by placing records on self-serv ice racks in large supermarkets, variety stores and drug stores with heavy customer traffic. Initially rack jobbers bought most of their merchandise from distributors and received a functional discount of approximately 10 per cent. The success of this method of distribution is attested to by the steady growth of the rack job ber’s share of the record dollar. In 196*+, this method of distribu tion accounted for 35 per cent of the total record sales at retail.
A third major innovation during this period was the beginning of the practice of direct marketing. Traditionally record manufac turers had sold 100 per cent of their volume through distributors
(see Figure 3 for the year 1948). With the emergence of these two new sub-distributors, and their growing importance (for example, by
1961, racks had captured 27 per cent of the record market at retail), manufacturers began to sell direct to racks and one stops, by-passing the distributor entirely. The degree of prevalence of this practice can be seen in Figure 7.
Changes employed in the channels of distribution during the period from 1955 to 1962 are graphically reflected in Figure 6.
Records now moved in the channel from manufacturer to distributor and from distributor they were sold to one of the three markets, re ta il record stores, rack jobbers, or one stops. From rack jobbers the product moved to racks in retail outlets; from one stops rec ords moved to juke box operators or to retailers. Two exceptions 112 RECORD MANUFACTURER 1 RECORD CLUB DISTRIBUTOR (Mfg Sales Branch)
RACK JOBBER ONE STOP 7 X RACKS ON LOCATION RETAIL RECORD JUKE BOX or DEALER OPERATOR LEASED DEPT I JUKE BOX ON CONSUMER LOCATION
RECORD MANUFACTURER 1 I RECORD CLUB INDEPENDENT / DISTRIBUTOR RACK JOBBER ONE STOP X RACKS ON LOCATION or RETAIL RECORD JUKE BOX LEADED DEPT DEALER OPERATOR I f f JUKE BOX ON ^ — CONSUMER LOCATION
FIGURE 6. PATTERNS OF DISTRIBUTION OF PHONOGRAPH RECORDS, 1955-1962. s o u r c e: s a m e s o u r c e a s f i g u r e 2 RECORD RECORD 18% MANUFACTURER CLUBS
73%
RECORD O N E S T O P 4 - 25% 20 % DISTRIBUTOR (ail lines)
30% 28% 20%
R A C K S O N RECORD l U K E B O X LOCATION RETAIL OUTLET OPERATOR LEASED DEPARTMENTS lUKE BOX ON CONSUMER LOCATION
FIGURE 7, Record Distribution —1962, Source; Some os FIGURE 3 114 to the above generalizations in record movements should be noted.
Manufacturers sold some of the product directly to sub-distributors and a portion of their volume was also sold directly to consumers.
As the data in Figure 7 indicate, by 1962, only 73 per cent of the record volume was being channeled through distributors. Changing distribution patterns for phonograph records from 1948 to 1963 are summarized in Figure 8.
Channels of Distribution Utilized in 1965
From the relatively simple channel structure of the 1930*s and 1940's, channels of distribution have evolved into a complex set of relationships by 1965. The present channel picture might be characterized not only as complex, but even chaotic, a label often applied by numerous industry representatives. In an effort to sim plify presentation of what is a rather extensive and complex set of relationships in the distribution of records, each current channel of distribution is represented separately in Figure 9. Figure 10 is a composite diagram of the channels of distribution in 1965, de veloped by Thomas Noonan, D irector, Record Market Research, Inc., in an effort to show the interrelationships between the various institutions in the trade channel. The information in Figures 9 and
10 indicates that records move down one of six paths:
Producer to Consumer
Producer to Retailer to Consumer
Producer to D istributor to Retailer to Consumer
Producer to Sub-distributor to Retailer to Consumer
Producer to Distributor to Sub-distributor to Retailer to Consumer SAI£S VOLUME lEUt In «m Iona of dollars HISTCRICAL NOTES a t r e t a il
19U8 $172 LP's (albums) Introduced; battle of murorACTDHHl 100% DISIRIHPTCR lOOjt speeds (liS vs. 33 1 /3) began; TV starting to expand and capture leisure SSS5» in hours of consumer; 2 and 3 speed phonos plus kS attachments produced; 78 decline.
19U9—TV adversely effects record sales and battle of speeds continues; ONE-STOP becomes significant as sub-distribmtor
1950 $18U Two speeds (U5 & 33 1/3) now firmly miTOFACTnSlB 100% mSTRIBOTOR lOCjt established—78 rpm records Boxes continue to decline rapidly
19$3--Rack jobber starts to merchandise records along with his other non-food items, primarily In supermarketa, drug & chain outlets.
1 9 5 5 $227 Columbia Record Club launched; Rack mHOFACTOHER 100$ D15ÏR1BPT0R 95% DEALER 70% Jobber sales rise rapidly; Rook t ORRATOR 20% B ans Ron music bee cams big factor for RACE JOBZR 5% Racks increased singles sales through -TSFSRTTSr facilities of ONE-STOP service. (Clubs 5%) CCNStnSR
1958—Stereo LP record introduced in fall of this year.
I960 $5a Back Jobbers & Discount outlets recog MANDFACTORER 100% D B IR IB D T C R 85% DEALER 60% n ise brand names ( a r tis t & la b e l) as OPBAIOR 5% traffic builders. ONE-STOP doing RACK JOBEB 20% Racks more & more volums with r e ta ile r s ; Sales of stereo increase. TPie^Rnsr ( d a b s 10%) CQRSDHB
1961—Manufacturers started consolidating distribution centers; racks continue to shed more small or fringe looatlons & cencontrate an leased departments.
1963 $651 ONE-STOPS now servicing most mWTACTORER 100% DLSTRIBOKR 73% D EA U R U8% operators, many retailers as OFBUZOR b% well as soma rack jobbers and RACK JOBBBL 25% Racks some discounters with both JORE-STOP 20% singles and LP's. ONE-STOP b% RACK JOBSn 5% Racks ______(d u b s 18%) CONSDMBR
Figure 9. Changing Olstribation Patterns of Rioaogrsph Records, 191*8-1963 Source: Thoams Noonan, Bsseareh Director, Record Market Research, Inc. Special Releaae to the Author, fbhmary 26, 1965. 116 I MANUFACTURER | | MANUFACTURER 1 | MANUFACTURER ]
DISTRIBUTOR* DISTRIBUTOR*
RACK JOBBER RACK JOBBER
RACKS ON LOCATION RACKS ON LOCATION RETAIL OUTLET (Retail Store) (Retail Store)
CONSUMER CONSUMER CONSUMER
I MANUFACTURER ] I MANUFACTURER j
DISTRIBUTOR*
ONE STOP ONE STOP
RETAIL OUTLET JUKE BOX OP RETAIL OUTLET
CONSUMER CONSUMER
I MANUFACTURER | | MANUFACTURER | | MANUFACTURER j
DISTRIBUTION*
ONE STOP
RACK JOBBER
RETAIL OUTLET RACKS ON LOCATION RstfliLStorfl___
CONSUMER 1 CONSUMER CONSUMER
FIGURE 9. CURRENT PATTERNS OF DISTRIBUTION OF PHONOGRAPH RECORDS, 1965. * THE DISTRIBUTOR AS SHOWN MAY BE EITHER AN INDEPENDENT OR A MANU FACTURERS SALES BRANCH AND IS SHOWN THIS)WAY FOR SIMPLICITY. Legend:
The normal distribution pattern for records is indicated by the straight and solid lines. However, auxiliary RECORD MANUFACTURER methods must be included. Dash lines are shipments or sales bypassing RECORD normal channels of distribution. The CLUBS jogged lines point up ownership of ECORD DISTRIBUTOR various distributor outlets by others in the distribution picture.
STOPS -- Sub- bs all lines
RACK JOBBERS
Figure: 10. Normal And OPERATORS Auxiliary Methods Of RACKS ON/LEASED LOCATION/departments Record Distribution And RECORD RETAIL OUTLET Their Interrelationships, 1965.
Source; This figure and its STORE CLUBS accompanying legend was developed by Thomas Noonam, Research Director, Record Market Research, CONSUMER Inc. and reproduced here by special permission of its author. 118
Producer to Distributor to Sub-distributor to Juke Box
Operator to Consumer
A more extensive treatment of the various types of wholesale institutions such as the distributor, rack jobbers, and one stops is reserved for Chapter VII. The variety of types of retail out lets handling phonograph records at the end of the channel of distribution is treated in Chapter VIII.
Trends in Distribution
The most significant changes in distribution patterns taking place over the fifteen-year period 1950 to 1965 are examined in the following paragraphs. Each of these changes has wide marketing implications for producers, wholesalers and retailers. All have resulted from some felt market need.
1) Forward vertical integration. Since 1960 one of the most pronounced trends in distribution in the phonograph record industry has been the prevalence of forward vertical integration by both manu facturers and wholesalers. Forward vertical integration is a practice in which institutions on two or more different levels of the trade
channel are brought under single management and financial control.
Thus a manufacturer or marketing institution takes over the marketing
functions performed by the marketing institution on the "next" for ward level in the trade channel. For example, a manufacturer might
decide, for various reasons, that he could do a better job of mar keting his product than the present independent wholesaler handling his line. Having reached his decision to take over the function of
the wholesaler, he accomplishes this by either buying out an existing 119 wholesaler, retaining some of its personnel, its physical facili ties, its market contacts and its relationships with its customers; or by setting up a new wholesale organization, that is, personnel and physical facilities. In either case, the manufacturer legally owns the "new" wholesaling institution, which now performs the common wholesaler's marketing functions such as selling, trans portation, storage, and credit. Integrated wholesale institutions owned and operated by manufacturers are labeled manufacturers' sales branches by the Census of Business and by most marketing authorities and, for all practical purposes, represent a separate segment or link in the trade channel. Forward vertical integration is also acconçlished when a wholesale institution takes over and/or operates a marketing institution on the retail level of the channel.
The degree to which forward vertical integration has taken place in the phonograph records industry can be established from a survey of both producers and wholesalers conducted in July, 1965, as part of this study.® Almost one out of every four record manu facturers (22 per cent) operates manufacturers' sales branches in ■7 their effort to accomplish the marketing tcisk. An even higher de gree of forward vertical integration has taken place among distrib utors and rack jobbers. Approximately 25 per cent of distributors have one stops. An equal per cent (25 per cent) report that they
Gpor a more detailed discussion of the survey, questionnaire employed, and methodology see Appendix A.
n These data are based on a survey of manufacturers conducted in July, 1965, as part of this research effort. For details on survey methodology and questionnaire employed see Appendix A. 120 engage in rack jobbing operations. One out of five distributors p also have integrated to the retail level, owning retail outlets.
The primary motivating forces behind these moves by the independent distributor toward forward integration are -
a) the decline in the share of the record market held by the record retail specialty shop, the distributors' prime class of customer historically.
b) the fact that more and more retail record shops are buying some or all of their inventory needs from one stops.
c) the rack jobbers' growing share of the retail market.
d) the practice of direct buying from the manufacturer by rack jobbers, one stops, and retailers.
Rack jobbers show an even higher degree of forward vertical integration as the following data indicate:^
Type of Institutions Owned and Per Cent of Rack Jobbers Operated by Rack Jobbers Reporting Ownership
One S to p s 3 5.4
Leased Department in Retail Stores 27.7
Forward integration is less prevalent among one stops as only 13.4 per cent of this type wholesaler reported having leased departments in retail stores and none indicated any rack jobbing operations.
®These data are based on a survey of distributors conducted in July, 1965, as part of this research effort. For details on survey methodology and questionnaire employed see Appendix A.
^These data are based on a survey of rack jobbers conducted in July, 1965, as part of this research effort. For details on survey methodology and questionnaire employed see Appendix A. 121
An illustration of this trend toward forward vertical inte gration by one class of wholesalers, the distributor, is pointed up in a leading trade magazine article entitled, "Tale of Three
Cities Reflects Big Change in Pattern of Distributing Records."
The article states that
evidence of the continually changing pattern of record distribution, with emphasis on the move of distributors into various aspects of retailing is seen in the opera tions of three widely separated independent distributors in Hcurtford, Connecticut; Charlotte, North Carolina; and Minneapolis, Minnesota.10
Each of the companies cited had, during 1962, added rack jobbing operations and had opened leased retail disk departments in retail stores. For example. Trinity Distributors in Hartford, Con necticut, set up a separate corporation and in a few months was operating twenty-four locations in up-state New York and a chain of thirty-seven stores in southern New England.
2) Increasing prevalence of direct marketing. Manufacturers are under increasing pressure from large sub-distributors such as rack jobbers to grant them the privilege of buying direct and at distributor prices. In a personal interview, Mr. Irwin Steinberg,
Executive Vice President of Mercury Records, cited the two most com mon reasons advanced by rack jobbers in their arguments to manufac turers for the direct buying privilege;
The distributors don't do anything for us—we would be just as well off to buy direct from the manufacturers. Also the racks contend that they buy in as large or larger quantities
1 0Ron Grevatt, Billboard Magazine, September 29, 1962. 122
than the distributor so they should receive the same dis count and/or price given the distributor. 11
The manufacturers are also under pressure from the large retailers, such as the chain, to grant them direct buying privileges. The degree to which the manufacturers are currently engaging in direct marketing is reflected in Table 20.
TABLE 20
THE NUMBER AND PER CENT OF RECORD MANUFACTURERS SELLING TO EACH OF THE INSTITUTIONAL SEGMENTS IN THE CHANNEL OF DISTRIBUTION DURING 1964
Institutional Number of Manu P e r Cent o f Manu Segments Of facturers Selling facturers Selling The Channel To Each Segment^ To Each Segment
Manufacturers’ Sales 20 30.7 B ranches Independent Distributors 63 96.9 Direct to Sub-distributor, i.e. Rack Jobbers and One S tops 25 3 8.4 Direct to Retailers 28 42.9
^he total number of manufacturers providing usable data on this question was 65.
Source :
Manufacturers survey conducted in July, 1965, as a part of this study. See Appendix A for methodology employed and question naire utilized.
As the data in Table 20 indicate, approximately four out of ten manufacturers were selling directly either to sub-distributors
^^Personal interview with Irwin Steinberg, Executive Vice President, Mercury Records Corporation, September 1965. 123 or retailers or both with no intervening wholesalers. These statistics on the degree of direct marketing by manufacturers are probably on the low side, for many record producers are s till re luctant to admit that they by-pass the distributor and sell direct to sub-distributors and retailers. It is therefore reasonable to assume that there is an even greater prevalence of direct marketing by manufacturers than these statistics from the questionnaire in d i c a te .
3) Concentration in buying. This development stems primar ily from the two previously cited trends, vertical integration and direct marketing, and its ramifications to manufacturers and dis tributors are pointed up in an article in Billboard Magazine en titled ’’Sharp Changes Loom in Distribution Set-Up,” In this article the author claims that an entirely new pattern of record distribution at wholesale is emerging in the United States as a re sult of rack jobber mergers, far flung discount chains and home of fice direct buying. The primary ramification of this development of concentration in buying is the fact that it invalidates the historical use of the BPI’s (Buying Power Indices),
For several decades prior to 1960, manufacturers set the sales quotas of either their independent distributors or manufac turers’ sales branches on the basis of a market index for the geo graphical region that constituted the distributor’s territory.
These Buying Power Indices were predicated on the usuad market fac tors including population and income. They served as a reasonably adequate sales potential guide when the channel of distribution was primarily from manufacturer to distributor to record specialty store. 124
Under this market environment it was common for each retail store to do its buying from the distributor in whose territory the re tailer was located.
The validity of the historically used BPI for setting sales quotas for distributors in today's market is questionable as a re sult of (a) the increasing prevalence of vertical and horizontal integration in the channel, (b) the emergence of large volume re ta il institutions (most of them chains) buying through central facilities such as home offices. An example w ill illustrate. The sales of a distributor located in a town where the retail chain or integrated rack jobber does central buying reflect a large increase, typically far exceeding the quota established by the use of the BPI..
Conversely, the sales volume of the distributor in other territories where this retail chain or rack jobber has outlets is adversely af fected since the distributor cannot sell this outlet in his terri tory any merchandise because the buying for the outlet is done elsewhere. Traditionally, under this BPI system, the distributor was expected to meet his sales quota or run the risk of losing his l i n e .
Frequently, distributors in territories adversely affected by concentration in buying turned to the practice of transshipping as the easiest way out of their dilemma of trying to meet their sales quota set under the BPI. The connotation of the term trans shipping as it relates to the record industry involves the practices of one distributor or sub-distributor selling merchandise to cus tomers of another distributor or sub-distributor outside of the first distributor's territory. Transshipped merchandise is almost 125
alwgys sold at a lower than prevailing market price and sometimes
at or below cost.^^ The mechanics and ramifications of this practice can be illustrated by an example. A manufacturer w ill ship 8,000 records to a distributor whose geographic market w ill
absorb only 70 per cent of this amount (5,600 records) because of
concentration in buying. This extra 30 per cent or 2,400 records
is then transshipped to one stops, or rack jobbers or large retail outlets in larger markets at prices below those of local distrib utors and retailers in this greater market area. Some distributors claim that as much as 90 per cent of the business transacted by some wholesalers in small markets is via transshipping.
The established independent distributor or retailer in the
"invaded" territory (the one into which the transshipped goods have been sent) is hurt because the prices of the transshipped goods are below that of the local distributor. Retail outlets buying trans shipped merchandise at below market prices can therefore price these records below the price of the local retailer who has bought at regular prices from the local distributor. Most responsible leaders
in the record industry would agree that transshipping as a marketing practice is undesirable, for it leads to price cutting below reason
able levels, disrupts normal marketing channel relationships and
generally makes for chaotic marketing conditions.
4) Exclusive agency policy no longer wide spread among in
dependent distributors. Historically, it has been the practice of
in Bob Rolontz and Jack Maker, "Sharp Changes Loom in D istri bution Set-Up," Billboard Magazine, Nov. 10, 1962. p. 4, 126 most independent distributors who handled major manufacturers'
lines like RCA, Columbia or Capitol to handle them on an exclusive
cigency basis, that is, the distributor would handle only RCA's line 13 and no other. In 1961, major independent distributors handling
RCA's line exclusively added other manufacturers' lines to their offerings. Columbia's independent distributors followed suit.
Since that time the trend has been away from the exclusive agency arrangement for distributors. The data in Table 21 indicate that it is a common practice now for distributors to handle a number of dif ferent manufacturers' lines.
TABLE 21
THE NUMBER OF MANUFACTURERS' LINES HANDLED BY DISTRIBUTORS
Number of Firms Per Cent of Firms Handling Each Handling Each Number o f Category Category Lines Handled o f L ines o f L ines
Only one line 20 18.6 2 - 5 li n e s 12 11.2 6-10 li n e s 15 13.8 11 - 15 lin e s 16 14.8 More th a n 15 li n e s J+5 41.6 T o ta l 108 100.0
Source ;
Survey of Distributors conducted as part of this study in July, 1955. For details on methodology and questionnaire employed, see Appendix A.
13 "Records," Electrical Merchandising, January 1958, p. 138. 127
Statistics in Table 21 indicate the following:
a) More than 80 per cent of the distributors in 1964 sold two or more different manufacturers' lines;
b) A little over 70 per cent of the distributors sold five or more lines; and
c) Nearly 42 per cent of these middlemen handled more than fifteen lines in 1964,
The primary reasons behind this basic change in a fundamental dis tribution policy at the wholesale level are:
First; the growth of the industry during the decade of the
1950's to the point that there were twelve major firms not just the big four (RCA, Columbia, Capitol and Decca), which had previously been the situation.
Second, even a major company cannot remain hot at all times and another good label in the house assures the distributor of a better chance of having both hot Singles and Albums at the same tim e .
Third, the distributor desires to be able to better service rack jobbers and one stop accounts for competitive reasons.
Fourth, the distributor's desire to compete with the one stop 14 for retail accounts by also offering convenience in buying,
5) Change in the relative importance of the types of market ing methods and institutions selling records at the retail level.
The ten-year period from 1955 to 1965 saw drastic changes taking
^^ob Rolontz, "Victor and Columbia Indie-Distributors Add New Lines," Billboard Magazine, October 20, 1962, p, 4, 128 place in the marketing of records at the retail level of the chan nel. In 1955 approximately 90 per cent of the record dollar volume was marketed through conventional retail outlets. The majority of these stores were record specialty shops. Only 5 per cent of the record dollar was accounted for by a new (at least to record marketing) emerging type of marketing institution called a rack jobber. These new marketers serviced racks in such retail outlets as food stores and drug stores and, for the most part, as sumed the complete merchandising function from the local store management. The magnitude of these changes over time in the flow of records through these two basic types of marketing institutions is reflected in the data in Table 22. The trend is definite and significant. Every year since 1955 rack jobbers have increased their share of the market at the expense of the conventional rec ord retailers. By 1964, rack jobbers had captured 37 per cent of record dollar volume at retail. This trend toward switching their record departments to racked operations continues unabated among many types of record retailers. The relative decline in the dollar volume of records marketed through the conventional retail outlet is shown in Table 22. Thus, in the ten-year period, 1955-1965, sales volume of the conventional retail outlet has declined from 90 per cent of total volume to 49 per cent, a drop of 45.6 per cent.
Causes for the shift in the relative significance of these marketing methods at retail are many and complex. The primary reasons are these:
1) The use of the mass merchandising retail institutions such as the supermarket. TABLE 22
CHANGES IN THE RELATIVE SHARE OF THE RECORD DOLLAR AT RETAIL HELD BY VARIOUS MARKETING INSTITUTIONS, EXCLUDING JUKE BOXES, 1955, 1961-1964
Per Cent Share D ollar Volume Per Cent Share Per Cent Share of Record Dol of Convention of Record Dol Volume o f of Record Dol Volume o f lar at Retail al Outlets lar at Retail Rack Jobbers lar at Retail Record Clubs Held by Conven (in millions Held by Rack (in millions Held by Record (in millions Y ear tional Outlets of dollars) Jo b b e rs of dollars) C lubs of dollars)
1955^ 90.0 205 5 .0 11 5.0 11
1961% 55.3 305 26.6 147 1 8 .1 100 1962° 52.2 319 3 2 .2 197 1 5 .6 95 1963° 49 .8 307 3 4 .8 214 1 5 .4 95 1964^ 4 9 .1 321 36.9 242 14.0 92
S o urces : ^Figure 5 and estimate by Thomas Noonan, D irector, Record-Market Research, Inc. ^1962-63 International Music Industry Buyer's Guide and Market Data Report, New York: Billboard Publishing Co., 1962. °1964-65 International Buyer's Guide and Directory, New York; Billboard Publishing Co., 1964. 1965-66 International Buyer's Guide of the Music-Record Industry, New York ; Billboard Publishing C o ., 1965.
H to lO 130
2) General public acceptance of the self-service concept in r e ta ilin g ,
3) The in crease in consumer demand fo r records as a form of home entertainment resulting from technological improvements in the pro d u ct•
4) Overproduction by record producers.
5) The failure of distributors to adjust to changing market conditions «
6) The failure of conventional retail outlets to adjust to changing market conditions,
7) The ingenuity and aggressiveness of the rack jobber.
These changes in marketing methods have numerous implications for manufacturers and distributors, some of which have been discussed as trends in this section. There are several important ramifications to the manufacturer. One, rack jobbers have emerged as the most dy namic marketing institution in the trade channel, and their impact extends to retailing as well as the wholesaling of records. Two, there has been a decline in the significance of the distributor as an institution in the distribution channel. Third, from the manu facturer's viewpoint, there has developed a dichotomy of markets, with different marketing characteristics. For example, one market is composed of conventional retail outlets most of whom carry a full line of repertoire. Another market, primarily rack jobbers, special izes in handling current top hits and commonly restricts their mer chandise operations to handling only records making Billboard's hit charts. As a result of this difference in basic merchandising phi losophy, different product needs have to be met, and different 131 marketing techniques and policies by manufacturers are required.
Distributors have experienced a decline in their market as more and more small record retailers ceased operation and as many lcu?ger conventional record retailers either bought direct from manufacturers or shifted to rack operations. As a result of these developments in marketing, many distributors have found it neces sary to acquire or open their own rack jobbing or one stop opera tions in an effort to bolster declining sales.
General Factors Effecting Changes in Distribution Patterns
and D istribution Channels from 1948 to 1965
Fundamental changes in distribution patterns and channels of distribution utilized in the marketing of a particular industry's products result from a complex interaction of numerous variables.
In the case of the phonograph records industry, numerous economic, demographic, and sociological factors were, during the period from
1948 to 1965, interacting to produce vast structural changes in the channel of distribution and in distribution patterns both at whole sale and at retail. It is difficult to isolate all the variables in volved in as multiplex an industry as the record industry or in an environmental setting as complex as the American economy of the
1950's and I960's. The following represent the prime factors in ef fecting the changes in distribution of records described previously in this chapter:
1) The increase in leisure time and disposable income for more segments of the general buying public, thus creating a larger potential market for recreational goods. 132
2) Greater acceptance by the public of phonograph records
as a means of home entertainment and the resulting increase in prod u ct demand. This increase in in te r e s t and demand fo r records as a means of home entertainment is illustrated by the fact that the possession of a phonograph record player had become an integral part of the American standard of living by the I960's. The following data demonstrate this observation; in 1950 approximately W per cent of electrically wired homes had phonograph record players; by 1963, 76 per cent of electrically wired homes contained record players.
3) The emergence of marketing outlets at retail such as supermarkets, mass merchandising drug stores and discount department stores through which mass exposure of records to the general public could be achieved,
1+) The consumers' general acceptance of self-service concepts of merchandising initiated by such marketing innovators as the super m arket.
5) The development of and acceptance by the public of tele vision as the prime form of "live" home entertainment medium. This resulted in a concomitant loss by radio of its position as a primary provider of "live" home entertainment.
6) Radio's subsequent reliance on recorded music for the majority of its programming. The resulting increased exposure to the public of recorded music has awakened greater consumer interest in
records.
7) The general increase in consumer demand for records has
^^See Table 5, Chapter III. 133 stimulated a greater variety of product offerings by record produc ers. Thus, with broader repertoire offerings, the given producer can reach different market segments. The many subsidiary labels and repertoire offerings of most major record manufacturers are illustra tive of how widespread this practice is. These different market segments often can be best reached through different channels of distribution and different types of retail outlets.
8) Many new record producers entered the market in the 1950*s as a result of the increase in consumer demand for records. These small record producers typically had no marketing facilities, retail store contacts, or marketing know-how, and thus were receptive to any opportunities and means to get their products meirketed. Marketing innovators such as one stops, rack jobbers, and large retail outlets desiring to buy direct often found a ready source of supply in these new record producers,
9) The heavy consumer demand trend existent in the 1950*s and early 1960's resulted in periodic overproduction of records. This condition put pressure on producers, large and small, to utilize whatever marketing techniques and channels that were necessary to dispose of their "excess" inventories.
10) The failure of distributors and conventional retail record stores to perceive these changes in market conditions and to make the requisite adjustments to them.
The movement of phonograph records in 1965 through channels of distribution is complex and might even be labeled as chaotic. Dis
tribution of records is characterized by an increasing degree of di rect marketing by manufacturers to sub-distributors and to retailers. 134
Firms struggle to maintain and expand their share of the market by integrating operations on different levels of the channel.
Almost one out of every four manufacturers has vertically inte grated operations. Among wholesale institutions, the trend to for ward vertically integrated operations is even greater. One out of every four distributors operates some type of sub-distributor while one out of every five distributors operates retailing outlets. The degree of forward vertical integration is even higher among rack jo b b e rs .
The distributor, historically the backbone of the industry, has declined in importance as a marketing institution in this indus try, and it appears that the volume of records marketed through this middleman w ill continue to decline in the future. At the retail level of the channel, an ever increasing dollar volume of records are being racked. As a middleman, the rack jobber continues to grow in importance, and there is every indication to believe that this mar keting institution w ill become increasingly dominant at the wholesale and retail level of the channel in the future. CHAPTER VI
THE PHONOGRAPH RECORDS MANUFACTURER—A QUANTITATIVE
AND QUALITATIVE PERSPECTIVE
^ Quantitative Analysis of Record Producers
Billboard's 1965-66 International Buyer's Guide of the Music-
Record Industry listed 890 active phonograph record producers in
1965, a 10 per cent increase over the 810 producers listed in 1964.^
The industry today is vastly different from the oligopolistic indus try structure which has historically prevailed in the record business.
For example, in 1912, three companies. The Victor Company, The Colum- bia Company, and the Edison Company composed the industry. In the
1930's and 1940's this line of trade could be characterized as an oligopoly, with the big four—RCA Victor, Columbia, Decca and Capitol
—dominating the production of records in the United States. The current structure of the phonograph records industry is composed of five basic classes of producers as follows:
1) Large full line manufacturers with their own recording and pressing facilities. There are about fifteen to twenty such pro ducers in this category. Such firms as Columbia, RCA Victor, Capitol,
^Billboard 1965-66 International Music-Record Directory and Buyer's Guide, New York: Billboard Publishing Co., 1955, pp. 20-47.
^Gelatt, op. cit., p. 190.
135 136
Decca, London, Mercury, Liberty and MGM exemplify this class of p ro d u c e rs.
2) Important full-line manufacturers but lacking their own pressing facilities. This group of producers is a significant
force in the industry and meets the criterion of full-line manufac
turers with wide offerings in both Albums and Singles.
3) Semi-significant full-line manufacturers with company emphasis on either Singles or Albums. Generally, this category of producers has no pressing facilities.
4) Fairly insignificant manufacturers but fully operational twelve months of the year offering consistent releases throughout the year. Typically, no pressing facilities are owned by this group and often recording facilities are rented.
5) Insignificant manufacturers with periodic releases but
lacking consistent operations or releases. This group of firms, in
a sense, goes in and out of business. Potentially, however, both producer categories four and five are capable of producing a "top ten record" at any time.
A survey of these 890 record producers was conducted via questionnaire in July, 1965 as part of this research study. A strat
ified random technique was employed and seventy-six usable returns were received. Analysis of the returns indicated that these seventy-
six producers included most of the larger significant firms in this
industry and represent over 60 per cent of the industry's sales volume.
In view of these facts, it was felt that significant generalizations
could be made from the data compiled from these seventy-six firms
(see footnote 3). 137
Length of time in operation
As has been pointed out previously, the record industry
mushroomed during the 1950's and I960*s. This fact can be substan- 3 tiated by the following data:
Per Cent of Firms Number of Firms Length of Time R ep o rtin g R ep o rtin g in Business O p e ra tio n s O p eratio n s
Less than 3 years 21.3 16
3 - 5 y e a rs 24,0 18
6-15 y e a rs 37.3 30
16 - 25 years 14.7 11
Over 25 years 2 .7 3
T o ta l 100.0 76
The above statistics show that approximately 83 per cent of
the manufacturers had been in operation less than sixteen years.
Thus, most of the record producers have entered the industry since
1950, Less than 3 per cent of the manufacturers indicate that they were in business prior to 1940.
Physical facilities
Further insights into the present structure of the record in
dustry and the types of firms composing it may be gained by examining
statistics on ownership of pressing plants. Most record producers
(92 per cent) did not own any pressing facilities in 1965. Of the
A survey of manufacturers via questionnaires was conducted in July, 1965 as part of the doctoral dissertation research on this industry. Unless otherwise specified, all data used in this chapter are based on results from this survey. For further information on the questionnaire and survey methods utilized, the reader is referred to Appendix A. 138
8 per cent of producers who do own pressing facilities, most of the firms operate only one or two pressing plants.
Statistics show that ownership of recording studios is more prevalent, with some 43 per cent of record producers owning record ing facilities. Most firms, however (84.3 per cent), have only one s tu d io .
Record manufacturers classified by dollar sales volume
An examination of the industry from the standpoint of dollar sales volume w ill provide further perceptivity into the structure of the phonograph record industry. While it might not be accurate to classify the industry in 1965 as an oligopoly as defined in the average economics textbook,^ there is a high degree of concentration, with about 70 to 75 per cent of the total industry dollar volume being accounted for by about fifteen major firms.^
The nature of the firms making up this industry can be seen in Table 23 which classifies record producers on the basis of dollar sales volume.
Statistics in this table indicate that nearly three-fourths of the industry is made up of small producers whose annual sales volume is less than $500,000 a year. Nearly 84 per cent of the
Joe S. Bain, Pricing Distribution and Employment, New York; Henry Holt and Co., p. 71. Bain's text offers a more sophisticated treatment of this subject than most Principles texts, and he would probably argue that the record industry in 1965 is an oligopoly with a competitive fringe.
^This estimate given by Hal B. Cook, Publisher of Billboard Magazine in an interview in June, 1965. 139 producers have annual sales volumes of under $5,000,000, Less than
8 per cent of the manufacturers' sales exceed $12,000,000.annually.
TABLE 23
MANUFACTURERS CLASSIFIED BY DOLLAR SALES VOLUME FOR YEAR, 1964
Number of Firms Per Cent of Firms Dollar Sales Volume Reporting Volume Reporting Volume
Less than $500,000 50 72,0
$500,000 - 1,000,000 2 3 ,0
$1,000,001 - 2,000,000 1 1 .5
$2,000,001 - 3,000,000 1 1 ,5
$3,000,001 - 5,000,000 4 5 ,8
$5,000,001 - 8,000,000 2 3 ,0
$8,000,001 - 12,000,000 4 5 ,8
$12,000,001 - 20,000,000 3 4 ,4
Over $20,000,000 3 4,4
T o ta l 70 100,0
Source; Manufacturers Survey,
Total dollar sales volume in the United States over the forty- three year period 1921-1963 for manufacturers is shown in Table 24,
These yearly sales data in Table 24 exhibit the same trends revealed in Table 7 in Chapter IV,® Since the mid 1930's sales of records
^Attention is called to the trends discussed on pages 68-71 in Chapter IV, Similar trends are indicated by an analysis of manu facturers' sales. 140
TABLE 24
DOLLAR VALUE OF PHONOGRAPH RECORDS AT FACTORY, 1921-1963
Factory Dollar Y ear Value (000)
1921 48,000 1922 42,000 1923 36,000 1924 31,000 1925 27,000 1926 32,000 1927 32,000 1928 33,000 1929 34,000 1930 32,000 1931 8,000 1932 5,000 1933 2,500 1934 3,000 1935 4,000 1936 5,000 1937 6,000 1938 12,000 1939 20,000 1940 22,000 1941 23,000 1942 25,000 1943 30,000 1944 30,000 1945 45,000 1946 90,000 1947 97,000 1948 82,000 1949 75,000 1950 82,000 1951 85,000 1952 90,000 1953 91,000 1954 87,000 1955 112,000 1956 155,530 1957 180,000 1958 198,000 1959 230,520 1960 228,420 1961 244,340 1962 274,210 1963 252,270
Source: Record Industry Association of America, as reported in the 1963 Electrical Industries Association Year Book. 700
6 50
600 Legend: Manufacturer's Sates 550 Sates at Refait
500
450
400
3 50
300
250
200
150
100
50
0 31 32 33 34 3S 36 37 38 39 41 42 43 44 45 46 47 48 49 91 9 2 53 94 59 96 67 98 99 88 69
Figure / / ; Dottar Safes of Ptionograpti Records Ouer a 43 Year Period,fSZf - f964 H ■P. Sources iSSS - tS66 fnternalional Directory and Buyers Guide, Music - Record tndustry, New York : BiHboard Pub fishing Co.,f965 ; and Record Industry Association of America. New York, New York 142 producers have shown a steady upward trend except for mild downturns in the 1948-49 recession period, the 1954 recession and an inventory adjustment in 1960 and 1963. Trends in sales at retail and at the producer level are shown graphically in Figure 11 and reflect a close correlation in direction and amplitude of movement.
Geographical location of record p ro d u cers
The production of phonograph records in the United States is goegraphically concentrated, with the major production centers being n in New York, Los Angeles, Chicago, and Nashville, in that order.
Three additional important centers in listed order are Memphis,
g Houston, and Philadelphia.
The state of Indiana serves as a location for a number of major manufacturers’ pressing plants. For example, Columbia has a plant in Indianapolis, and Mercury Records and RCA have plants in
Richmond, Indiana. Some production centers tend to specialize in a basic class of repertoire—for example, Nashville and Houston ai?e centers for Country and Western Music. An important reason for this degree of concentration of record producers is the need to be in proximity to other cultural arts in population centers such as theater, concerts, television and motion picture production, all of which sup ply talent and ideas to the record industry.
7 Production of record is defined for this discussion as con sisting of recording as well as the actual pressing of records. g Personal interview with Tom Noonan, D irector, Record Market Research, Inc., New York, February, 1965. 143
Selected economic statistics on phonograph record manufacturers
Further insights on trends in the manufacturing of records and the economic contributions made by this industry to the American econ omy can be gleaned from the data in Table 25, which lists selected statistics on the record manufacturing industry taken from the last five Censuses of Manufactures. Over the latest ten-year period for which Census data are available (the period from 1954-1963), aill fac tors listed in Table 25 have shown a steady upward trend.
The value of shipments of record producers increased 97.7 per g cent during this ten-year period. During this same period, value added by manufactures shows a 109.0 per cent increase.
Capital expenditures increased 185 per cent from 1954-1963, re flecting the high rate of mechanization taking place in the industry during this period. Compared with the increase in the value of ship ments, the investment during this period was heavy.
Employment in the records manufacturing industry increased some
56.2 per cent during the ten-year period under analysis. This figure of 56.2 per cent is much higher than that 2.7 per cent increase expe rienced in total manufacturing employment during the same period and much higher than the 13.7 per cent increase posted for total employ ment in the United States during the ten-year period, 1954-1963.^^
^Value of shipments reported by the Census of Manufactures shows some difference with the manufacturers' sales figures reported by the Record Industry Association of America (as shown in Table 24). This difference is due to the fact that some record manufacturers do not come under the definition of the Census of Manufactures because of size or type of organization. By the same token other figures, such as em ployment, are somewhat low.
— ^^Statistical Abstract of the United States, 1964 (Eighty-fifth edition), U. S. Bureau of the Census, Washington, D. C., 1964. 144
TABLE 25
SELECTED STATISTICS ON PHONOGRAPH RECORD MANUFACTURERS FOR CENSUS YEARS OVER THE TWENTY-FOUR YEAR PERIOD, 1939-1963
Value Value o f Added by C a p ita l Number S h ip manufac E xpendi A ll Em- o f P ro - Census m ents tu r e tu r e s ployees duction Y ears ($ 1 ,0 0 0 ) ($ 1 ,0 0 0 ) ($ 1 ,0 0 0 ) (Number) Workers P a y r o ll
1939® 9,427 6,424 NA NA 926 NA
1947& 110,184 75,660 NA 10,045 8,246 29,195
1954® 92,546 58,689 2,992 6,152 4,740 23,312
1958* 148,731 93,073 4,011 7,421 5,858 33,381
1963^ 178,386 122,695 8,530 9,609 7,565 47,785
S o u rces;
®U.S. Bureau of the Census, 1958 U.S. Census of Manufactures Vol. I ll, Area S tatistics, Washington: U.S. Government Printing Office, 1962.
bu.S. Bureau of the Census, 1963 U.S. Census of Manufactures Industry Series, Phonograph Records, Preliminary Report, Washington: U. S. Government Printing Office, 1965. 145
The growth in dollar payroll of record producers amounted to
105,0 per cent reflecting the general increase in wage levels preva lent during this period.
Net profit patterns for record producers in 1964
An additional view of the character of the phonograph records industry is afforded by the following data which show net profit patterns in this industry :
Per Cent of Profits Per Cent of Firms Number of Firms to Sales Reporting Profits Reporting Profits
Less than 2 27,2 18 2-4 15,1 11 5-8 24,3 16 9-12 16,7 11 Over 12 16,7 11
Total 100,0 67
Approximately 58 per cent of the record manufacturers had profits of
5 per cent of sales or larger. One third of the firms reported a profit of 9 per cent or more. Approximately 27 per cent of the pro ducers reported profits of less than 2 per cent on sales. Profit patterns between "large" and "small" manufacturers showed some di vergence as may be seen in Table 26,^^ Larger record producers' profits tended to fall to a greater degree around a middle value range of from 2 per cent to 8 per cent. Relatively fewer large firms than smaller firms reported extremes of profits, either on the high or low side. This "better showing" of the smaller firms in higher
^o r the purposes of this discussion, all firms reporting over $3,000,000 sales volume were classified as larger firms and all firms whose sales were under $3,000,000 were grouped as small firms. 146 profit ratios reported may be due to lack of comparability in re porting. Some smaller manufacturers are organized as proprietor ships or partnerships and their profit figures may include entre preneurial wages.
TABLE 26
NET PROFITS PATTERNS OF PHONOGRAPH RECORD PRODUCERS IN 1964 BY SIZE OF FIRM
Per Cent of Profit Per Cent of Firms Reporting Profits to Sales Large Firms Small Firms
Less than 2 20.0 30.7 2 - 4 25.6 11.5 5-8 26.7 23.1 9-12 20.0 1 5 .4 Over 12 6.7 19.3
T o ta l 100.0 100.0
Source: Manufacturers Survey.
A Qualitative Perspective of Record Manufacturers
While record producing firms may be arbitrarily classified by various criteria such as size, product offering, and physical facil ities, perhaps a simple division of generalized character might be useful in briefly describing the industry (for a more detailed clas sification the reader is referred to the fivefold grouping on page one of this chapter). Record producers can be grouped into two classes, small producers commonly labeled in the industry as "indies" or inde 12 pendents, and the large record companies, often referred to as the "majors.”
^^For the purpose of this discussion,--firms doing under $5,000,000 volume were arbitrarily classified as indies, or small firms, and those doing more than $5,000,000 as the majors. 147
The small independent producers make up the majority of the
firms in the industry (over 85 per cent) and are characterized by
the fact that they are usually not part of or affiliated with large
diversified organizations with commitments other than the production 13 of phonograph records. The independents are able to compete ef
fectively with a relatively small organization frequently consisting of a few members because so many of the functions and activities in volved in producing a record can be performed externally by firms or
individuals who serve a number of record manufacturers. The usual
areas involved in outside production are: arranging, record press ing, label printing, jacket production, distribution, promotion, orchestration, vocal artistry, and in many cases, use of recording s tu d io s .
Pressing practices can be cited as an example of the sub-con tracting type of operations common in this industry. Records are pressed for small independent producers by either of two sources ; one, the major manufacturers, most of whom have a custom sales divi sion whose job is to solicit and handle contract pressing orders; two, independent pressing plants whose primary function is contract pressing of records for any producer,
13 This figure of 85 per cent is based on Table 23 developed from the Manufacturers Survey. 14 Robert Cotterell, Trends in the Distribution of Phonograph Records, an unpublished MBA Thesis, University of Southern Cailifomia, 1963, p, 46,
^^Personal interview with Tom Noonan, Manager, Record Market Research, Incorporated, New York, April 9, 1965, 148
The advantages of the small independent record company are:
a) Speed resulting from lack of red tape and plural manage ment decision making characteristic of many large firms.
b) Flexibility in decision making and operation inherent in simple organization structure and single management.
c) Lower break even point. The small firm is able to "break even" with sales of around 12,000 units on sales of Singles, whereas the larger manufacturers must sell at least 45,000 units before the first profit is realized.A typical organizational structure for a small producer combining personnel and functions subcontracted is shown in Figure 12.
T ide Record Company
Los Angeles, California
P re s id e n t A ccountant Owner S e c re ta ry
A rtists and Independent Promotion P ro d u c tio n R e p e rto ire Distributors Director (RCA V ic to r)
A r tis t Arrangers Composers Musicians Promotion Men
Figure 12. An example of an organization structure of a typical small record producer. Source: Robert Cotterell, Trends in the D istribution of Phonograph Records, an unpublished MBA Thesis, University of Southern California, 1963, p. 46.
16 Cotterell, o^. cit.. p. 48, 149
The large or major manufacturers are characterized by the fact that most of these firms are affiliated with large diversified organizations having commitments other than the production of phono graph records. As the following example list of manufacturers in dicates most of the larger record firms are affiliated either with 17 radio-TV broadcasting companies or motion picture corporations:
Record Company P a re n t Company
Cameo-Parkway Cameo-Parkway Records, Inc. 18 Capitol Records Capitol Records Corporation
Columbia Records Columbia Broadcasting Company
Columbia Pix Columbia Pictures
Decca Records Universal Pictures
Dot Records Paramount Pictures
Mercury Records Mercury Record Corporation
MGM Metro-Goldwyn-Mayer, Inc.
RCA Victor The National Broadcasting Corporation
Record Division of 20th Century Fox Motion Pictures 2 0th C entury Fox Company
The large record manufacturing company has certain market and
other advantages relative to the small producer. The most important
ones include -
a) greater financial stability and resources,
b) professional management,
c) better distribution facilities and know-how,
17 Personal interview with Thomas Noonan, Manager, Record Market Research, Inc., New York, February, 1965. 18 Capitol Records, Inc., announced in October 1965, that it was going to open a film company, Tower Picture, Inc. 150
d) more promotional know-how,
e) company name and prestige,
f) full line of product offerings.
Frequently the larger manufacturer also enjoys benefits from its affiliation with its parent broadcast or motion picture company in the area of securing new artists and talent.
Product policy of the record producer is typically related to company size. Offerings range from a single record to that of a full line of products. The term full line of products can be viewed two ways—one deals with the concept of a producer offering both Singles and LP's since there is a basic distinction in market appeal and physical capability between these two classes of records. Second, full line may also connotate the practice of a producer offering a wide variety of repertoire in either the Single or LP class or both.
The larger manufacturers typically offer a full line of both Singles and Albums with considerable breadth of repertoire. In an effort to reach different market segments and yet retain the prestige image of their label many major manufacturers have either subsidiaries or at least subsidiary labels. For example, Columbia has OKeh, Epic, and
Harmony labels; Angel is Capitol's label; and Mercury's subsidiary labels include Smash, Wing, and Phillips,
Independent smaller record manufacturers usually specialize in either Singles or LP's. Many of the smaller companies further specialize in a single type of repertoire such as country and western m usic. 151
Distribution Policies and Practices
Manufacturers are faced with decisions dealing with the selec tion of channels of distribution and with basic distribution policies.
The results of these choices have wide ramifications on the success of the company in the market place. Thus, record producers are con fronted with such choices as:
a) whether to market through independent distributors or through company owned distributors in a given territory
b) whether to sell direct to large retailers
c) whether to allow 100 per cent return on merchandise in an effort to assure its greater exposure
d) whether to grant quantity discounts
e) whether to sell to sub-distributors directly, thus by passing the distributor.
These and many other questions must be answered and policies formulated to guide the company's efforts and its personnel.
The burden of this section of Chapter VI w ill be to examine some of the more important current distribution practices and policies of record producers. (Channels of distribution were examined in some detail in Chapter V.)
1) Utilization of the independent distributor by manufacturers
There are considerable questions being raised among manufactur ers today as to the role and significance of the independent distrib utor in the present and future market environment. However, in 1965 almost all manufacturers made use of this basic class of wholesaler as the following data show: 152
Utilization of Number of Firms Per Cent of Firms Independent Reporting Degree Reporting Degree Distributors of Utilization of Utilization
Exclusively 28 37.5 P rim a rily 22 30,5 Some 20 27.8 None 3 4 .2
Total 73 100.0
Approximately 96 per cent of manufacturers use this independent wholesaler to some degree in effecting distribution of their product.
Analysis of the data indicates that a greater percentage of small producers (50 per cent) relied exclusively on the independent distrib utor than do larger producers. Only 20 per cent of these larger firms (defined here as those firms doing over three million dollars volume annually) indicate exclusive reliance on the independent dis tributor. Nearly half, 47 per cent, of the larger producers, however, reported that they depended primarily on independent distributors to effect their distribution. Sixty-eight per cent of the manufacturers said they relied either exclusively or primarily on the independent distributor for the marketing of their products.
While it is true that a decreasing percentage of total dollar record volume flowed through all types of distributors in 1964 com pared with 1955 (see Figures 5 and 7 in Chapter V), the independent distributor is still very significant as a middleman in the phonograph records industry and a vital marketing institution to many manufac t u r e r s . 153
2) Increasing degree of forward vertical integration by manufacturers
Increasingly, manufacturers in the records industry are taking over the functions of wholesaling by establishing their own sales branches. By 1965 almost one fourth (22 per cent) of the seventy-six producers answering the questionnaire operated wholly owned distributorships. Analysis of the individual questionnaires of these manufacturers reporting the use of wholly owned distribu tors indicates that most of these firms are the larger producers
(larger producers defined in this case as a producer whose volume is in excess of three million dollars).
In his study of the record industry in 1962, Robert Cotterell made the point that "there is today an increasing tendency toward concentrating control of record sales into fewer hands and a trend 19 toward a vertical sales structure." Thus for numerous reasons, record manufacturers have, to an increasing degree, taken over the job of wholesaling by establishing their own sales branches. As an example of a manufacturer who operates exclusively with manufacturers sales branches, Capitol Records' distribution organization is shown in Figure 13. Few manufacturers have gone to a totally integrated operation like this as a fundamental distribution policy.
3) Dual distribution, £ common pattern for most major manufacturers
Most of the larger record producers apparently feel that the best method of accomplishing distribution is to use both manufacturers'
l^Robert Cotterell, op. c it., p. 121. Bostoi
Detroit Chicago New Yorhf # Sow Francisco
Konsos City
Los Angeles
Atlanta
LEGEND: Dallas Division Offices
# District Offices
t-* cn
FIGURE 13 CAPITOL RECORDS DISTRIBUTION ORGANIZATION in 1964 Source: 'Capitol Distribution’, BILLBOARD, June 27, 1964 155
sales branches and independent distributors. An examination of the manufacturers' survey data previously cited and the distribution
organizations of selected firms substantiates the observation. Some
22 per cent of the manufacturers operate sales branches. Of this
group, only a relatively small proportion does not also employ in
dependent distributors to effect its marketing program. During the
last decade, all of the following larger firms can be cited as hav ing simultaneously used sales branches and independent distributors;
Capitol, Columbia, Decca, Dot, Liberty, Mercury, and RCA. Examples
of the dual distribution organizations of two manufacturers, Colum bia and Mercury are shown in Figures 14 and 15, respectively.
Examination of these figures indicates a partial answer to the question of why manufacturers are using dual distribution systems.
In the case of both Columbia and Mercury, the manufacturers' sales branches are servicing the largest metropolitan markets while inde pendent distributors typically handle the less concentrated or smaller markets. Apparently the large manufacturer believes there is a dis tinct dichotomy of markets—the heavily populated—concentrated mar kets and the less concentrated markets. Evidently, the major record
firm feels that it is advantageous to assume the job of wholesaling
in the heavily populated markets, but that it is best to have the
independent distributor do the marketing job in the less concentrated markets. In many instances, the independent distributor, handling
several manufacturers' lines, can be a r.ore efficient marketing
operation than a manufacturer's sales branch handling one firm 's line.
The amount of sales potential for one manufacturer's line in a less
concentrated market may not justify a separate sales branch. The © ' CRAIG CORP. 1021 e. pme COLUMBIA RECORD Oist. BOYO CORP. Seattle Wash. 7k40 yJ. C hicago 8 4 W. C ove S t . Detroit. Mich. Porttam*. He. COLUMBIA MlDiNEST 119 N. Ninth St. Minneapolis, Mmn. 0 COLUMBIA RECORD Otst^ 3S Cunningham S t. j Boston IS. M ass,\ ^ MORLEY MURPHY Co,Inc, 5151 W.S t a t e . S t MLUMBIA «ecoRO Bèt. ® ' Milwaukee Wis, ©I 353 Park Ave. 8. N.Y. 10. N.Y. \ COLUMBIA RECORDDist QUAD STATE PlST.Co. COLUMBIA ReCORD D itt.© , STANDARD SUPPLX Co. 2 2 4 0 N- Miluiai/kee Ave 213 Third St. 350 Halsey St. 21S E 6* Sooth Chicago 47 III. ' N ew ark A. N.J. 0 Salt lake Cily, Utah Des Moines. Iowa © SEAWAY COLUMBIA OF OHIO In c kaiser COLUMBIA 0 3141 Pr«»peot, Ave COLUMBIA RECORD Disk 836 S. Adams St. Cleveland . Ohio 319 N, B r o a d s t . W _ Philadelphia. 23, CENTRAL STATES oist. P e o ria .2 , i U. Columbia ReroRDDist. © 2320 M'6«« Traffitiuiy 3739 Spaeth St . C o lum bia reco rd Dût." Kansas City Mo. Cincinnati,23. ohio, Aiken St. I, Curtain Ave. 0 © B altim o re if. Md. ^ > 0 ^K.SVNEENE't Co. © .Southern (îeariMiÿ; VPaitts Bo. 0 IbCH 23rd St. COLUMBIA RECORD DIST, Sutcliffe Co. © 500 N.College. s+, ' Denver, Cowraao 21 SI 59th St. US' s . S e v e n t h 5t. S t. Lowis 10, Mo. C h a rlo tte n .C. Louisville , Ky, GOLOBERQ TIllER C orp. COLUMBIA MIDSOUTH 959 Myers St. COLUMBIA RECORD OIST. Oiv. S tra tto n . \<7arren. Co, Richmond 20. I/B. 0 2 1 2 0 S. GartieW Ave- fafcB S.M ain S t. Lo 3 Angelt*. 32 Calif. Memphis, Tenn. © m il l e r JACKSON CO. © COMSTOCK D is f. C o . 111 e.caVitornia St. 1313 S p rin g S t.s.w . OWtaVioma Ci\y. Oklahoma A tla n ta , 6 a . ©
C o l u m b i a S o u th e a s t i n t e r s t a t e ELECTRIC Co. 3 b 4 l H.Vi. bT.tfc St. 3733 Conti, s+. Miami 47, Fla. New Orleans', La, ©
cn Oi flGU«! U COIUMIU RECORDS DISTRIiUTION ORGANIZATION I, I»6j
COtUMRIA RECORDS IIIIIOARD. Ocl.l„,2l, H62 Boston
S S • 0111 • Greot Foils Minnoopolis *:« Milwaukee lost Hartford V Billing* Detroit DeMoines New York Howork Pkilodelphia Ckicago Cleveland San Frandsco Baltimore Sait Lake City
Cintinnoti
St.louis Los Angeles Denver Mask ville Ckorlotte
Memphis Atlanta LEGEND Dallas # Mfg. Soles Bronck New Orleans** > Independent Distributor
Miami, Î5 FIGURE 15 MERCURY RECORDS DISTRIBUTION ORGANIZATION IN 1965 Source. Personal letters to author dated October 21, 1965 and January,! 1966 158 practice of dual distribution in 1965 seems to be well established among full-line manufacturers, and will probably continue to serve best the distribution needs of most large full-line producers under current market conditions.
M-) Direct marketing by manufac turers to sub-distrrbutors and r e ta ile r s
In contrast to marketing practices prevailing in the 1940's and much of the 1950's many record manufacturers are bypassing dis tributors in 1965 and selling directly to rack jobbers, one stops and retailers. For example, in 1955, 95 per cent of the record dol lar volume was being marketed through distributors and direct selling was a r a r i t y . Of the sev en ty -six m anufacturers re p o rtin g in th e 1965 survey, 38.1 per cent indicated that they sold direct to rack jobbers or one stops; and 42.6 per cent stated that they sold direct to retailers. It is reasonable to assume that an even greater proportion of producers are selling direct than these survey statistics indicate, for many firms are s till reluctant to admit that they bypass their distributors. Record manufacturers sell directly to rack jobbers, one stops, or retailers for several reasons; overproduction; pres sure from large rack jobbers, one stops, and retailers, demanding to have the privilege of buying direct ; and belief that marketing costs can be reduced by selling direct.
To their sorrow, many manufacturers have found that they have not eliminated the marketing functions performed by the distributor in situations where they have engaged in direct marketing. Rather, the producer has ofcen had to assume the wholesale functions or make 159 an additional concession to the rack jobber or retailer to get him to assume marketing functions sucn as storage.
Another problem encountered by manufacturers in direct mar keting is the fact that the large mass volume rack jobber wants to handle only the top selling ten pops and w ill not stock a complete line. For fast moving Singles, however, producers may find certain advantages such as speed in movement of goods, transportation econ omies, and selling economies in marketing direct to rack jobbers and large chain retail buyers.
5) Distribution of independent manufacturers * "labels by large major manufacturers Upon beginning operations, many small independent record pro ducers have little marketing know-how and no distribution facilities.
As a result of these circumstances, some small producers have dele gated the distribution of their product to a major firm. This unique arrangement has seemed to work well for both parties involved. The types of contracts vary and the terms seem to depend upon market test results on a limited geographical test run and the bartering sense of 20 company executives involved.
Typical contracts fall into two groups :
a) The major company contracts for a period of time to dis tribute the independent's entire line of records as it would for a subsidiary.
2®An example of this type of arrangement is that between Hi Records and London Records. Since 1957 these two firms have signed over 130 agreements, resulting in the release of over 400 Singles and 25 LP's, ("Hi Records Signs 5-Year Pact with London Distributing Network," Billboard Magazine, May 12, 1962, p. 6.) 160
b) The large record firm agrees to distribute a potential
"hit" record on a "one shot" basis (one or two releases are commonly 21 involved). Under most agreements, the independent retains its
label emblem and thus its label identity.
The advantages to the smaller manufacturer are numerous :
One, the small producer's record gets a much greater exposure and thus potentially greater sales opportunity. Second, basic marketing functions such as selling, storage and transportation are shifted to the large firm allowing the small producer to concentrate on re cording, developing talent or searching for it. Third, the independ ent's release gets the same promotional efforts and techniques as the major manufacturer's records, and one typically superior to that which the independent is capable of originating.
The major advantages to the large record company of such con tractual arrangements are possible increases in qualitative and quantitative aspects of his product mix. Sales volume is potentially greater as a result of the addition of the independent's product, which may become a top ten Single or Album,
6) Practices and policies relating to return goods privileges
Unlike many product lines, it is a common practice in the phonograph records industry for the manufacturer to allow some types of return privilege for unsold goods. Manufacturers' policies com monly take one of two basic forms. Either the buyer is able to return
2lRobert Cotterell, o£, c it,, pp, 121-124, 161 goods and get dollar credit on the manufacturer's book, or the buyer can exchange the "old" records for "new" ones he desires, usually on a one for one basis. Approximately four out of five producers (79.4 per cent) allow some type of return goods privilege. Three types of return goods practices and policies prevail: 100 per cent return;
100 p e r cent exchange; and 10 p er cent re tu rn tie d to some period of tim e, such as 180 days.
Analysis of the data indicates that there was little differ ence in manufacturers' return policies for Singles and LP's except for the fact that a larger number of firms allowed a 100 per cent exchange for LP's than Singles. The most prevalent policy among manufacturers was the 10 per cent return policy tied to some time p eriod.
The return goods policy of a producer is one of the more po tent marketing tools at his disposal, for with it he can stimulate buyers to take more goods and try new releases. At stake in the usage of this- policy is the degree of market exposure a record may be accorded by distributor, sub-distributor and retailers. Fre quently the liberality of distributors' and sub-distributors' return privileges granted to retailers depends on the liberality of the manufacturers' return policy extended to them.
S^Tied to some time period means that the goods must be re turned within some specific time period, such as 60 days from purchase, or the buyer loses this return prerogative. 162
7) Policies and practices relat ing to credit terms extended by manufacturers
More than one-half of the seventy-six record producers re
porting data extend scxne form of credit, with 57.9 per cent of these
firms indicating that they grant credit as a policy. Approximately
42 per cent of the producers state that they do not grant any credit
terms. All of these not granting credit were smaller firms. The
types of credit terms extended are as follows:
Per Cent of Firms Types of Credit Terms Extended Reporting Terms
Net 30 days 25,0 Net 90 days 17,5 30-60-90 days 32,5 60-120 days 2,5 varies with situation 22,5 Total 100.0 23 The most common terms granted are: 30-60-90 days; net 30; net 90,
Approximately 23 per cent of the manufacturers indicated that the
terms granted varied with the customer and the situation.
Credit policy and the types of terms extended represent a po
tent marketing tool to the record producer. Through the use of
credit policy manufacturers can stimulate sales, and get more product
into the hands of more buyers. In some cases a sale to a buyer w ill hinge on credit terms made available to him,
8) Record club operation
Manufacturers began selling records directly to consumers when
Columbia Records launched its record club in 1955, The phonograph
23ihis term may not be self-explanatory. It means that the buyer must pay one third of his b ill in 30 days, another third at the end of 60 days and the remaining third by 90 days. 163 records club, a brainchild of Goddard Lieberson, President of Colum bia Records, is modeled along the lines of a book club. Typical provisions of record clubs offer the consumer a choice of records
(usually three to six) either free or at a nominal price for joining the club and agreeing to its conditions for membership. Conditions of membership usually require the member to buy so many records dur ing the first year.
The use of record clubs by producers has generally been re stricted to the large manufacturer with the primary record clubs being those of Columbia, RCA Victor and Capitol. In 1965 only 8.2 per cent of record manufacturers report having record club operations.
These data, plus common industry knowledge of who has record clubs, substantiate the fact that only the larger firms commonly employ this method of distribution.
Of the 8 per cent of the producers operating clubs, 50 per cent reported that clubs accounted for more than 20 per cent of their sales, and 16.7 per cent of these firms indicated that more than 50 per cent of their sales volume came from club operations. As an example, in
1963, Columbia's club had a membership of about 1,800,000 resulting in net sales of about $40,000,000.^^ In 1961, Columbia's record club 25 accounted for about half of Columbia's total sales.
In addition to handling its own label, the big three record clubs have, in the past, handled labels of other companies. At one time, Capitol handled MGM's, Verve's, O riginal's, Sound's, and World
^^Shemel and Krasilovsky, This Business of Music, op. cit. p . 38.
^^"The Record Business—I t's Murder," Fortune, May, 1961. 164
Pacific's labels. During its existence, Columbia's Club has handled labels of the following producers: Mercury, United A rtists, Liberty,
Kapp and Cameo-Parkway,
Besides the big clubs appealing to large consumer segments with heterogeneous tastes, there are specialized clubs which aim at well definied market segments. Examples of these include such clubs as The Jewish Record Club and The Business Man's Record Club.
From a macro viewpoint, record clubs and mail orders accounted for approximately ninety-two million dollars in 1964 or 13.3 per cent of the industry total sales at retail. Since 1962 record clubs' share of the total dollar sales volume appears to have leveled off at about 15 per cent. During the past two years, record club sales 27 have slipped in their relative share of total industry volume.
While record clubs as a method of marketing by the manufac turer have enjoyed phenomenal growth over the last ten years, there have been problems arising out of this new method of distribution.
While advertising and the cost of promoting club membership are high, the biggest problems are club deadbeats and dropouts.
Deadbeats are customers who order records by mail but do not pay their bills. This problem is greatest among purchasers of popular albums. For example, a report in Forbes Magazine indicated that the incidence of bad debts in the Victor pop record club was three times
^^Shemel and Krasilovsky, This Business of Music, op. c it., p. 187.
^^1965-66 International Directory and Buyer's Guide of the Music-Record Industry, op. c it., p. 14 165 as high as in the classical club.^® The problem of club dropouts plagues most club operations. Studies indicate that about 50 per cent of record club members drop out after they have purchased their contracted number of records,The basic lim itations of mail order
Csuch as not being able personally to listen to the records prior to buying, bad debt losses and a high drop out rate) are such that there is no indication that mail order w ill capture a larger share of the market in the foreseeable future.
Pricing Policies and Practices
An article in Electrical Merchandising Week sums up the feel ing of many people in the record industry in its lead sentence which stated, "pricing is the biggest problem facing the industry today.
Competitive conditions in this industry have exerted such an influence on pricing that present practices at both wholesale and retail in the industry could be only described as chaotic.
Research for this study, which is based on analysis of periodi cal literature, survey of the industry by questionnaires, and personal interviews, substantiates the above observation as to the current condition of pricing practices in the phonograph records industry.
These research investigations point up two pressing needs:
a) the need for a realistic readjustment by manufacturers of list prices for various classes of record offerings
28"Disk Club Deadbeats Burgeon Says Report," Billboard, April 10, 1961, p. 3.
28»»The Record Business—It's Murder," op. c it. , p. 187 30"Here's an Inside View of the Record Industry: What it Can Mean for You and Your Store," E lectrical Merchandising Week, May 11, 1964. 166
b) the need for standardization of the functional discount structure in the industry.
The practice of pricing records below the manufacturer's list or suggested price is widespread at retail. While this practice is most prevalent among racks at retail, it is also common among retail record stores. For example, 63 per cent of the one hundred thirty conventional record stores reporting in the 1965 survey stated that it is the firm 's basic pricing policy to discount r e c o r d s .
The need for a realistic readjustment by manufacturers of list prices for records is pointed up by Howard Judkins, President of the National Association of Retail Record Dealers. He feels that the current fictitious list prices serve no valid purpose. The in tensity of his feelings on this point is illustrated by his recent editorial in which he states, "Failure to properly readjust list prices may mean the demise of the record industry as we have known i t . "32
Functional discounts granted by manufacturers
Functional discounts, also known as trade discounts, are a technique for varying prices to different classes of buyers on dif ferent levels of the trade channel. Thus, a manufacturer may have one price for a retailer and another price for a wholesaler. The rationale behind such discounts is the performance of various
3 T Data is based on a survey of retailers conducted in July, 1965 as a part of this dissertation research of the industry. See Appendix A for methodology and questionnaires employed.
3^"Judkins Asks for 'R ealistic' Readjustment of List Prices," Billboard, October 10, 1964, pp. 3 and 10. 167 marketing functions on behalf of the manufacturer by each class of middlemen. These discounts are predicated on the buyer’s position or level in the trade channel and not on the quantities involved in 33 each transaction, for which there may also be quantity discounts.
The need for a standardized functional discount practice and policy in the industry is highlighted by the results of the ques tionnaire survey of manufacturers. Interviews with knowledgeable industry representatives indicate the following as "a general practice" by manufacturers;
Manufacturer’s Suggested List Price 100%
Retailer’s Discount (off price list) 38%
Rack Jobber’s Discount (off price list) 38% less 10%
Distributor’s Discount (off price list) 38% less 10% less 10%
This schedule suggests that retailers would pay 62 per cent of manu facturer’s list price; rack jobbers, 55.8 per cent; and distributors approximately 50 per cent of list price. Survey results of the manufacturers’ questionnaires showed no such uniformity in functional discount practices among manufacturers. On the contrary, the data on functional discount practices were so diverse that tabulation by ordinary statistical means such as a meaningful frequency distribution table and measures of central tendency was not feasible. In the usable returned questionnaires, the two most commonly quoted functional discounts to each of the various segments of the industry were:
For a more detailed discussion on the nature of functional discounts, the reader should consult a standard text such as Beckman and Davidson, Marketing, 7th Ed. , op. c it. « pp. 714—719. 168
Segment Discounts Granted
R e ta ile r s 40%; and 38%
Rack Jo b b ers 40% le s s 10%; and 50%
One S to p s 40% le s s 10%; and 50%
Distributors 50% less 10%; and 60%
This lack of uniformity of pricing practice at wholesale in the in dustry creates considerable problems for manufacturers, wholesalers, and retailers. Buyers are tempted to bargain for "better" functional discounts when in actuality functional discounts are, or should be, predicated on the position or level of the buyer in the trade chan nel and on the concept of the number of functions the buyer performs for the manufacturers. Unlike quantity discounts, functional dis counts are not, or should not be, a matter of bargaining between buyer and seller in each individual transaction. Thus, this lack of standardization leads to haggling on an unsound basis, m istrust, and bitterness between vendor and vendee. Price structures are in a constant state of flux under these conditions. One major manufac turer, Capitol Records, apparently in an effort to stabilize its pricing policies, announced a one price policy to all on March 2,
1964, All customers, retail dealers, rack jobbers and one stops buying from Capitol Records D istributing Corporation would receive the same price. The "new" discount structure was 38 per cent less
9 per cent less 10 per cent, Capitol’s previous discount structure was 38 per cent for retail dealers and 38 per cent less 10 per cent for rack jobbers and one stops,Since that date, Columbia
G^^Capitol Throws Price Bombshell," Billboard Magazine, March 7, 1964, p, 1, ------169
Records has instituted a modified one price policy. It is too early to determine what long run effect on pricing practices these moves w ill have.
Quantity discounts granted by manufacturers
Quantity discounts are granted to buyers on the basis of the quantities of goods purchased. One standard text defines quantity discounts as, "discount granted to customers who purchase in larger quantities than those to which the net price or regular trade dis- 35 count applies." Thus, quantity discounts are another way to vary prices. Survey results on policies and practices of record producers relative to granting quantity discounts reveal conflicting expres sions. Only 36 per cent of the manufacturers reported a policy of granting quantity discounts. If taken at face value, this means that nearly two-thirds of the record producers do not grant any extra or additional price concession based on quantities involved in a sale.
When asked as to whether they gave "free merchandise" as a form of a quantity discount or as a promotional device, substantially more rec ord producers reported giving free goods, which, of course, is a form of quantity discount. This can be seen from the following data:
Per Cent of Seventy-five Manufacturers Reporting Practices as to ' Practice on Free Goods Singles ______Albums
Free merchandise given 63.2 40.5 Free merchandise not given 36.8 59.5
^^Beckman and Davidson, op. c it. , p. 719. The reader desir ing more information on quantity discounts is referred to the above cited text, pp. 719-724. 170
Thus, the data suggest that the practice of giving free goods or
"freebies," as they are commonly called in this industry, is much more prevalent with Singles than with Albums. Approximately two- thirds of the record producers use freebies with Singles while only
40 per cent of the producing firms reported the use of free merchan dise with Albums,
The absence of standardized discount structures in the in dustry and the lack of standardized practices and policies relating to pricing of goods at both wholesale and retail have resulted in m istrust and misunderstanding among the various segments of the phonograph records industry. Efficiency in the industry has been reduced as a consequence.
Sales Promotion Policies and Practices
As part of the marketing mix, advertising and sales promotion can be effective competitive weapons in the hands of marketing man agement, Advertising and sales promotion are particularly significant in the marketing of phonograph records due to the nature of the prod uct and the high degree of competition in the industry. Promotional efforts by marketing management in the phonograph records producing firm commonly include a mixture of personal selling, advertising in trade and consumer media, and various sales promotion techniques and e f f o r t s .
Personal selling is effected through the sales force of the manufacturer. Also, manufacturers employ promotion men whose primary function is to call on disk jockeys and/or other radio station person nel for the purpose of inducing the station to give the manufacturer's product air time. 171
Advertising is commonly employed in both trade and consumer media to reach both resellers of records, such as distributors, rack jobbers, one stops, and retailers, and the ultimate consumer market.
The large record producer has historically, as well as currently, been a heavy advertiser. For example, the Victor Company's expendi ture of $6,000,000 in promoting its records and .ecord players in
1925 made it one of the largest advertisers in the country during t h i s p e r i o d . 36 a current example of the type of consumer advertis ing campaign and expenditure is reported by a Billboard article.
Columbia Records staged a promotion on November 29, 1964, utilizing a sixteen page full color supplement in twenty-two major United
States Sunday newspapers with a total family readership of 80,000,000 37 at a cost of $500,000.
The record industry is a relatively heavy spender for adver tising and promotion. This can be seen from the following data:
Per Cent of Sales Per Cent of Seventy- Dollar Spent for Number of Firms one Manufacturers Advertising and R ep o rtin g R ep o rtin g Sales Promotion Expenditures Expenditures
Less than 2 4 5.0 2 - 5 18 25.0 6-10 28 4 0 .1 Over 10 21 29.9
Total 71 100.0
The above statistics indicate that 70 per cent of record producers spend 6 per cent or more of their sales dollar for advertising and
36, ^Gelatt, op. c it.
37»columbia Launching Ad Drive in 22 Papers," Billboard Magazine, November 7, 1964, 172 sales promotion. Nearly 30 per cent of these firms invest over 10 per cent of the sales dollar in advertising and sales promotional efforts. Nearly half of the larger manufacturers, 46.4 per cent, and 40.4 per cent of the smaller producers indicated they spent from
6 to 10 per cent of sales for advertising and promotional purposes.
A much larger percentage of smaller record producers (31.9 per cent) reported spending over 10 per cent of their sales for promotional purposes than did the larger firms.
The promotional methods utilized by producers in 1965 and the opinions of manufacturers as to the relative value of these promo tional and advertising methods can be seen in Table 27. Producers were asked by questionnaire to list the top three promotional methods, in the order of their effectiveness in selling records. The data in
Table 27 show a definite pattern of opinions. Radio is the choice of over 51 per cent of record producers as the number one method of selling, with 15 per cent of the firms expressing the belief that pro motional men calling on disk jockeys is the best way to sell records.
In summary, three methods of promotion rank high with the producer: radio, trade advertising via trade papers, and promotional men cal ling on disk jockeys. Four out of five record producers feel that the relative value in effectiveness of the various methods of promo tion and advertising listed in Table 27 have not changed significantly since 1955. The minority of 20.5 per cent who did feel that some change had occurred expressed no uniform pattern of belief and many either couldn’t or didn’t indicate what, if any changes had occurred in the efficiency of these various advertising and promotional m ethods. 173
TABLE 27
RELATIVE VALUE OF VARIOUS SALES PROMOTION AND ADVERTISING METHODS IN SELLING RECORDS
Per Cent of Seventy-five Firms Sales Promotion and A d v e rtis in g Methods No. One No. Two No. Three
Newspapers 1.3 1 .6 1 .8
Radio 51.3 6.4 5.4
T e le v is io n 4 .1 14.6 10.9
Consumer Magazines 8.3 6 .4 5 .4
Trade advertising, i.e. trade papers, etc. 5.5 32.3 21.8
P ro m o tio n al men c a llin g on disc jockeys, etc. 15.3 27.4 30.9
Point of sale aids for retail dealers 4 .4 8.0 20.0
O thers 9 .8 3.3 3 .8
T o ta l 100.0 100.0 100.0
Source: Manufacturers Questionnaire.
One of the requisite needs of marketing management to help guide its advertising and promotional efforts is to develop good sources of information on consumer demand. The necessity of "feed back" for promotional efforts is obvious. Manufacturers were sur veyed to ascertain the relative order of importance of various sources of information which were utilized by them. Their answers,, shown in Table 28, indicate a wide divergence of opinions as to the best sources of information on consumer demand. The number one source most used by producers was their own internal sales records. TABLE 28
PRIMARY SOURCES OF INFORMATION ON CONSUMER PRODUCT DEMAND UTILIZED BY MANUFACTURERS
Number o f Firms Listing Method As Per Cent of Firms Listing Method As S ources o f In fo rm a tio n No. One No. Two No. Three No. One No. Two No. Three
Internal Sales Records o f Your Own Company 32 3 9 4 3 .0 5 .2 17 .3
Reports of Salesmen, Distributors and Pro m otion Men 13 27 11 1 8 .2 48.6 21.1
Pop Charts of Trade Papers Such as B ill- board and Cash Box 15 18 17 2 0 .8 31.5 30.7
Your Own Market Research Studies 11 4 10 1 5 .2 7 .0 19.2
Outside Market Re search Studies Con ducted by Billboard's Reseëupch Department 1 2 5 1 .4 3 .6 9 .8
O th ers 1 4 1 1 .4 7 .0 1 .9
T o ta l 73 58 53 100.0 100.0 100.0
Source: Manufacturers Questionnaire, f 175
Pop charts of trade papers like Billboard and Cash Box, and reports of salesmen, distributors, and promotion men also ranked relatively high.
Sales promotion efforts in the record manufacturing industry take many forms. These efforts range from building an artist's image to that of packaging.
The following four selected examples are illustrative of the kinds of sales promotion efforts in which producers engage:
a) Building an artist. Record producers often invest con siderable time, energy and money in building an artist's image with the public, Kapp Records' recent effort in building Roger Williams as a recording star is exemplary of producers' efforts in the pro- m otional area. 38 I f a company is su ccessfu l in i t s prom otional e f forts and has a rising star under exclusive contract, then its invest ment pays handsome dividends as demand for the artist's recordings mounts,
b) Packaging. In their efforts to gain a competitive advan tage, and to increase their products' sales appeal, record producers have, in recent years, turned more and more to packaging innovations and additions. These promotional efforts take many forms, such as the inclusion by Atlantic Records in a Bobby Darin LP (aimed at the teen-age market) of a color photo fold-out of Darin. When introduc ing its original cast show album "Tenderloin," Capitol Records
^®"Kapp Views Recording A rtist as Long-Term Asset to Label," Billboard Magazine, January 18, 196h, p, 45.
"Williams Promotion to Cost $100,000," Billboard Magazine, January 18, 1964, p, 46. 176 included a copy of the musical's souvenir program as a special in sert on the back of the Album,Packaging as a sales promotion device is designed either to visually make the record more appealing at the point of sale or to add something to the "total product buy" that makes it more desirable to the purchaser.
c) Tie-in promotion. Utilizing records as either a tie-in with other products or as a premium to enhance the sales appeal of another product have found considerable favor with record producers,'
For example, RCA Victor in introducing its Dynagroove sound records tied in its promotional efforts with the Buick division of General
Motors, In a $2,300,000 campaign the public was invited to hear the new Dynagroove re c o rd s a t t h e i r n e a r e s t Buick d e a l e r 's showroom,*^®
A Brylcreem tie-in with General Harmonies and Video offered a 98 cent tube of Brylcreem and a $<+,98 Connie Frances Album for $1,69. Super markets and variety stores ordered 5,000,000 of these Brylcreem-rec- ord packages,
d) Point of purchase displays are a fairly universal form of sales promotion effort used by record manufacturers. These points of purchase aids range from elaborate packaging of records to the provision of eye appealing display stands. Illustrative of producers' efforts are Dot Records' provision of racks at no charge to retail
®®"Album Competition Spurs Search for Packaging Lures," B ill board Magazine, November 7, 1960, p, 1.
*^®"RCA V ictor, Buick Set $2,300,000 Tie-In Debut for Dyna groove Sound," Advertising Age, March 4, 1963, p, 6,
*+l”Brylcreem to Launch TV, Newspaper Push for LP Record Album," Advertising Age, Volume 32, July 10, 1961, p, 10, 177 dealers if the dealer agrees to Dot's display requirements. Accord ing to Dot president, Randy Wood, the use of Dot's rack plan for retail dealers has brought the conçany and the retail dealers spec-
no tacular sales results, Fred Rice, Capitol Records' veteran merchandising expert who designed the first browser box, feels that proper display of records at the point of sale is the most important
RO means of sales promotion available to the producer. Space does not permit further examination of the plethora of sales promotion devices and techniques utilized in the marketing of phonograph records.
*^2"Dot T e s t o f Own S to re Rack P ro v es Value o f E x p o su re," Billboard Magazine, December 22, 1962, p, 5,
*^^"Rice Offers a Design for Living," Billboard Magazine, November 21, 1964, p. 3, CHAPTER VII
A QUANTITATIVE AND QUALITATIVE ANALYSIS OF THE WHOLESALING STRUCTURE
Chapter VII examines the wholesaling of records from both
institutional and functional viewpoints. Analytical efforts are
organized primarily around the three wholesaling institutions; dis
tributors, rack jobbers, and one stops. The analysis of each is made in a parallel manner. Distributors, as the historical whole
salers in the industry, are discussed first, followed by an examina
tion of rack jobbers, and one stops, respectively. Of these three
basic classes of wholesaling institutions, the independent distrib
utors, rack jobbers, and one stops are merchant middlemen. By
definition, merchant middlemen are "middlemen who buy products out
right and necessarily take title to them."^ In contrast with merchant middlemen are functional middlemen who are defined as "middlemen who
assist directly in effecting a change in ownership but do not them- 2 selves take title to the goods in which they deal." A common example
of a functional middleman is a broker. There are no significant
functional middlemen in the marketing of phonograph records.
Beckman and Davidson, op. c it., page 12. The reader desiring further treatment of the distinction between merchant middlemen and functional middlemen is referred to these authors* treatment of the subject on pages 282-286 and Chapter 15.
^Ibid., page 12, and Chapter 17.
178 179
The term distributor is used in this industry to designate both independent merchant wholesalers and manufacturers’ sales branches. While marketing theory distinguishes the technical dif ferences between these two types of wholesale institutions, it also recognizes the basic sim ilarities in performance of the wholesale function by these two institutions.
Independent distributors, commonly referred to in the trade as ’’indie” distributors, are true merchant middlemen, buying records outright, taking title to them, and performing other basic marketing functions, such as storage, transportation, selling, extending credit, providing market information, and assuming risks. Histori cally, the indie distributor has been the backbone of the wholesaling structure and is currently a vital link in the distribution of rec ords. His customers include retail record stores, one stops, and rack jobbers.
Manufacturers’ sales branches are wholesaling institutions resulting from the record producers’ desire to integrate the wholesal ing function. By definition, manufacturers’ sales branches are
"establishments that are maintained by manufacturers apart from manu facturing plants and which are operated by them primarily for the m ark etin g o f t h e i r own products.Manufacturers' sales branches perform many of the same basic marketing functions as the independent wholesaler, including such functions as selling, storage, transporta tion, extension of credit, and providing of market information.
3 Ibid. , page 283. For a more complete discussion of the manu- facturers* sales branch, its role and function, see pages 348-362. 180
Distributorships operated by manufacturers service essentially the
same customer classes as the independent distributors, namely rack
jobbers, one stops, and retailers. The use of manufacturers' sales
branches is common cimong the major record firm s. Typically, these major record firms use both manufacturers' sales branches and indie
distributors simultaneously in their marketing efforts to reach dif
ferent types of record markets.
Rack jobbers are independent merchant middlemen commonly
servicing retail stores by assuming responsibility for placing rec
ords on racks in the store. This type of wholesaler markets records to a wide variety of retail stores such as discount department stores, variety stores, and supermarkets who handle records on a self-service basis, selling the records from racks. Typically the rack jobbers
assume complete merchandising responsibility for the goods placed on
the racks. As a merchant middleman, the rack jobber performs most of the basic marketing functions such as buying, selling, storage, transportation, extension of credit, and risk bearing. Rack jobbers
currently buy from distributors and to an increasing degree, direct
from record manufacturers. Because he performed the vital service
of providing the record industry with greater exposure of the prod
uct at retail at a necessary time in the industry's development, the rack jobber has captured a substantial share of the record dollar
volume at retail. A more complete discussion of the role and the
functions performed by this type of wholesaler is undertaken in a
subsequent section of this chapter.
One stops are a group of merchant middlemen selling primarily
to two classes of customers, retail stores and juke box operators. 181
As merchant middlemen, one stops perform most of the basic marketing
functions including buying, selling, storage, risk bearing, credit
extension, and market information. The biggest reason for their
growth has been the service provided their customers in handling
"all lines" of records. Thus retailers and juke box operators can more easily perform the buying function if their source of supply handles records of many manufacturers instead of one or tifo lines.
Typically one stops buy from distributors and, to a lesser degree,
directly from manufacturers.
Data on the wholesale structure for the four-year period 1962-
1965 are shown in Table 29. Since 1963 the number of independent
distributors and rack jobbers has declined substantially, with the
former experiencing a 28.9 per cent decline and the latter a drop of
55.7 per cent in numbers of firms. In 1965 this same trend became
evident for one stops and the number of these firms in 1965 was 17.7
per cent less than for 1964. In the case of the rack jobbers and
one stops this decline in the number of firms is due to a consolida
tion of the market structure—a shaking out process in which the marginal firms went out of business or were taken over by stronger
firm s . Such a c o n s o lid a tio n i s n o t uncommon in an in d u s try in which
rapid expansion has been taking place as is the case in the phono
graph records industry in the 1950’s and early 1960*s. The reduction
in the number of independent distributors is due to a long range de
cline in the share of the record market handled by this class of
middlemen. The growing prevalence of direct marketing by manufac
turers to one stops, rack jobbers, and retailers and the increasing
degree of forward vertical integration by producers are the prime contributing factors to this trend. 182
TABLE 29
THE WHOLESALE STRUCTURE IN THE PHONOGRAPH RECORDS INDUSTRY, 1962-1965
Number of Wholesale Types of Wholesale Institutions Institutions 1962* ^ 1963b 1964^ 1965*
Indie Distributors 509 514 405 365
Rack Jobbers 322 425 220 186
One S to p s 222 233 298 247
S o u rces:
^1962-63 Buyer's Guide and Market Data Report, New York : Billboard Publishing Co., 1962, p. 21.
^1963-64 Buyer's Guide and Market Data Report, New York ; Billboard Publishing Co., 1963.
^1964-65 International Music-Record Directory and Buyer's Guide, New York; Billboard Publishing Co., 1964, p. 26.
^1965-66 International Music-Record Directory and Buyer's Guide, New York: Billboard Publishing Co., 1965, p. 20.
INDEPENDENT DISTRIBUTORS AND MANUFACTURERS’ SALES BRANCHES
The analysis in this subsection deals with both independent
distributors and manufacturers' sales branches as a class of whole
sale institution. It was felt that this was the most logical way to
organize this detailed examination of these wholesale institutions
for two reasons. One, other marketing segments in this industry
generally view these two institutions as a class or type of whole
saling firm. As pointed out previously, the term distributor in this
industry is usually connotated to mean both independent distributors
and those owned by manufacturers. Thus, for all practical purposes. 183 distributors are viewed as one basic class of wholesale institution.
Second, in the survey of wholesale institutions via questionnaires
Csee footnote 4) it was decided that it would be more feasible to collect data from these two institutions together as a class and then, if necessary, note any significant differences between the two.
Any data or analysis applying exclusively to either indie distribu tors or manufacturers' sales branches w ill be so noted.
In contrast to the rack jobber and one stops, most of whom have begun operations since 1950, the distributor is the "older" class of wholesalers. The length of time that distributors have been in business is shown below;
Time Period in Operation Number of Firms Per Cent of Firms
Less than 3 years 15 13.8
3-5 years 10 9.3
6 - 1 5 y e a rs 34 31.5
16-25 y e a rs 30 27.8
Over 25 years 19 17.6
T o ta l 108 100.0
The data indicate that nearly half of the distributors have been in business prior to 1950, or over 16 years. Approximately 18 per cent have been in operation over twenty-five years. These
^Distributors were surveyed via questionnaire in July, 1965, by the author as part of the dissertation research effort. Unless otherwise specified, all data used in this section on distribution are based on results from this survey. The reader is referred to Appendix A for details on the methodology employed and a copy of the questionnaire utilized. 184 statistics confirm the fact that distributors are the historical middlemen in the records industry.
Size and Scope of Operations
An examination of some selected marketing operations of dis tributors is made below. These include size of sales volume, the degree of forward vertical integration, the scope of geographical marketing area, the number of manufacturers’ lines handled, and areas of product diversification,
The size of distributors predicated on dollar volume is shown in Table 30. Statistical data indicate that compared to other classes of middlemen in the wholesale structure in this industry, distributors are, on average, larger in annual dollar sales volume than one stops and about the same size (in terms of dollar sales volume) as rack jobbers.^ Approximately 25 per cent of distributors do less than $250,000 sales volume annually. Nearly two-thirds re port sales volume of less than $1,000,000 annually. Only 10 per cent of the reporting firms indicate sales in excess of $3,000,000 a year.
It can thus be concluded that most record distributors, when compared to wholesalers in some other lines of goods, are relatively small firms in terms of dollar sales volume.
In an effort to protect their market share and improve it many indie distributors have engaged in: forward vertical integration by either buying out existing sub-distributors or opening their own
^These generalizations are based on a comparison of the sales data in Table 30 with that of the data in Tables 38 and 42. 185
TABLE 30
DISTRIBUTORS CLASSIFIED BY DOLLAR VOLUME FOR YEAR 1964
Dollar Volume Number of Firm s Per Cent of Firms
Less than 100,000 17 16,3
100,001 - 250,000 9 8 ,6
250,001 - 500,000 18 17 .3
500,001 - 1,000,000 22 21,2
1,000,001 - 2,000,000 22 21,2
2,000,001 - 3,000,000 6 5,8
3,000,001 - 5,000,000 8 7 ,6
5,000,001 - 8,000,000 1 1 ,0
8,000,001 - 12,000,000 1 1 ,0
T o ta l 104 100,0
Source: Distributors Survey, sub-distributing operations. This is shown by the following data:
Number of D istributors P e r Cent of Distributors Type of Market- Owning Marketing Owning Marketing ing Institution Institutions Institutions Owned by D is- in th e T rade in the Trade tributors Channel Channel
One stop opera 27 25,0 tio n s
Rack jobbing o p e ra tio n s 27 25,0
Retail outlets 21 19,4
These data reveal that approximately 25 per cent of the dis tributors own rack jobbing operations and one out of four have one 186
stop operations. Nearly 20 per cent of distributors also operate retail outlets,, with integration thus extending to the retail as well as the wholesale levels of the trade channel.
The extent to which distributors have engaged in one stop operations is shown in Table 31. The majority (81.4- per cent) have only one one stop operation, with nearly one out of every five dis tributors having two to four such firms. The number of rack jobbing locations operated by distributors who are vertically integrated can be seen in Table 31. These statistics indicate that most distribu tors who have rack jobbing operations have gone into this form of sub-distributing in a substantial way.
The number of retail outlets operated by vertically integrated distributors can also be seen in Table 31. Approximately 95 per cent of such distributors operate one to five retail outlets. These sta tistics would indicate that most distributors are still experimenting with integrated units at the retail level.
The marketing scope of the typical distributor encompasses a fairly large geographical area, two or more states, as the following data indicate:
Scope of Geographical Number of Firms Per Cent of Firms Marketing Area Covering Area Covering Area
One state area 25 23.2
Two s t a t e a re a 29 26 .8
3-5 state area 35 32.4
More than 5 state area 19 17.6
Total 108 100.0
Approximately 77 per cent of the distributors report marketing 187
TABLE 31
THE EXTENT OF OPERATIONS BY VERTICALLY INTEGRATED DISTRIBUTORS
Number of Operators Per Cent of Distributors and/or Locations Owning Operations
One S tops
One 81,4
Two or more 18.6
T o ta l 100.0
Rack Jobbers
1 - 5 1 3 .1
6 - 1 0 0.0
11 - 15 17.3
16 - 25 0 .0
More than 25 69.6
T o ta l 100.0
Retail Outlets
1 - 5 95.2
6 - 1 0 0.0
11 - 15 0.0
More than 15 4 .8
T o ta l 100.0
Source: distributors Survey. 188 operations covering two or more states and 50 per cent indicate three or more states in their marketing efforts. The above statis tics show that nearly one out of every five distributors market in more than a five state area. Thus the scope of operations of most distributors over several states creates problems of physical dis tribution of the product as well as personal selling contacts.
Prior to 1961 it was the common practice in the phonograph rec ords industry for distributors to follow an exclusive product policy and thus handle only one manufacturer's label or family of labels.
This is no longer a standard or even common practice among distribu tors,^ As the data in Table 21 show, more than 80 per cent of dis tributors handled two or more manufacturers' labels and approximately
42 per cent of distributors handle more than fifteen different labels of records in 1955, This change in practice and policy has come about as a result of competitive conditions in the industry, e,g,, the need of distributors to compete with one stops for retailers' accounts.
Also, with a policy of carrying more than one producer's label, the distributor has a better chance of having either a "hot" Single or
LP to work with most of the time since no manufacturer can always of fer a "hit" record.
By 1963, 70 per cent of the independent distributors had diversi fied, that is, they were handling products other than records. This represents a break from tradition as most distributors have
®For a more detailed treatment the reader is referred to Table 21 in Chapter V and the accompanying discussion. 189 historically carried primarily records. The primary areas of prod- 7 uct diversification by these distributors are as follows:
Per Cent of Firms Carrying Each Area of Diversification Product
Record Accessories 70.0
Phonographs 52.5
Pre-recorded and Blank Tape 37.5
Tape Recorders 30,0
Own Record Labels 27.5
Television, Refrigerators and Small Appliances 12.5
Other Items (including sheet music, cameras, etc.) 15.0
About 70 per cent of the diversified distributors carry rec ord accessories while a little more than half carry phonograph rec ord players. Approximately one-third of these distributors handle tape recorders and tapes, both pre-recorded and blank tape. As a result of the loss of a substantial amount of record dollar volume, distributors have had to turn to product diversification. Thus diversification represents a "fighting back" action for survival by the indie distributor.
Sales volume of distributors broken~ciown by classes of customers The breakdown of distributors' dollar sales volume by type of account for the three-year period 1962-1964 is shown in Table 32.
^"Independent Record D istributor Survey—1964," Billboard, Record Distribution Section, June 27, 1964, pp. 25-26. 190
TABLE 32
RECORD DISTRIBUTOR DOLLAR SALES VOLUME BROKEN DOWN BY TYPE OF ACCOUNT, 1962-1964
Y ear Type of Account 1964% 1963^ 1962^
Traditional Record Dealers (including department stores) 3 7.8 33.3 32.7
Rack Jobbers (including those owned by distributors) 29.5 22.6 27.8
One S to p s (including those owned by distributors) 15.2 19.0 17.5
Large Discount Outlets (not including leased depart ments or rack serviced discount outlets) 14.6 1 1 .4 1 5 .7
Leased Departments (operated by distributors' firm s) NA 1 .5 1 .8
Juke Box Operators (serviced by distributor and not by one stops) 2.9 3 .2 NA
Other Type Accounts (including specialty dealers, mail order accounts, m ilitary outlets, record clubs, etc.) NA 9 .0 4 .5
T o ta l 100.0 100.0 100.0
S o u rces:
^Distributors Survey,
^"Independent Record D istributors' Survey--1964," Billboard Record Distribution Section, June 27, 1964, pp. 25-26. 191
The traditional record dealer continues to be the most important single class of customer with rack jobbers being a fairly close second. The statistics in Table 32 for the year 1964 include data from both the manufacturers' sales branches and the independent dis tributor while the 1963 and 1962 data include only independent dis tributors. Comparisons between 1964 and the 1962 and 1963 figures show no significant differences between the data for indie distribu tors and manufacturers' sales branches. The relative share of distributor volume accounted for by other classes of customers such as one stops and discount outlets may be seen in Table 32.
Net profit patterns for distributors in 1964
Net profit patterns for distributors in 1964 were as follows:
Per Cent of Profit Number of Firms Per Cent of Firms to Sales Reporting Profits Reporting Profits
Under 2 17 17.0
2 - 4 38 38.0
5 - 8 27 27.0
9 - 1 2 14 14.0
Over 12 4 4.0
T o ta l 100 100.0
Nearly two-thirds of the distributors report net profits that fall into the range of from 2 per cent to 8 per cent of sales. Ap proximately 18 per cent of the firms have net profits of more than 9 per cent and an equal number of firms (17 per cent) report profits of less than 2 per cent on sales. There were no significant differ ences between net profit patterns of distributors compared with those 192 of rack jobbers and one stops except for a somewhat higher propor tion of distributors reporting net profits of over 8 per cent.
Advertising and Sales Promotion Policies and Practices of Distributors
Among the more effective tools available to the distributor in the marketing mix are advertising in trade journals, advertising in consumer media such as radio, the use of promotional men contact ing disc jockeys, and the creation and distribution of point of sale aids for retail store use. This subsection w ill examine adver tising and promotional expenditures and the use of media.
Advertising and sales promotion expenditures of distributors expressed as a per cent of sales in 1964 are as follows:
Number of Firms Per Cent of Firms Expenditures as a Reporting Expen- Reporting Expendi- Per Cent of Sales ditures tures
None 8 8.0
L ess th a n 2 26 26.0
2 - 4 35 35.0
5-8 14 14.0
More than 8 17 17.0
Total 100 100.0
The expenditures for promotional purposes listed above do not
include cooperative money received by the distributor from the
manufacturer.
Approximately half of the distributors spend between 2 per
cent and 8 per cent of sales for advertising and sales promotion.
Seventeen per cent of these wholesale firms reported that they spend 193 over 8 per cent of sales for promotional purposes. Advertising and sales promotion expenses thus represent a substantial expense item to the typical distributor.
In a survey conducted as part of the research study in July,
1965, distributors were asked to indicate what they considered to be the most important methods in promoting their product, ranking them in order of relative importance. The results are shown in Table
33. While there is substantial diversity of opinions among distribu tors, some patterns emerged for the number one and number two methods.
Over 40 per cent of the firms felt that promotion men contacting disc jockeys was the best method of promotion. Some 22 per cent of the distributors felt that radio advertising was the most effective means.
Approximately 53 per cent of the reporting firms felt radio adver tising or point of sale aids for retail dealers were the second most effective ways of promoting their product. Distributors were about equally divided in their opinions as to the efficiency of these two methods of promotion. There was no clear cut opinion as to the third most useful technique for promotion. The degree to which distributors feel that the prime methods of promotion and advertising listed in
Table 33 have changed in their relative significance since 1955 is shown below;
Degree of Change in Prime Methods of Promotion and Advertising Over Period, 1955-1965 Number of Firms Per Cent of Firms
No change 74 72.0
Change has taken place 29 28.0
Total 103 100.0 19%
Nearly three-fourths of the firms indicated no change in signifi
cance had taken place over this ten year period. Of the 28 per
cent who felt some change had occurred, many could not or did not
indicate what changes had taken place. Of those firms who did list
changes, there was no clear cut pattern of change obvious from their
an sw ers,
. TABLE 33
RELATIVE•IMPORTANCE PLACED ON VARIOUS SALES PROMOTION AND ADVERTISING METHODS
Per Cent of One Hundred Three Sales Promotion and Distributors Listing Method As Advertising Methods Number One Number Two Number Three
Newspaper Advertising 1 3 ,1 10,3 20,9
Radio Advertising 22,% 28,5 18,6
Television Advertising 1 ,0 . 6 ,1 8,2
Magazine Advertising 0.0 5 ,2 2,%
P ro m o tio n al men c o n ta c t ing disc jockeys, etc. %2,0 11,2 10,%
Point of sales aids for retail dealers 6,6 2%,% 19.8
Trade Advertising %,6 10,3 13,9
O ther 10,3 %,0 5 ,8
T o ta l 100,0 100,0 100,0
Source: Distributors Survey,
Selling and Pricing Policies and Practices of Distributors
Selling and pricing policies and practices examined include discount practices followed, credit terms extended and return privi
leges granted. 195
The granting of quantity discounts (expressed as a per cent
of purchases) is not a common trade practice among distributors.
Seventy-eight per cent of firms do not grant quantity discounts as
a matter of policy. Of those firms reporting the use of quantity
discounts, the actual terms granted to buyers were so diverse that no meaningful frequency distribution table could be compiled.
The giving of free goods by a vendor is another way of grant
ing a quantity discount. The use of free goods, or freebies as they
are called in this industry, is more common as the following data show;
Number of Firms Re- Per Cent of Firms Re porting Practices porting Practices Practice Relating on Different on Different to Giving of Free Classes of Classes of Goods Records Records Singles Albums Singles Albums
Give free goods 26 22 26.2 23.4
Pass on only free goods given by manufacturer 43 32 43,4 34.1
Do not give free goods 30 41 30.4 42.5
Total 99 95 100.0 100.0
Some of this trade practice by distributors, however, does not
originate with the distributor. Much of the giving of free goods by
distributors represents singly the passing on of the free goods granted
by the manufacturers. For example, approximately 70 per cent of dis
tributors dealing in Singles report the granting of free goods as a
practice but of this 70 per cent, 43.4 per cent, or more than one-
half of these firms, stated that they were merely passing on free goods 196
given by the manufacturers. Only one-fourth of distributors origi nated the policy of giving free goods with either Singles or Albums,
According to a recent survey of independent distributors,
64.5 per cent would like to see freebies eliminated entirely with a
lowering of Singles’ prices or the use of more promotional money in- g stead of the use of freebies. The relatively low use by distribu
tors of quantity di,scounts as a trade practice may stem from their
feeling that purchasing by vendees in larger quantities does not
justify price concessions under the Robinson Patman Act or they may
feel that their gross margins of profit are not adequate to cover
further price concessions. The liberal return policy and credit policies of distribution may also be a factor in shaping the degree
of prevalence of quantity discounts granted.
Most distributors (94.3 per cent) grant some type of credit
to their vendees. Less than 6 per cent of the distributors report that it is not their policy to grant credit. The most prevalent types
g of credit granted by distributors are; 30-60-90 days; net 30 days;
and 2/10 EOM, with 92 per cent of the firms reporting use of one of
these three stated terms. Over 40 per cent of the distributors in
dicated they gave buyers as much as ninety days in which to pay all
of their bill. These statistics in Table 34 indicate the importance
of the distributor’s role in performing the financing function in the marketing process.
^’’Independent Record D istributors’ Survey—1964," Billboard, Record Distribution Section, June 27, 1964, p. 26. Q This set of terms means that one-third of the invoice is due in 30 days, another third in 60 days and the last third is due by the end of 90 days from the date of the invoice. 197
TABLE 34
TYPES OF CREDIT TERMS EXTENDED BY :DISTRIBUTORS
Types of Credit Number of Firms Per Cent of Firms Terms Extended Extending Credit Extending Credit^
Net 30 days 28 28.0
Net 90 days 5 5.0
2/10 E.O.M. 28 28.0
30 - 60 days 7 7.0
30 - 60 - 90 days 36 36.0
V a rie s 4 4 .0
O th er .6 6.0
T o ta l 114
®Data add up to more than 100% as some firms listed several sets of credit terms.
Source: Distributors Survey, see footnote 4.
Some type of return practice is almost universal among dis- tributors as the following data show:
Per Cent of Firms Having Policy On Return Policy Practices Singles Albums
Have some type of return p o lic y 93.8 88.5
Do not allow goods to be re tu rn e d 6 .2 11.5
T o ta l 100.0 100.0
However, only two-thirds of the firms reporting indicate that the return practice represents their own policy. Approximately 34 per 198
cent state that they are simply passing on the manufacturer's re turn guarantee. While there are a variety of return policies u til ized by distributors the three most common are;
(a) 100 per cent return allowed
(b) 10 per cent return allowed if goods are returned within a certain stipulated period
(c) 100 per cent exchange allowed^®
Differences in return policies for Singles and Albums may be seen in
T able 35.
TABLE 35
TYPES OF MERCHANDISE RETURN POLICIES GRANTED BY DISTRIBUTORS
Number of Firms Re P e r Cent of Firms Re- porting Policies On p o rtin g Policies On Types of Policies Singles Albums Singles Albums
100% return allowed 27 32 4 2.2 17 ,1
100% exchange allow ed 4 11 6 ,2 50.0
10% return if goods are returned with in a stipulated period of time 15 8 23.4 12.5
V aries 4 4 6 ,2 6 .2
O th ers 14 9 22,0 14.2
T o ta l 64 64 100,0 100.0
Source: Distributors Survey,
10The, vendee is allowed to swap or exchange the "old" records for "new" records, usually on a one for one basis. 199
From the data in Table 35 one can conclude that a very liberal re turn policy exists in the phonograph records industry compared with practices in many other commodity areas. This liberal return policy is utilized by both manufacturers and distributors in an effort to secure greater exposure of the product and to induce retailers and rack jobbers to buy given labels in quantity rather than placing smaller but more frequent orders.
Demand Analysis and Inventory Control Practices
Analysis of consumer demand, both current and potential, is essential to adequate performance of the buying function. Equally important for the marketing institution is achievement of a proper balance between sales and stocks. Analysis of consumer demand by distributors is accomplished by use of a number of sources. Data in
Table 36 show that 80 per cent of the distributors feel that their own internal sales records or the reports of salesmen, promotion men, and other marketers, such as retailers, are the most important sources of information on consumer demand. Other sources considered important were pop charts of trade papers and radio stations.
Balance between stocks and sales is best accomplished by u til izing some formal system of stock control. The degree of utilization TABLE 36
PRIMARY SOURCES OF INFORMATION ON CONSUMER PRODUCT DEMAND UTILIZED BY DISTRIBUTORS
Number of Firms Listing Source As Per Cent of Firms Listing Source As Sources of Information Number One Number Two Number Three Number One Number Two Number Three
Own internal sales records of distributors 43 16 10 40.9 16.6 12.6
Reports of salesmen, promotion men and other marketers such as a retailer, etc. 41 30 13 39.2 3 1 .2 16.2
Pop charts of trade papers, e.g.. B illb o a rd 8 18 23 7 .6 1 8 .7 28.8
Local radio station c h a rts 9 24 23 8 .5 25.0 28.7
Manufacturers’ sug gestions 2 6 9 1.9 6 .3 11.2
O th ers 2 2 2 1 .9 2 .2 2 .5
T o ta l 105 96 80 100.0 100.0 100.0
to o Source : Distributors Survey. o 201
of formal inventory control systems by record distributors and the
types of systems employed are as follows:
Employment of Inventory Control Practices Number of Firms Per Cent of Firms^
Periodic count system 57 52.7
Perpetual inventory control system 36 33,3
Other systems 2 1,8
No formal inventory control system 18 16,6
T o ta l 113
®Data add up to more than 100 per cent as some firms reported using both periodic and perpetual inventory systems depending on the quality and price of records.
Approximately 83 per cent of the distributors use some type of formal inventory control system. Of these distributors, approxi mately 60 per cent use periodic count systems and 37,9 per cent have perpetual inventory methods. The periodic count method and the per petual inventory method represent the two basic types of formal unit inventory control systems utilized in stock control by both whole sale and retail marketing institutions. In the periodic count method, merchandise is actually inventoried or counted at frequent time in tervals, say once a week, or twice a week, and a sales figure is computed by subtracting ending inventory, the count, from beginning inventory, the previous count. The following example illustrates the mechanics of this method: 202
Stock Number X
February 1, units on hand 5,000
February 3, purchases in 5,000
Total Merchandise handled February 1-7 10,000
February 8, units on hand - 3,000
Derived Sales for the week of February 1-7 (including shortages) 7,000
This technique thus indicates the position of the inventory at fre quent intervals for purpose of buying or promoting goods.
With the perpetual inventory method each unit, case, or pack of the product is subtracted from inventory as rapidly as it is sold.
Commonly this is done daily so that the marketer then has a "running" figure on both his sales and his inventory for any classification of goods for which a system is used. There are many variations of these basic methods of stock control systems, but the basic concept involved in each has been presented in the above paragraph.
The Relative Position of the Distributor in the Current Market
The importance of the distributor as a marketing institution in the current market has declined relative to the position occupied in the 1940's and early 1950's. This decline in importance has come about as a result of the practice by manufacturers of direct market ing to rack jobbers, one stops, and to retailers. Thus the
^ For a more detailed treatment of the subject of stock con trol systems the reader is referred to a standard text, John W. Wingate and Elmer 0. Schaller, Techniques of Retail Merchandising, 2nd Edition, Englewood C liffs, N .J., Prentice-Hall, Inc., 1956, Chapter 18 and specifically pp. 334-339, 203 distributor is completely by-passed when the manufacturer engages in direct marketing. Empirical evidence of the ramification of this practice by manufacturers on distributors is to be found in the following facts: in 1948, 100 per cent of the sales volume of 12 manufacturers flowed through distributors; by 1962 only 73 per cent of the sales volume of producers was being channeled through distributors;^^ by the middle 1960's it is estimated that about 66 per cent of producers volume was handled by distrib u to rs, with the balance being marketed directly to rack jobbers, one stops, retail ers and ultimate consumers. Further empirical evidence of the relative decline in the indie distributors' importance as a market ing institution is the absolute decline in their number. In 1957 there were 653 indie distributors. Eight years later (1965), this number had dropped to 365, a decline of approximately 45 per cent.^^
The indie distributor is s till, however, a very important mar keting institution in the channel of distribution. This class of middlemen serves as the primary and basic channel of distribution for the small and medium size independent record producers. Approxi mately 68 per cent of all record manufacturers report that they use the independent distributors either exclusively (37,5 per cent re port this degree) or primarily (30.5 per cent report this degree) for the distribution of their goods. As a merchant middleman, the indie distributor performs most of the basic marketing functions such as
^%ee Figure 3, Chapter V.
^^See F ig u re 7 , C h ap ter V,
l^See Table 29. 204 buying, selling, storage, transportation, risk bearing and credit extension. Thus he takes much of the selling, storage, and credit problems off the shoulders of the small independent producer who frequently has no marketing know how, little physical facilities for storage, or capital to carry accounts.
For the large or major producers the indie distributor of fers a means of cultivating the less concentrated markets which might otherwise either be passed up completely or serviced at a relatively high cost by the manufacturers' sales branch. Evidence of the widespread use of the indie distributors even by the major manufacturers is the fact that 96 per cent of all producers report that they utilized indie distributors in the marketing of their p ro d u c ts .
Many small retailers, because of their size and capital limi tations and other market conditions, must buy from a wholesaler rather than direct from a producer. To this class of retailers the distributor serves as a vital source of supply by performing such requisite marketing functions as buying in large quantities, storage, and selling in small quantities, providing credit, and providing mar ket information.
It appears that the indie distributors will continue to func tion as an important link in the channel of distribution, but w ill not play as significant a role in the marketing of phonograph records
as they did historically in the 1940's and 1950's.
RACK JOBBERS
As a marketing institution in the channel of distribution the rack jobber has exercised an increasingly important role in the 205 distribution of records at the wholesale level over the ten-year period 1955-1965. The phenomenal growth of the rack jobber's impor tance in the marketing of phonograph records can be seen in Table
37, Statistics in this table show that the rack jobbers' share of the market at retail has risen from 8 per cent in 1957 to approxi mately 35 per cent in 1964. This represents an increase in sales volume of records handled by the rack jobber of approximately 290 p e r c e n t.
TABLE 37
DOLLAR SALES AND PERCENTAGE SHARE OF RECORD SALES AT RETAIL ACCOUNTED FOR BY RACK JOBBERS OVER THE SEVEN YEAR PERIOD, 1957-1964
Per Cent Share of Per Cent Change Record Sales Dollar Sales From Previous Y ear^ a t R e ta il (in millions) Y ear
1957^ 8.0 32 NA 1959 12.0 62 +41 1960 18.0 94 +52 1961 25.0 147 +56 1962 30.0 197 +30 1963 32.5 214 + 8 1964 34.9 242 +13
S ources :
^For all years except 1957 data are computed from statistics in Billboard's International Directory and Buyers Guide for the years stated.
^"Records," E lectrical Merchandising Year Book, 1957.
Empirical data shown below on the length of time rack jobbers have been in business are further evidence that this class of 206 marketing institutions has become significant in the distribution of records primarily since the mid 1950's:^^
Number of Firms Per Cent of in Operation for in Operatioi Time Period This Time Period This Time P<
Less than 3 years 6 9 .2
3-5 years 13 20.0
6-10 y e a rs 33 50.6
11 - 15 years 6 8.0
Over 15 years 8 12.2
T o ta l 66 100.0
Approximately 80 per cent of rack jobbers have been in opera tion less than eleven years. Thus the majority of these wholesalers were not a factor in the marketing of records prior to 1955,
Size and Scope of Rack Jobbers' Operations
The typical rack jobber does a larger annual dollar sales volume than any other type of wholesaler in the phonograph records industry. Statistics in Table 38 reveal that 44.4 per cent of the rack jobbers did over a million dollars worth of sales volume in 1964,
In comparison, only 36.6 per cent of the distributors did as much as a million dollars of annual sales volume in 1964 and only 12.4 per
Data are taken from a survey of rack jobbers via question naires conducted in July, 1965, as a part of this research project. Unless otherwise specified, all data used in this section on rack jobbers are based on results from this survey. For details on the research methodology employed and the questionnaires utilized, the reader is referred to Appendix A, 207 cent of one stops reported this much volume for 1964. Approximately
22 per cent of racks are relatively small firms, each doing less than $250,000 annual sales volume.
TABLE 38
RACK JOBBERS CLASSIFIED BY DOLLAR SALES VOLUME IN 1964
Dollar Volume Number of Firms Per Cent of Firms
Less than $100,000 10 16.2 100,001 - 250,000 4 6 .4 250,001 - 500,000 11 17.8 500,001 - 1,000,000 10 16.2 1,000,001 - 2,000,000 15 24.2 2,000,001 - 3,000,000 6 9.6 3,000,001 - 5,000,000 3 4 .8 5,000,001 - 8,000,000 2 3.2 Over $8,000,000 Volume 1 1 .6
T o ta l 62 100.0
Source; Rack Jobbers Survey
Rack jobbers have engaged in forward vertical integration to a greater degree than any other class of institution in the trade channel. This can be substantiated by the fact that 27,7 per cent of rack jobbers have leased departments at retail.
The most common type of lease arrangement for the retail de partments operated by rack jobbers is a per cent of sales agreement, with 71.5 per cent of rack jobbers reporting this type arrangement.
Approximately 28 per cent of the leased departments are under a dol lar rent guarantee per year.
Rack jobbers have also integrated extensively on a horizontal basis, with 35.4 per cent of rack jobbers reporting that they have 208 one stop operations. The relatively high degree of horizontal and vertical integration of the marketing functions by rack jobbers has contributed to their growth and importance as a class of middlemen in the marketing of phonograph records. Typically larger than that of any other group of middlemen in this industry, the rack jobber's scope of marketing area is shown below:
Scope of Geographical Number of Firms Per Cent of Firms Marketing Area Covering Area Covering Area
One c i t y 5 6 .9
More th a n one m etro politan area but less than a state 18 27.6
1 -3 state area 19 29.2
4 -6 state area 14 22.5
7 or more state area 9 13.8
T o ta l 65 100.0
Approximately 14 per cent of the rack jobbers cover a seven state area or more with their marketing operations. A little over 35 per cent of these sub-distributors cover at least four or more states.
Almost two-thirds of the rack jobbers report that they market in more than a one-state area. The relatively wide geographical scope of their marketing area has been a substantial contributory factor to the rapid growth of rack jobbers and to their current importance as middlemen in this industry. 209
The majority of rack jobbers utilize a large number of rack locations in their marketing efforts, as the following data show:
Number of Firms Per Cent of Firms Number of Rack Locations Operating Rack Operating Rack Merchandised Locations Locations
I - 10 locations 6 8.0 II - 20 locations 1 1.7 21 - 40 locations 6 9.6 41 - 60 locations 2 3 .1 More than 60 locations 49 78.6
T o ta l 64 100.0
Nearly four-fifths of these firms report that they merchandised racks in more than sixty locations. These data indicate the magnitude of the marketing job required simply to service and merchandise this number of physical locations with a "perishable" product. The degree of control by rack jobbers over record offerings on racks not operated as leased departments is shown below:
Number of Firms Per Cent of Firms Degree of Product Reporting Type Reporting Type Offering Control o f C o n tro l o f C o n tro l
Complete responsibility for product offerings 50 76.9
Share responsibility for product offerings with store management 15 23.1
T o ta l 65 100.0
More than three-fourths of the rack jobbers report that they exercise complete responsibility for the records merchandised on their racks.
Thus most rack jobbers have the complete responsibility for selec tion of the product in terms of repertoire, quantity, physical type
(LP or Single), and in pricing. 210
Sales volume of rack jobbers broken down by classes of customers for selected years, 1961 and 1964.
Data in Table 39 show sales volume of rack jobbers broken down by classes of customers for two years, 1961 and 1964. Analysis of these statistics indicates some definite shifts taking place in the relative importance to rack jobbers of the various classes of retail outlets serviced. Supermarkets and drugstores as outlets for racked records have declined substantially over this three year period. For example, in 1961, 42.6 per cent of rack jobbers' sales were made in supermarkets and 21.3 per cent of their sales were done in drugstores. In contrast, in 1964 supermarkets and drugstores ac counted for only 9.5 per cent and 9.6 per cent respectively of rack jobbers' total sales. The biggest gains in racked records since
1961 have been posted by discount department stores which in 1964 accounted for 29.1 per cent of total rack jobbers' business and by department stores which have nearly doubled their share of rack job bers' sales in this three year period. Variety stores have retained a relatively constant share of the market during the period 1961-
1964. This shifting in the relative importance of the various classes of customers stems from a trend in recent years by rack jobbers to consolidate their number of rack locations, culling out the less prof itable locations. 211
TABLE 39
SALES VOLUME OF RACK JOBBERS BROKEN DOWN BY CLASSES OF CUSTOMERS FOR SELECTED YEARS 1961, 1964&
Per Cent of Total Dollar Sales Volume Class of Customers 1961^ 1964°
Discount Department Stores .0 2 9.1 Variety Stores 25.7 27.4 Supermarkets 42.6 9.5 Department Stores 7 .2 13.8 Drug Stores 21.3 9.6 Service PX's 1 .5 2 .5 Miscellaneous 1.7 7 .9
T o ta l 100.0 100.0
^he data in Table 39 are restricted to a survey of only rack jobbers who are members of The National Association of Rec ord Merchandisers. This trade association membership represents, however, the majority of this type of middlemen. S o u rces: ^1962 NARM Study, National Association of Record Merchan disers, Inc., Philadelphia, Penna.
^1964 NARM Study, National Association of Record Merchan disers, Inc., Philadelphia, Penna.
Net profit patterns for rack jobbers in 1964
Net profit patterns for rack jobbers in 1964 are as follows:
Per Cent of Profit Number of Firms Per Cent of Firms To Sales Reporting Profits Reporting Profits
Under 2 11 16.9 2 - 4 25 42.3 5 - 8 18 30.6 Over 8 6 10.2
T o ta l 65 100.0
V 212
Approximately 73 per cent of the firms report profits falling within the range of 2 per cent to 8 per cent. Only 10 per cent of rack jobbers indicate profits in excess of 8 per cent of sales.
Comparison of profit data for rack jobbers with profit patterns of distributors shows no significant differences except for a somewhat higher proportion of distributors reporting net profits over 8 per c e n t.
Buying and Inventory Control Policies And P r a c tic e s o f Rack Jo b b ers
Rack jobbers merchandise the product at both wholesale and retail. As a result, the buying function demands considerable man agement effort. Demand analysis, selection of sources of supply, methods of purchasing, and the maintenance of adequate balance of stocks and sales through inventory control techniques are the vital sub-functions of buying examined below.
Rack jobbers were asked to list in their relative order of importance the number one, two, and three sources of information utilized in determining consumer demand. Some conclusions can be drawn from their replies, which are shown in Table M-0. Approximately
54 per cent of rack jobbers felt that their own internal sales rec ords were the best source of information on consumer demand. Other methods employed were reports of salesmen, distributors, promotion men, pop charts of trade papers, and local radio charts. TABLE 40
PRIMARY SOURCES OF INFORMATION ON CONSUMER PRODUCT DEMAND UTILIZED BY RACK JOBBERS
Number of Firms Listing Sources As Per Cent of Firms Listing Sources As Sources of Information Number One Number Two Number Three Number One Number Two Number Three
Own internal sales 35 6 8 53.8 10.5 1 5.6 re c o rd s
Reports of salesmen, distributors, and prom otion men 11 24 15 1 6.9 42.3 29.5
Pop charts of such trade papers as Billboard and Cash Box 10 18 19 15.5 31.5 35.3
Local radio charts 9 7 9 1 3 .8 12 .2 17.6
O thers 0 2 1 0 3.5 2.0
T o ta l 65 57 52 100.0 100.0 100.0
Source: Rack Jobbers Survey.
r o Hw 214
Rack jobbers use a variety of techniques in acquiring their products as the following data indicate:
Number of Firms Per Cent of Firms Methods of Purchasing Utilizing These Utilizing These U tiliz e d Methods Methods®
Vendor's salesman calling on rack jobber's place of business 30 4 6 .1
Via telephone 27 41.5
V ia m ail 10 15.3
Rack jobber personally visiting manufacturer's place of business 6.1
All of these methods u til iz e d 24 37.0
&Data does not add up to 100 per cent as firms reported use of more than one method.
The most common methods are buying from vendor's salesman who calls on the rack jobber's place of business, and via telephone ordering.
Approximately 46 per cent and 42 per cent of the firms respectively reported these methods were the most commonly employed. Over a third of the firms indicated that they use all four methods listed above
in the acquisition of goods. These statistics indicate that most rack jobbers use more than one method in procuring goods.
The degree of utilization of formal inventory control systems by rack jobbers and the types of systems employed are shown as fol
low s; 215
Employment of Inventory Number of Firms Per Cent of Firms Control Practices Reporting Reporting
Periodic physical count system 31 47.6 Perpetual inventory control system 20 30.6 Other systems 1 1.4 No formal inventory control system 13 20.4
T o ta l 65 100.0
Almost four out of five rack jobbers employ some type of formal in ventory control system. As in the case of the distributor, the periodic count system is more popular than the perpetual inventory system with rack jobbers. Of the firms reporting utilization of a formal control system, 60.7 per cent of the rack jobbers used the periodic count system and 39.3 per cent employed the perpetual con trol method. The importance to the rack jobber of employing an ade quate inventory control system is based on the need of this type of marketing institution to properly balance stocks against sales. As a group, rack jobbers tend to handle "hit" records primarily and thus the need for a close control over inventory is accentuated because of the short lived demand for a particular label.
Selling Policies and Practices of Rack Jobbers
Expenditures for advertising and sales promotion, methods of promotion, and practices dealing with the servicing of racks on loca tion are among the facets of the selling function examined in this section of the chapter. 216
Expenditures for advertising and sales promotion expressed as a per cent of sales are shown as follows:
Number of Firms Per Cent of Firms E x p e n d itu re s As A R ep o rtin g R ep o rtin g Per Cent of Sales Expenditures Expenditures
None 4 7 .0 Less than 2 15 26.3 2 - 4 30 52.6 5 - 8 5 8.7 More th a n 8 3 5 .4
T o ta l 57 100.0
These statistics indicate that a little more than half of these wholesalers spend between 2 per cent and 4 per cent of sales for promotional purposes. One-third of the firms report that they spend less than 2 per cent for advertising and sales promotion. Compared with distributors, fewer rack jobbers spend as much as 5 per cent or more in promoting records.
Rack jobbers were asked to list in their order of relative importance the different methods employed in selling their product.
The results of their answers, which are listed in Table 41, reveal little agreement among racks as to the best method, second best or even third best method. For example, these firms were almost equally divided in their opinions as to the number one method, with 21.5 per cent listing newspapers as first choice; 23 per cent indicating radio as best; 24.6 per cent expressing their opinion that point of sale aids produce the most; and 20 per cent favoring personal selling by salesmen. Similar divergence of opinion among rack jobbers as to the number two and number three methods can be seen from these data. 217
TABLE 41
RELATIVE IMPORTANCE PLACED ON VARIOUS SELLING AND ADVERTISING METHODS BY RACK JOBBERS
Per Cent of Sixty Rack Jobbers Selling and Advertising Listing Method As Methods Number One Number Two Number Three
Newspapers 21.5 25.0 2 3.8 Shoppers Guide 0 .4 2.0 4 .7 Radio 23.0 14.5 19.0 T e le v is io n 3 .0 16.6 4 .8 Point of Sale Aids 24.6 27.0 2 6 .4 Personal Selling by Salesm an 20.0 8.3 19.0 Trade Magazines 1.5 4 .4 . .0 O ther 6 .0 2.2 2.3
Total 100.0 100.0 100.0
Source: Rack Jobbers Survey
Rack jobbers were asked if the selling and advertising methods listed in Table 41 have changed in their relative importance during the past ten years. Nearly three-fourths of the firms (72.5 per cent) indicate no change in relative importance has taken place dur ing the period since 1955. Most of the 27 per cent of the firms who do feel that some change in the relative importance of these methods had taken place had difficulty expressing what these changes were.
No clear cut patterns of changes were discernible from their answers. 218
The methods by which racks on location are serviced are shown below:
Methods Used to Number of Firms Per Cent of Firms Service Racks Using Methods Using Methods^
Route men 37 56.9 Mail 9 13.8 T elephone 4 6 .1 Combination of above three methods 21 32.3 Other 2 3.0
&Data do not total 100 per cent as some firms reported use of more than one method.
These data show that the most prevalent method used to service racks on location is route men. Approximately one-third of rack jobbers report that a combinatiaiof route men, mail, and telephone is u ti lized in servicing racks on location. Logic would support the reasoning that mail and telephone would be used primarily for rapid reorders, special requests, and to reach small accounts which are not economical to service by route men.
One policy decision confronting all rack jobbers is the ques tion of how often to service individual rack locations. In arriving at an answer, the firm must weigh costs of servicing against the needs of the marketing situation, including such factors as turnover 219 rate and sales volume potential. The frequency intervals employed by rack jobbers can be seen from the following data:
Number of Firms Per Cent of Firms Utilizing Each Utilizing Each Frequency Intervals Interval Interval^®
More than once a week 5 7.6 Once a week 39 60.0 Twice a month 17 26.3 Once a month or less often 4 6.1
T o ta l 65 100.0
The most common frequency interval utilized is once a week with some
60 per cent of firms reporting this policy. Approximately one fourth of the rack jobbers follow a policy of servicing rack locations twice a month (presumably at two-week intervals).
The Relative Position of The Rack Jobbers in The Current Market
As a marketing institution in the channel of distribution, rack jobbers are the fastest growing segment in the phonograph rec ords industry. The rise of this class of middlemen to their present relative position of inportance in marketing has been phenomenal.
In 1955, about 5 per cent of dollar record volume in the United States was handled by rack jobbers. In 1964, or ten years later, rack job bers accounted for 35 per cent of all sales of records at retail.
The steady rate of growth in volume of record sales handled is shown
in Table 37. Empirical data developed in this study indicate that
rack jobbers as a type of middleman are the largest wholesale
16 Approximately 15 per cent of these firms reported that the intervals varied with different locations and accounts. 220 marketing institutions in terms of dollar sales volume and scope of marketing operations in the trade channel. As a marketing institu tion distributing phonograph records, the rack jobber performs the
following functions for his customers, the retailers:
a) Plans and anticipates their merchandise needs. As a merchandising specialist the rack jobber has a knowledge of market demand for various types of records and those enjoying current popu
larity among various types of market segments.
b) Assembles goods from many sources of supply.
d) Buys in large quantities which results in lower prices
and reduced transportation costs.
d) Renders financial help through the extension of trade
c r e d i t .
e) Provides a variety of merchandising services. Among these
are the responsibility for stock rotation, price marking of goods,
assistance in arranging stock, the wrapping of the product in a
plastic film enclosure and the installation of special merchandise
fixtures and displays, T_7 f) Provides storage and prompt delivery service.
For the manufacturer, the rack jobber performs a variety of functions:
a) Sells for the manufacturer by servicing a class of his
customers, the retailers. Many of the types of retailers serviced
^^Theodore N. Beckman, "The Rack Jobber: A Phenomenon In American Wholesaling", A paper read before the 1964 Convention of the National Association of Record Merchandisers, Miami, Florida, April 20, 1964. Also, an unpublished memorandum, Theodore N. Beckman and Alton F. Doody, "The Rack Jobber In The Phonograph Rec ord Industry," dated March 10, 1964, 221 by rack jobbers buy in such small quantities and require so much merchandising assistance that it would not be feasible for a manu facturer to service such a retail account.
b) Cultivates the market intensively by regularly calling on and servicing many retail accounts in a given area,
c) Provides the manufacturer or distributor with advice on marketing opportunities in a given market area.
d) Reduces the manufacturer's costs of physical distribution.
Because the rack jobber buys in large quantities, selling costs for the manufacturer can be reduced, and transportation economies are effected through larger individual shipments to rack jobbers. Also, to the extent that they warehouse the produce in large quantities, rack jobbers reduce manufacturers' storage costs in their assumption of this function.
e) Simplifies credit and accounting problems. Rack jobbers represent fewer accounts and typically less risky ones than retail accounts from the manufacturer's viewpoint.
f) Provides a product service for retailers. Because of the nature of records and the fact that records represent only a small portion of dollar volume of the store, many firms such as drug stores, variety stores, and supermarkets would not be able to successfully handle the record line if it were not for the services of the rack 18 jo b b e r.
While the foregoing does not represent all of the functions performed by rack jobbers either for the retailer or the manufacturer
IGlbid. 222 it serves to illustrate the basic reason for the significant growth of the rack jobbers in the record industry.. This type of middleman has grown in importance because he is providing requisite marketing functions in a free market environment and apparently is performing them more efficiently for his customers (retailers) and for his sup pliers (manufacturers and distributors) than either group can do for themselves. Thus in the 1965 market rack jobbers handled between 35 per cent and 40 per cent of total record volume at retail. The relative share of records marketed through rack jobbers should con tinue to increase in the future as this type of marketing institu tion continues to assume greater importance in the distribution of phonograph records,
ONE STOPS
The original role of the one stops was that of a sub-distrib utor selling records of many different labels to juke box operators.
As merchant middlemen, one stops bought records from distributors outright, taking title to them and reselling to any business buyer who wished to purchase goods. Gradually small retailers, because of the convenience in buying offered by one stops, began to patronize this class of wholesaler. While most of these wholesalers are in dependent businesses, a substantial number of one stops are operated by distributors and rack jobbers. For example, 28,5 per cent of the firms reporting indicated that they were owned and operated by a dis tributor,^^
^^One stops were surveyed via a questionnaire in July, 1965, by the author as part of the dissertation research effort. Unless otherwise specified, all data on one stops are based on the results of this survey. The methodology employed and a copy of the ques tionnaire can be seen in Appendix A, 223
The following statistics show that one stops have appeared
on the marketing scene in this industry since 1950 and did not really become significant in terms of numbers until after 1955;
Time Period in Operation Number of Firms Per Cent of Firms
Less than 3 years 12 21,5 3-5 years 10 17.8 6-10 years 18 32,2 11 - 15 years 11 19.6 Over 15 years 5 8.9
Total 56 100.0
Only 8.9 per cent of these firms reported being in operation prior
to 1950. Approximately 72 per cent of one stops have been in busi ness ten years or less. Almost 40 per cent of this class of middle men have been organized within the last five years. Compared to
distributors, one stops are relative newcomers in the distribution
of records.
Size and Scope of One Stops' Operations
The three facets of one stops' operations examined in the
following paragraphs w ill provide an insight into this type of mer
chant middlemen. They include size of firm based on sales volume,
the degree of forward vertical integration by this institution and
the scope of the geographical marketing area covered. In terms of
annual dollar sales volume, one stops typically are smaller firms
than either rack jobbers or distributors. Comparisons of sales data
for these three classes of wholesalers indicate that 87.6 per cent
of one stops report sales of less than one million dollars annually 224
compared to 63,4 per cent of distributors and 55,6 per cent of rack
jobbers,20 The relatively small size of the one stops as a grou is
indicated by the fact that 52,6 per cent of this type of wholesaler
do less than $500,000 annually. Only 12,4 per cent of these firms
have sales volumes in excess of one million dollars annually,
TABLE 42
ONE STOPS CLASSIFIED BY DOLLAR VOLUME IN 1964
Number of Firms Per Cent of Firms Reporting Dollar Reporting Dollar D o lla r Volume Volume Volume
Less than $100,000 8 14,3 100,001 - 250,000 11 1 9 ,8 250,001 - 500,000 16 28,5 500,001 - 1,000,000 14 25,0 1,000,001 - 2,000,000 5 8,9 Over $2,000,000 2 3 ,5
T o ta l 56 100,0
Source; One Stops Survey,
Compared with the other wholesaling institutions in the chan nel of distribution, one stops have not engaged as much in forward vertical integration. Only 13,4 per cent of one stops operate leased
departments in retail stores. In contrast, twice as many distributors
and rack jobbers have engaged in some type of forward integration.
The most common type of arrangement for leased operations by
one stops in retail stores is a per cent of sales arrangement with
2®These generalizations are based on comparisons of data in Tables 30, 38 and 42, 225
86 per cent of the one stops reporting this method as the one uti lized. The other method employed by Ih per cent of these firms is a dollar rent guarantee for the year.
As the following data show, one stops market over a wide geo graphical area:
Number of Firms Per Cent of Firms Scope of Geographical Operating Over Operating Over Market Area Area Area
One c i t y o r m e tro p o lita n area. 7 12.5 More than one metropolitan area, but less than an e n t i r e s t a t e . 16 28.6 A one-to-four state area. 23 41.0 Five or more state area. 10 17.9
T o ta l 56 100.0
Nearly six out of ten one stops' geographical market area comprise one or more states. Almost 18 per cent of these firms re port that their marketing operations extend to five or more states.
Sales volume of one stops in 1964 broken down by c la s s e s of customers
Historically the juke box operator represented the prime class of customer for the one stop, but currently he constitutes only one of the various classes of customers purchasing from this wholesaler. 226
This is shown by the following data:
Per Cent of Total Dollar Sales Volume Each i Classes of Customers Accounted : o f One S tops 1964
Discount Department Stores 11,2 Variety Stores 9 .3 Department Stores 6 ,4 Retail Records Stores 34,9 Juke Box Operators 31,3 O thers 6,9
T o ta l 100,0
Retail specialty stores and juke box operators represent the most significant classes of customers to one stops and together account for about two-thirds of the one stops' sales volume.
Net profit patterns for one stops in 1964
Net profit patterns for one stops in 1964 are shown below:
Cent of Profit Number of Firms Per Cent of Firms To S a le s Reporting Profits Reporting Profits
Under 2 11 2 1 ,1 2 - 4 22 4 2,3 5 - 8 14 26,9 Over 8 5 9 ,7
T o ta l 52 100.0
Expressed as a per cent of sales, net profits for this type of wholesaler typically ranged between 2 per cent to 8 per cent with nearly 70 per cent of these firms reporting that their profits in
1964 fell into this range. This type of profit achievement is com parable to that of the other types of middlemen in this industry. 227
For example, 73 per cent of rack jobbers and 65 per cent of dis tributors' profits range between 2 per cent eind 8 per cent in the same year. From comparisons between profit data of the three types of wholesalers it can be concluded that rates of profitability are essentially comparable with one exception. A greater proportion of distributors report profits in excess of S per cent than do rack jobbers and one stops. Approximately 10 per cent of one stops com pared to 18 per cent of distributors indicate profits in excess of
8 per cent.
Buying and Inventory Control Policies And P r a c tic e s o f One S to p s
One stops must develop adequate sources of information on product demand not only as a basis for their own purchasing but also to be able to advise their customers, the small retailers and juke box operators, as to demand trends. One stops carry a wide variety of labels which necessitates adequate buying policies and control of inventories. Each of these three facets of the buying function w ill be examined briefly.
The primary sources of information on consumer product demand utilized by one stops are shown in Table 4^3. Approximately 75 per cent of these sub-distributors indicate that they rely either on their own internal sales records or pop charts of trade papers as their number one source of information on product demand. Statistics in Table 43 reveal diverse opinions as to the second best source of information with pop charts of trade papers; reports of salesmen, promotion men, and distributors; and local radio station charts being utilized primarily. The importance placed by marketers on their own TABLE 43
PRIMARY SOURCES OF INFORMATION ON CONSUMER PRODUCT DEMAND UTILIZED BY ONE STOPS
Number of Firms Listing Source As Per Cent of Firms Listing Source As Source of Information Number One Number Two Number Three Number One Number Two Number Three
Own internal sales re c o rd s 24 6 7 42.8 12.0 17.0
Reports of salesmen, promotion men, and distributors 5 12 7 8.9 24.0 17.0
Pop charts of trade papers such as B ill board or Cash Box 18 17 8 32 .4 34.0 17.7
Local radio station c h a r ts 8 11 18 14 .4 22.0 43.9
O th ers 1 4 1 1 .5 8.0 2 .4
T o ta l 56 50 41 100.0 100.0 100.0
Source: One Stops Survey.
to ro CO 229 sales records as a source of information on demand is reflected by the fact that this source ranks as number one with all three middle men in t h i s in d u s tr y .
The most common methods employed by one stops in purchasing records are as follow:
Number of Firms Per Cent of Firms Methods of Purchasing Utilizing These U tilizing These U tiliz e d Methods M ethods^
From Vendors’ salesmen at one stop's place of b u s in e s s 31 55.3 Via telephone 36 64.2 V ia m a il 14 25.0 Personally visiting the vendor's place of b u s in e s s 4 7 .1 All of the above methods a re used 17 30.3
^Data in this column add up to more than 100 per cent because many firms reported using two or more methods.
Nearly two-thirds of the firms report buying by telephone and 55.3 per cent indicate buying from vendors' salesmen. Nearly one-third of these sub-distributors indicate they employ all four methods listed above in the acquisition of goods. Comparisons of data re veal a high degree of sim ilarity between the buying practices of rack jobbers and one stops with both listing purchasing from vendors' salesman, and via telephone as the most commonly employed methods.
Very few of either rack jobbers or one stops personally visit the vendor's place of business in performing the buying function. 230
The employment of inventory policies and practices among one stops in 1965 is shown below:
Employment of Inventory Number of Firms Per Cent of Firms Control Methods Reporting Reporting
Periodic physical count system s 25 4 3,9 Perpetual inventory control system 12 21.1 Other systems 2 3.5 No formal inventory control system 17 31.5
T o ta l 56 100.0
These data indicate that approximately two out of three one stops use some type of formal inventory control system to maintain a balance between stocks and sales. One out of every three one stops did not have any formal method of inventory control as compared to only 15.6 per cent of distributors and 21.5 per cent of rack jobbers.
The smaller number of one stop firms maintaining formal systems of inventory control may be explained by the fact that the typical one stop is a smaller firm than the typical distributor or rack jobber.
As is the case with both of the other two middlemen, the periodic count system is more commonly employed by one stops. Of the one stops utilizing a formal system of control, approximately 69 per cent employ the periodic count and 31 per cent use the perpetual con trol method.
Selling and Pricing Policies of One Stops
In the performance of the selling function marketers employ various facilitating tools to supplement their personal and non personal selling efforts. Among such tools to be reviewed in this 231 section are credit terms granted to buyers and return goods privi leges extended. Price can also be employed as a positive factor in the marketing mix and w ill therefore be treated under the general scope of the selling function. The employment of advertising and sales promotion methods by one stops w ill be examined first.
As a group, one stops spend less of their sales dollar on ad vertising and sales promotion than any other class of wholesaler in this industry. Expenditures of one stops in 1964 are as follow:
Number of Firms Per Cent of Firms Expenditures As A Reporting Reporting Per Cent of Sales Expenditures Expenditures
None 8 15,3 1 or less 20 40,8 2-3 14 28,5 4 - 5 6 12,4 Over 5 2 4,0
Total 50 100,0
Approximately 57 per cent of one stops spend one per cent or less of sales for promotional purposes. Nearly 41 per cent of the firms report that the amount spent for promotional purposes ranged between
2 per cent and 5 per cent. From comparisons of promotional expendi tures with those of rack jobbers and distributors, it can be con cluded that one stops, as a group, are not as promotional minded as the other two classes of wholesalers or by the nature of their opera tions do not heed to spend as much relatively in promotion.
One stops were asked to list in their order of relative im portance the different methods employed in selling their products.
From the data in Table 44 it can be concluded that there is considerable 232 diversity of opinion among one stops regarding the most efficacious method of selling their product. Personal selling by company sales man, radio, and direct mail are most commonly mentioned as the num ber one method,
TABLE 44
RELATIVE IMPORTANCE PLACED ON VARIOUS SELLING AND ADVERTISING METHODS BY ONE STOPS
P e r Cent o f F ifty -F iv e One S tops Selling and Advertising Methods Number One Number Two Number Three
Trade magazines or p ap ers 10,7 8,6 3 0 ,5 Point of sale aids for retail dealers 5,2 10,8 16,6 Personal selling by company salesmen 35,7 28,2 16,7 Direct mail solicita tion of customers 23.2 36,9 8 ,4 Radio 23,2 8,6 8,4 Newspapers 2,0 6,5 8 .4 O thers 0 ,0 0 ,4 11.0
T o ta l 100,0 100,0 100,0
S ource: One S tops Survey
V/hen asked about whether any significant changes had occurred in the prime selling and advertising methods listed in Table 44 over the last ten years, approximately 76 per cent of one stops indicated none had occurred.
Of the group of one stops who believe some change in impor tance has taken place (23,6 per cent), no clear cut patterns of change were evident from their answers. Thus in all three classes of middlemen 233 in this industry, approximately three-fourths of the firms believe that no basic change in the relative value of the commonly employed selling and advertising techniques has taken place. Nor is there any clear cut pattern of opinions on changes in relative importance of these common promotional methods evident in the minority firm s' an sw ers,
The relative use of quantity discounts, credit terms, and return goods p o li c ie s
The use of quantity discounts as a pricing tool is not wide spread among one stops and only 17.8 per cent of the firms report this practice as a company policy. Of those firms having such a policy, no meaningful frequency distribution table of discounts could be compiled since the actual terms granted to buyers were so diverse.
The practice of giving free goods is even less extensive among one stops as the following data show:
Per Cent of Fifty-Five One Stops' Practices on Different Classes Practices Relating to ______o f R ecords Giving of Free Goods Singles LP^s
Give free goods 14.2 3.6 Do not give free goods 85.8 96.4
Total 100.0 100.0
Thus, the practice of giving quantity discounts in any form is less prevalent among one stops than it is among distributors.
The practice of granting some type of credit terms to vendees is common among one stops with nearly three-fourths of the firms 234
(71,4 per cent) indicating the extension of credit as their policy.
Approximately 29 per cent of one stops sell for cash only. The types of credit terms extended and the relative utilization of each are shown by the following data:
Number of Firms Per Cent of Firms Types of Credit Terms Extending Type Extending Type E xtended o f C re d it o f C re d it
30 “ 50 — 90 days 4 10,0 30-60 days 2 5,0 N et 30 22 55,0 10 days E,0,M, 9 22,5 O th ers 3 7,5
T o ta l 40 100,0
The most common types of credit terms given by one stops are: net 30; 10 days E 0 M; and 30 - 60 - 90 days. Compared with distributors, not as many one stops grant credit, and fewer one stops extend as long a period of time for payment of the invoice as do distributors. For example, only 10 per cent of one stops grant 30 -
60 - 90 days terms while 36 per cent of distributors give such terms.
The policy of allowing returns is widespread among one stops.
Almost four out of five firms (78 per cent) report that they allow goods to be returned, under certain conditions. Approximately 21 per cent of one stops allowing goods to be returned are simply pass ing on the manufacturer's return guarantee; thus the return policy in such cases does not really represent a return goods policy orig inating with this class of wholesalers, While there are a variety of return policies employed by one stops, the three most commonly utilized are:
(a) 100 per cent exchange allowed 235
(b) 100 per cent return allowed
(c) 100 per cent return allowed within a stipulated period
o f tim e .
The degree of utilization of the different types of merchandise return policies granted by one stops is as follows:
Types of Return Number of Firms Per Cent of Firms Policies Utilizing Policy Utilizing Policy
100 per cent exchange 13 37.4- 100 per cent return 8 22.8 100 per cent return with in a stipulated time period, e.g., 30 days 5 14,2 10 per cent return within a stipulated time period, e.g., 60 days 4 11.4 Others 5 14.2
Total 35 100.0
The above statistics are further evidence of the predominance of a more generous return policy in the phonograph records industry than exists in many product lines. Such policies of allowing returns by one stops is necessary to induce retailers to stock new records in adequate amounts and is further evidence of the high obsolescence factor existent in records.
The Relative Position of One Stops in The Current Market
While the one stops are the smallest and least significant (in terms of dollar volume) of the merchant middlemen in the phonograph records industry, they provide useful functions in the distribution
of records. The most important functions of the one stops are in the
servicing of the juke box segment of the industry and in their role
as a source of supply for the small and medium size record store whose 236
operations are not racked. For both of these classes of customers,
one stops perform a vital service of assembly of labels from many
producers thereby enabling these two classes of customers to perform
their own buying functions with a great deal more ease and savings
in time and effort. As merchant middlemen, one stops perform most
of the basic marketing functions such as buying, selling, storage,
extension of credit, risk bearing, and provision of market informa
tion, That one stops, as a class of middlemen, are performing vital marketing functions in a free competitive market environment is at
tested to by their growth over the last fifteen years. Prior to
1950 this class of middlemen did not exist in sufficient numbers to
be a factor in the distribution of records. By 1963 approximately
24 per cent of all dollar sales volume was flowing through this 21 group of wholesalers. Under present market conditions, one stops
will continue to be vital institutions in the channel of distribu
tion, although it is not likely that this group of middlemen will
enjoy the same potential growth rate in the future as w ill the rack
jo b b e rs .
^^ee Figure 7 in Chapter V, CHAPTER V III
THE MARKETING OF PHONOGRAPH RECORDS THROUGH RETAIL OUTLETS
At the retail level of the trade channel phonograph records are marketed through four basic types of institutions to ultimate consumers. These are conventional retail specialty stores or record departments within multi-departmentized operations, racks located in retail outlets, juke boxes, and record clubs and mail order operations.
Prior to the late 1940's records were marketed at retail pri marily through record specialty stores, which concentrate their primary merchandising energies on phonograph records and typically stock a wide variety of repertoire. The bulk of the specialty store's sales volume is derived from the sale of records. While the majority of records marketed at retail prior to 1950 flowed through specialty shops, records were also sold in this period through record depart ments in multi-departmentized stores such as department stores, vari ety stores, music stores, sind appliance stores. Commonly, the record department in the multi-departmentized stores was operated as a sepa rate department on a profit center basis. These record departments in the larger stores were merchandised pretty much along the lines of a specialty store with both classes of institutions buying from dis tributors and sharing common market problems. The other class of in stitution existent in the pre-1950 market was the juke box operator
237 238 who "marketed" his records from the juke boxes generally located in taverns, public transportation terminals, restaurants and numerous other public locations. Thus, in 1948 about 75 per cent of records sold at retail moved through the specialty shop or record department in the multi-departmentized store to ultimate consumers and the re
1 maining 25 per cent of records at retail were consumed via juke boxes.
With the emergence of the rack jobber in the 1950’s and the initiation of the record club in 1955 by Columbia Records Corpora tion, distribution patterns at retail underwent a metamorphosis.
Mass merchandising institutions at retail such as the supermarket, large chain drug stores, and discount department stores were recep tive to offers of the rack jobbers to merchandise records from self- service racks placed in their stores. By the late 1950's, records were being marketed on a self-service basis from racks located in supermarkets, variety stores, drug stores, and discount stores of various type:. . These racks were merchandised for the most part by rack jobbers and this "new" method of distribution at retail for the phonograph record met with considerable success, as the growth of 2 rack jobbers' sales testifies. Distribution patterns at retail were further altered when major manufacturers began in 1955 to mar ket records directly to consumers via record clubs organized along the lines of successful book clubs. Mail order selling to consumers by record producers was also undertaken during this same period and both of these marketing efforts met with considerable success. By
^See Figure 3, Chapter V.
^See Table 37, Chapter VII. 239
1961, about 17 per cent of records sold at retail were marketed through clubs and mail order.
Data in Table 45 show sales patterns of phonograph records at retail for the five-year period 1960-1964, These statistics in dicate that by 1954 approximately 35 per cent of the records were marketed at retail through racks. Conventional stores, however, with a little over 46 per cent of the total volume, still account for the largest volume of record sales at retail. Sales through juke boxes have remained at a relatively constant 5 per cent to 6 per cent of total retail volume. Clubs and mail order sales held about 13 per cent of the market in 1964, The market share accounted for by clubs and mail order has been declining since 1961, From the data in Table 45 it can be concluded that an increasing share of records at retail is being marketed through racks, mainly at the ex pense of the conventional retail stores. As is the case with many products, more and more records have been sold on a self-service basis to the consumer during the past ten years.
Unit sales patterns of phonograph records for the year 1957 and the four-year period 1961-1964 are shown in Table 46, Analysis of the statistics in Table 46 reveals essentially the same trends as in Table 45, Actual figures and per cents in the two tables vary because of the differences in the monetary values of Singles and
LP's and the fact that racks and juke boxes handle a greater propor tion of Singles than do stores and record clubs. The sale of phono graph records at retail via racks was treated in Chapter VII in the discussion of rack jobbers. Sales at retail of records to ultimate
consumers by manufacturers via record clubs and mail order operations TABLE 45
DOLLAR SALES OF PHONOGRAPH RECORDS AT RETAIL AND PER CENT OF TOTAL RECORD DOLLAR SALES AT RETAIL BY TYPE OF INSTITUTION, 1960-1964
Dollar Sales Per Cent of (in millions of $) Total Sales Type of Institution 19603 196lb 1962° 1963° 1964^ 1960 1961 1962 1963 1964
S to re s 347 305 319 307 321 66.4 52.0 4 9.0 4 6.7 46.3 Racks 94 147 197 214 242 18.0 25.0 30.3 3 2 .5 34.9 Ju k e Boxes 31 35 35 42 38 6.0 6 .0 5 .4 6 .4 5 .5 Club and Mail Order 50 100 100 95 92 9 .6 17.0 15.3 14 .4 13.3
Total Industry 523 587 651 658 693 100.0 100.0 100.0 100.0 100.0
S ources ;
^C ottrell,_o£„ c it. p. 114.
^1962-1963 Buyers Guide and Market Data Report, New York: Billboard Publishing Co., 1962.
^1964-1965 International Music-Record Directory and Buyers Guide, New York: Billboard Publishing C o ., 1964.
*^1965-1966 International Music-Record Directory and Buyers Guide, New York: Billboard Publishing C o ., 1965. K) O-P TABLE 46
UNIT SALES OF PHONOGRAPH RECORDS AT RETAIL AND PER CENT OF TOTAL RECORD UNIT SALES AT RETAIL BY TYPE OF INSTITUTION, 1957, 1961-1964
Unit Sales Per Cent of (in millions) Total Sales Type of Institution 1957& 1961^ 1962^ 1963C 1964^ 1957 1961 1962 1963 1964
S to re s 145 160 171 164 170 56.4 4 5 .1 42.7 40.3 40.4 Racks 40 100 136 143 159 15.6 28.2 33.9 35.0 37.8 Juke Boxes 60 50 49 60 54 23.3 14 .1 12.2 14.7 12.8 Clubs and Mail Order 12 45 45 41 38 4 .7 12.6 11 .2 10.0 9 .0
T o ta l 257 355 401 408 421 100.0 100.0 100.0 100.0 100.0
S o u rces :
^1961-62 Buyers Guide and Market Data, New York: Billboard Publishing Co., 1961.
^1962-63 Buyers Guide and Market Data, New York: Billboard Publishing Co., 1962.
^1964-65 International Music-Record Directory and Buyers Guide, New York: Billboard Publishing C o ., 1964.
^1965-66 International Music-Record Directory and Buyers Guide, New York: Billboard Publishing C o ., 1965. to H*-P 242 were covered in discussions of manufacturers' operations in Chapter
V, Juke box sales w ill be treated in Chapter IX.
The focus of Chapter VIII is primarily on the marketing of records through conventional specialty stores and record departments in multi-departmentized stores which are not racked operations.
These two types of comparable retail outlets, the specialty store and record department, generally operate in the same way, and share the sêime basic merchandising philosophies and policies. For all practical purposes they are identical marketing institutions and are treated as such in the subsequent discussions in this chapter under the terminology, retail outlet. Statistics developed from the sur vey of retailers by this study (via questionnaires) are predicated on both of these basic types of retail outlets. While the size of the sample from the retail segment of the industry was relatively small
(approximately 2 per cent), it was felt that valid generalizations could be drawn from the data because of the nature of the sample. The technique employed was a stratified random sample with stratification predicated on geographical location and dollar sales volume size categories. This sampling procedure utilized is the same one Record
Market Research Corporation employs in its sampling for determining the top ten and top one hundred lists of best selling records. For more detail on this methodology, the reader is referred to Appendix
A. 243
The following show the responses to the retail questionnaire utilized in this study from various types of retail outlets selling 3 records on a non-racked basis;
Basic Type of Store Predicated Per Cent of on What C o n s titu te s The Ma- One Hundred T h irty jority of The Outlet’s Number of Firms Retail Record Out- Dollar Volume Reporting lets Reporting^
Primarily a Phonograph Record Shop 68 52.3 Music Store 36 27.6 Variety Store 1 0.7 Appliance Store 5 3.8 Discount Department Store 1 0.7 Department Store 11 8.4 Books, Cards, Gifts and Stationery 6 4.6 Hi F i S to re 2 3 .0 Other 10 7.6
&Data add up to slightly more than 100 per cent since several firms claimed to be two types of operation.
Quantitative Analysis of Retail Outlets
There were approximately 7500 retail outlets in 1964 selling records on a non-racked basis in the United States. These range in size from the smallest specialty store to record departments in major chains like Sears, Roebuck and Company. Retail outlets are consider ably more significant to the record industry than their share of total dollar volume indicates, for they constitute for the consumer the pri mary source at retail for breadth and depth of record assortment.
Data are based on a survey of retailers via questionnaire un dertaken as part of this research study. Unless otherwise specified, all data used in this chapter are based on results from this survey. The methodology employed and the questionnaire utilized may be seen in Appendix A. 244
Retail outlets classified by dollar sales volume in 1964
Most retail record outlets are small in terms of dollar vol ume, with 80 per cent of the firms reporting annual sales of less than $100,000. Nearly one out of every four outlets does less than
$50,000 record volume a year. Approximately 15 per cent of the out lets achieved an annual volume of between $100,001 and $500,000.
Only 5 per cent of these firms do more than $500,000 worth of record business yearly.
TABLE 47
RECORD RETAIL OUTLETS CLASSIFIED BY DOLLAR SALES VOLUME, 1964
Number of Firms Per Cent of Firms Dollar Sales Volume Reporting Volume Reporting Volume
Less than $50,000 48 38.4 50,001 - 100,000 52 41 .6 100,001 - 150,000 6 4 .8 150,001 - 200,000 8 6.4 200,001 - 350,000 4 3 .2 350,001 - 500,000 1 0 .8 500,001 - 750,000 1 0 .8 Over $750,001 5 4 .0
T o ta l 125 100.0
Source: Retailers Survey.
Number of years retail outlets have handled records
Most retail outlets have been handling phonograph records for much longer than rack jobbers who merchandise records via racks in stores. This can be seen from the following data: 245
Number of Firms Per Cent of Firms Number of Years Firm Reporting Time Reporting ' Has Handled Records P e rio d P e rio d
Less than 3 years 1 0.6 3 - 5 y e a rs 2 1 .4 6-10 y e a rs 19 14.6 11 - 20 years 58 4 4.8 Over 20 y e a rs 50 3 8 .4
T o ta l 130 100.0
Approximately 83 per cent of retail outlets have been handling rec ords for more than ten years. Four out of every ten firms report stocking records for over twenty years. Less than 3 per cent of these retail outlets have come into the record business during the past five years. Two conclusions can be drawn from the above statis tics. First, the retail outlet is the traditional purveyor of rec ords at retail having marketed the product longer than the racked method of meurketing. Second, it appears that few firms are entering the record business following the conventional or traditional method of marketing used by this type of retail outlet.
Product divers ification by retail outlets in 1965 *
The degree to which retail outlets handle various types of records and tapes is shown by the following: Different Types of Number of Firms Per Cent of Firms Records and Tapes Handling Items Handling Items^ Budget Singles 29 22.3 Regular Price Singles 122 9 3.8 Budget LP’s 90 69.2 Regular Price LP's 127 97.6 Prerecorded Tape--(reel) 59 45.5 Prerecorded Tape—( dartridge ) 15 11.5 Blank Tape—(reel) 100 76.9 Blank Tape—(cartridge) 31 2 3.8
^Data do not add up to 100 per cent as most firms reporting handled a variety of these items. 246
Almost all stores handle regular priced LP's and Singles.
Nearly 70 per cent of the firms report stocking budget LP's but only 22 per cent indicate dealing in budget Singles. More than three-fourths of these retailers offer reel type blank tape for
sale and nearly half handle prerecorded reel tape. The above sta tistics reveal that regular priced LP's and Singles are more popular with retailers than budget LP's or Singles. In particuleir, budget
Singles are not widely stocked. Also, it can be concluded that reel type tape is preferred by retailers to cartridge type tape al though this condition may have changed since this survey was com pleted in July 1965, due to the increasing promotional emphasis and efforts of manufacturers on cartridge type tape and recorders.
Retail outlets are widely diversified in their product line offerings. This can be seen from the following data on product line diversification in 1965:
Number of Firms Per Cent of Firms Handling Each Handling Each Product Lines Product Line Product Line
T able Phonographs 86 6 6.1 Console Phonographs 68 52.3 Portable Phonographs 98 75.3 Tape Recorders 79 60.7 Tape Decks 17 13.0 Hi Fi Components 13 10.0 T r a n s is to r R adios 86 6 6.1 Other Type Radios 64 49.2 Televisions 48 36.9 Record Accessories 114 87.6
Over 50 per cent of the reporting firms indicate that they handle various types of phonograph record players, including consoles, table models, and portables, tape recorders, various types of radio, and 247 record accessories. Approximately 37 per cent of these retailers also handle television sets. Two reasons account for much of this product diversification among retail outlets. One reason is the complementary nature of some of these goods such as record acces sories and record players. Consumers tend to expect to be able to find a given type of product in a particular type of store. The other reason stems from the need of the retail outlets to bolster sagging sales volume in the face of competition from racked record operations. Product diversification offers one possible answer to this problem.
Operating profile of _a typical record specialty store
Record Market Research, Incorporated, in a 1964 study, Record
Retailing Today, drew a profile of the "average” record dealer. In
1964 this average dealer had an inventory investment of $13,745 in records broken down into $12,195 in LP's and $1,550 for Singles.^
His annual inventory turnover rates varied substantially fpr each of his basic record product categories. LP's turned over 4.1 times a year compared to an annual rate for Singles of 13.3, A simplified operating statement, showing the typical record dealer's operating ratios, is presented in Figure 16. Comparisons with ratios for twenty three lines of retail trade as reported in a standard retailing text
4Recordt Retailing Today, New York: Billboard Publishing Co., 1964, p. 37. 248
TYPICAL RECORD DEALER'S OPERATING STATEMENT X year
Per Cent of Item Net Sales
N et S a l e s ...... 100.0 Cost of Goods Sold ...... 61.0 Gross Margin ...... 39.0
E xp en ses: Owner's Compensation ------9 .0 Employee's Wages ------8 . 0 Occupancy Expense ------3 . 5 Advertising ——————————3.0 Depreciation, Fixtures - - - - 1,0 Bad Debt Losses ------0 .1 S u p p lie s ——————————— 1 .5 Inventory Shrinkage ------1.4 All Other Expenses ------6.5
Total Expenses ...... 3 4 .0
Net Profit Before Income T ax e s ...... 5 .0
Figure 16 A Simplified Operating Statement For A Typical Record Dealer (Source: A monograph entitled, Your Future Is Sound, published by Columbia Record Corporation, New York, New York, 1956.) 249 reveal that net profits as a per cent of sales for record dealers were slightly higher than for most other lines of retail trade.^
Net profit patterns for retail outlets in 1964
Net profit patterns for retail outlets in 1964 expressed as a per cent of sales were as follows:
Number of Firms Per Cent of Firms Per Cent of Profit R ep o rtin g R ep o rtin g to S a le s P r o f i t s P r o f i t s
Less than 2 9 7 .8 2 - 4 30 2 6.1 5 - 8 37 3 2.2 Over 8 39 33.9
T o ta l 115 100.0
The above statistics reveal that nearly 60 per cent of the retail firms report profits ranging between 2 per cent and 8 per cent of sales. Approximately 34 per cent of these retailers indicate profits on sales of over 8 per cent. Compared to rack jobbers and one stops, a substantially higher proportion of retailers reported profits in excess of 8 per cent. For example, only 10 per cent of rack jobbers and one stops reported profits of more than 8 per cent. A possible explanation for the higher profit performance by retailers may be the lack of comparability in data reporting. Empirical studies have generally pointed up the fact that a larger proportion of retailers than wholesalers are organized as sole proprietorships or partnerships.
^For comparisons with operating ratios of other lines of re ta il trade the reader is referred to a standard text, Retailing Man agement , 2nd Edition, William R. Davidson and Paul Brown. New York; The Ronald Press Co., 1960, p. 716, 250
Thus in reporting profits, many retailers may have included entre preneurial wages in their profit figures.
Buying and Inventory Control Policies and Practices of Retail Outlets
The performance of the marketing function of buying is one of the major activities of a retailing institution. Because of its relative importance to retail management much time and effort are expended in the performance of this function. It is the purpose of this sub-section to examine two important facets of this marketing activity: one, sources of information on consumer product demand utilized; second,method of buying employed. Also considered under the buying function are retailers’ efforts to balance stocks to sales.
Primary sources of information on consumer product demand u til ized by"retail outlets
The relative utilization by retailers of various sources of information on consumer product demand is shown in Table 48. The sources of information used more by retailers than any others were pop charts of trade papers like Billboard or Cash Box and their own internal sales records. As the statistics in Table 48 show, retailers were- fairly equally divided in their employment of complementary sources on consumer demand among the following: requests from cus tomers, and pop charts of local radio stations.
Methods employed by retail outlets in purchasing records
Retailers employ a variety of methods in the purchasing of records as the following indicates: TABLE 48
SOURCES OF INFORMATION ON DEMAND UTILIZED BY RETAILERS
Number of Firms Listing Per Cent of Firms Listing S o u rces As S o u rces As Number Number Number Number Number Number Sources of Information One Two Three One Two Three
Internal sales records of r e t a i l e r s 33 13 14 25.9 10.6 13.5
Reports of manufacturers, distributors, and one s to p s 10 7 16 7 .9 5 .8 15 .6
Pop charts of trade papers such as Billboard or Cash Box 43 30 20 33.8 24.3 1 9 .4
Pop charts from local radio s t a t i o n 21 30 21 16.5 24.3 20.3
Customer requests 18 43 30 14.3 35.0 2 9.3
O th ers 2 0 2 1 .6 0 ,0 1 .9
T o ta l 127 123 103 100.0 100.0 10 0 .0
Source; Retailers Survey, fW O l H 252
Number of Firms Per Cent of Firms Utilizing Utilizing Methods of Buying Method Method^
From vendors* salesm en who call on retailer at his place of business 70 53.8 Via telephone 56 43.0 Via mail 41 31.5 Retailer personally visit ing vendors' place of business 20 15.3 All of the above methods used 27 20.7
^Data do not add up to 100 per cent as most firms reporting used more than one method of purchasing.
The traditional form of buying from a vendor's sales representative at the retailer's place of business is the most common technique and about 54 per cent of the firms report the use of this method. Buy ing by telephone and by mail are also customary ways retailers ac quire goods. Approximately 43 per cent and 32 per cent of the re tailers respectively indicate much of their goods are bought this way.
Almost 21 per cent of these retail firms reportthat they utilize all four methods listed above in the acquisition of goods.
Inventory control policies and practices of retailers
Since much of the product is "perishable" and many retail out lets handle a wide variety of labels in an attempt to cater to a cross section of market tastes, the inventory control function assumes
an important role in keeping sales and stocks in balance. The degree of utilization of a formal inventory control system and the different types of systems employed by retailers may be seen below; 253
Utilization of Inventory Number of Firms Per Cent of Firms Control Methods Reporting Reporting
Periodic physical count system (e.g. records are counted once a week) 20 15.3 Perpetual inventory control system 67 55.5 Other 3 1.6 No formal inventory control system is utilized 36 27.6
Total 126 100.0
Approximately 72 per cent of retailers have some type of formal inventory control system. Comparison of data on inventory control systems employed by the three classes of wholesalers and those used by retailers reveal some differences. First, a larger number of retail firms than distributors or rack jobbers do not employ any formal inventory control system. For example, 27.6 per cent of retailers compared to 16.6 per cent of distributors and 21.5 per cent of rack jobbers have no formal system. Apparently, size of firm has a relationship to the employment of a formal method of inventory control. Approximately 31 per cent of one stops report no formal system of control is used and one stops, like retailers, are typically substantially smaller firms (in dollar volume) than dis tributors or rack jobbers. Second, are the differences between whole salers and retailers in the relative utilization of the different types of inventory control systems. Among all three classes of whole salers the periodic physical count system is the most widely employed method. Retailers favor the perpetual inventory control system al most four to one over the periodic count method. Thus, of the 254 retailers employing some form of formal inventory control, 74.4 per cent felt the need for daily information on inventory-sales rela ti o n s h i p s .
Selling and Pricing Policies and Practices of Retail Outlets
The traditional retail outlet selling records the conventional way has found itself under increasing pressure from the pricing and selling policies employed by retail stores who rack their records.
In particular these racked operations have followed the policy of commonly discounting records below the manufacturer's suggested sell ing prices. Also, many stores have used records as loss leaders to generate traffic in order to expose consumers to other categories of merchandise. Since 1955 a veiriety of types of retail stores follow ing the policy of scrambled merchandising have added records, usually on a racked basis, to their product offerings. The traditional re ta il record outlet thus has had to re-examine its pricing policies and its promotional policies in an effort to meet changed market con ditions because of competition from the new types of institutions handling records. It w ill be the purpose of this sub-section to ex amine sore of the current selling and pricing policies and practices of the traditional retail outlets.
Retailers' advertising and sales promotion expenditures as ^ percentage of sales
The per cent of sales spent by retailers for advertising and sales pronotic?, in 1964 is shown below: 255
Number of Firms Per Cent of Firms Expenditures As a Reporting Reporting Per Cent of Sales Expenditures Expenditures
None 7 6,3 Less than 2 13 11.8 2-4 52 46.3 5-7 28 25.0 Over 7 12 10.6
Total 112 100.0
These data indicate that approximately 71 per cent of the retail firms spend between 2 per cent and 7 per cent of sales for promo tional expenditures. Approximately 18 per cent of the reporting firms invest less than 2 per cent of sales in their advertising and sales promotion efforts. Compared with rack jobbers, retailers spend a somewhat larger per cent of their sales dollar for promo tional purposes.
Methods of advertising, selling, and sales promotion employed by retailers
Retailers were asked to indicate in the order of relative importance the various methods employed by them in selling their product. Tabulated results of their answers shown in Table 49 re veal little agreement among retailers as to the best methods of pro moting record sales. The prime methods of selling utilized by the retail institutions are; store displays, personal selling by store salesman, newspaper, and radio. Television and direct mail are not employed to any degree by retailers in the promotion of records.
Like manufacturers and wholesalers, the majority of retailers agree that there has been no significant change since 1955 in the relative importance of the selling methods as listed in Table 49. 256
Nearly three out of four retailers (73.5 per cent) express the view that no change in the relative efficiency of these promotional techniques has taken place during the last ten years. No clear cut patterns of changes were discernible from the answers of the 26 per cent of firms who felt that some changes in promotional methods had occurred since 1955.
TABLE 1+9
RELATIVE VALUE OF VARIOUS ADVERTISING, SELLING, AND SALES PROMOTION METHODS IN SELLING RECORDS
P e r Cent o f One Hundred T h irty Advertising, Selling Retail Firms Listing Method As and Promotional Number Number Number Methods One Two T hree
Radio 1 6 .1 14.0 10 .8
T e le v is io n 0 .0 1 .6 1 .0
Newspapers 14.6 10.7 22 .7
Store displays, e.g. counter and window display 25.3 24.5 17 .8
Direct mail 0.7 2 .4 1 .6
Personal selling by store salesm an 16.2 25.6 18 .6
Store’s own record club 3 .8 6 .4 9 .9
Air play on radio by dime jo ckeys 23.0 14.0 16.6
O ther 0.3 0 .8 1 .0
T o ta l 100.0 100.0 100.0
Source: Retailers Survey. 257
Operation of record clubs by retail outlets in 1965
In an effort to combat inroads made on their sales volume by manufacturers * record clubs, some retail outlets have sponsored their own private record clubs. Approximately 27 per cent of retail firms operate their own record clubs, and many other retail outlets have utilized numerous promotional devices of a sim ilar nature such as the giving of a free record with every ten dollars worth of cash register tape denoting record purchases from the store.
The value of packaging as ^ selling device
Manufacturers of records spend large sums of money developing packaging designs and materials for their product. Packaging ef forts by record producers commonly have two objectives. One objective is to provide protection to the record; the other is that of stimulat ing sades through the design, color and other visual aspects of the package. Thus the second purpose is essentially a promotional-selling objective. The opinions of retailers were sought as to the value of the cover of an LP and of the sleeve used on Singles as selling devices and as aids in customer selection. As the marketer who comes in di rect contact with consumers in the selection process, retailers should be the best qualified source in the industry on the value of packaging as a selling aid. Retailers' opinions on record covers are shown below : 258
Per Cent of One Hundred Thirty Retailers Holding Viewpoint Opinions On The Record As To Cover As A Sales Aid Singles LP's
The cover on the record is an inportant sales aid 67.*+ 83.3
The cover on the record is a relatively minor factor in the consumer selection process 32.6 16.7
Total 100.0 100.0
While the majority of retailers feel that the cover or package of a record does serve to stimulate sales and assists uuyers in their selection of records, vhere is a difference of opinion regarding its efficacy for each basic class cf record. A substantially greater per centage of retailers were of the opinion that the cover is a more important selling aid for the LP than it is for the Single. One-third of the retailers expressed the viewpoint that the use of the colored sleeve on the Single does little or nothing toward stimulating sales of the product.
Record catalogs as a^ sales aid to retailers
Large record producers periodically publish catalogs of their product offerings and make these available to retailers. These pro ducers’ catalogs serve as a ready source list for buying and as sub stitu te inventory from which customer requests can be acconmodated.
Also available to the retailer for use is the Schwann Catalog. Pub lished monthly by the W. Schwann Co., of Boston, Massachusetts, the
Schwann Catalog is to the record retailer what Books in Print is to 259 the librarian. In this monthly catalog are listed all available labels, the recording artist, and the name of the producing company.
Schwann Catalogs are sold to consumers through retail outlets handling records. It may thus be used by both consumer and retailer as a ready and complete reference for determining the existence of a par ticular recording or several versions of the recording by different C artists, and the producer of the given recording. Retailers were asked whether and to what degree they considered the record catalog, such as the Schwann Catalog and individual producers catalogs, a vital type of sales aid and a substitute inventory. The degree of significance attached by retailers to the record catalog as a selling aid is as follows:
Degree of Importance of Number of Finns’ Per Cent of Firms' Record Catalog As A Opinions Relative Opinions Relative Selling Aid and To The Two Basic To The Two Basic Substitute Classes of Goods Classes of Goods In v e n to ry Albums Singles Albums Singles
Very important 46 24 4 1 .4 26.0
Useful, but accounting for less than 15 per cent of sales 50 33 4 5 .1 35.8
Not important 15 35 13.5 38.2
T o ta l 111 92 100.0 100.0
The above data indicate that retail firms believe that the catalog is a more important sales tool in the marketing of LP's than of Singles. Three degrees of significance were reported. Approxi mately 41 per cent of retailers feel that catalogs are very important
®"The Schwann Catalog," Opera News, November, 1965. 260 as a sales aid for LP*s compared to only 26 per cent holding this viewpoint for Singles. For the LP, 86,5 per cent of the firms feel that catalogs are either useful or very important as a selling aid.
Retail outlets employ many sales promotion techniques in their efforts to increase sales volume. Among the more successful of these promotional techniques used by stores are the following exam ples:
a) Develop their own record club.
b) Develop and utilize a mailing list of regular customers.
c) Tie in with local musical events, such as local music concerts, guest artist appearances in the community, and with music programs of local colleges and universities.
d) Use of mass display, e.g. modeled along the lines of supermarket's pyramid and displays which are placed near the check out counter.
e) Tie in with local colleges and universities adult music appreciation courses, giving enrollers a 10 per cent discount and converting them into regular buyers.
f) Use of the telephone as the valuable sales aid that it can be. Some stores keep a customer card file and develop personal ized knowledge of the customers' special likes and tastes. The telephone is used as a personal way to reach the customer to inform 7 him of merchandise offerings having potential appeal.
g) Develop special browser boxes appropriately identified.
^"Knowing His Customers Tastes Pay Off For Colorado Dealer," Billboard Magazine, July 21, 1962, 261
h) Sell multiple record sets. Many customers are collec
tion conscious and are receptive to the idea of a collection package 0 of records.
The above list serves simply as an example of the possibilities
in promotion methods that w ill build sales volume for the retail
o u t l e t .
Prevalence of discounting as ^ basic pricing policy at the retail level
As was previously discussed, discounting of records from manu
facturers' suggested list prices was initiated by discount houses
and rack jobbers in the early 1950's. The practice of discounting records by racked operations became widespread by the early I960's.
Conventional retailers merchandising full record operations began to feel this competitive pressure to such an extent that they were forced
to re-examine their pricing policies and practices to meet this price
competition. As a product class, records are subject to price compe tition. This is true because a given record by a particular artist
is a standardized product being marketed through many types of retail
outlets. Price can thus be used as a variable in the marketing strat egy of a firm to induce consumer patronage. By 1965 a substantial portion of the conventional retail outlets had met the price competition of discount stores and racked operations head on. This can be seen from the following data:
^he reader is referred to a more comprehensive compilation of techniques in the article, "How To Sell More Classical Records," Billboard Magazine, January 12, 1963. 262
Firm P olicy On Number of Firms Per Cent o f Firms Discounting Reporting Policy Reporting Policy
Firm policy is not to discount records 48 37,0
Firm policy is to dis count records 80 63,0
T o tal 128 100,0
Of the firms discounting records as a pricing policy, ap proximately 87 per cent followed such a pricing policy most of the time with the other 13 per cent of the retailers discounting some of the time. There are no differences in discounting policy as applied to the two basic classes of records, Singles or LP*s, The minority of 37 per cent of the retail outlets who adhere to a policy of not discounting records attempt to compete on a non price basis. These efforts usually take the form of a variety of services such as credit, delivery, shipping, and personalized selling. Other attractions of these stores include breadth of assortment and convenience of loca tions, An example of a successful retailer adhering to a price policy which does not discount records is the Disc Shop in Washington, D,C,
Under present market conditions, it is questionable whether anything but a small minority of retail stores can continue to adhere to a basic price policy of not discounting records.
The Relative Position of The Retail Outlet ; in The Current Market
In the eight-year period 1957-1964, a substantial decline oc curred in the number of conventional retail outlets and in the rel ative share of total record sales marketed through these types of 263
retail outlets. For example, the number of this type of retail
outlets declined from approximately 12,000 in 1957 to 7,500 in Q 1964. The decline in the relative shau?e of the market accounted
for by retail stores is evident from the data in Table 45. In 1960,
two-thirds of the total sales of records flowed through retail
stores. Four years later, stores accounted for only 46.3 per cent
of total record sales, a decline of 30.3 per cent in the relative
market share held by this type of retail institution. Since 1955, when retail stores did 95 per cent of the volume at retail (exclud
ing juke boxes), the market share held by this class of institution
has dropped 51.6 per cent. As the statistics in Table 45 indicate,
there has been a decline in absolute sales volume of stores as well
as the relative decline in market share. The current share of 46
per cent of the market volume held by stores appears to have stabi
lized, at least temporarily, over the past two years.
Census data is available for record shops, which constitute
the single largest class or type of retail outlet. From 1958 to
1963 total industry dollar sales volume at retail increased 47.9 per
cent. The following statistics reveal the drop in the relative market
share of the record shop in the face of substantial growth of industry
volume é
^Record Retailing Today. New York: Billboard Publishing Co., 1964, p. 37.
^^Derived from U.S. Census of Business: Retail Trade, 1958, U.S. Census of Business: Retail Trade, 1963, and the 1965-66 Inter national Buyers Guide of the Music-Record Industry, New York: B ill board Publishing Co., 1965, p. 18, 264
Total Indus- Total Record Per Cent Share of Total try Sales Shop Sales Industry Sales Held Year COOO) (000) By Record Shops
1958 $445,000 $141,333 31.7
1963 658,000 153,498 23,3
Statistics on record shops in terms of the number of estab lishments, sales, payroll, and employment are shown in Table 50.
An analysis of the data in Table 50 in the light of the fact that industry sales volume grew 47.9 per cent over the five year period, reveals that record shops did not keep pace with general industry growth. For exançle, sales of record shops increased only 8.6 per cent during this five year period. The number of record shops de clined from 2,889 in 1958 to 2,571 in 1963, a drop of 11 per cent.
The number of paid employees of this type of retail marketing insti tution showed a loss of 16.3 per cent while the number of active proprietors of unincorporated record shops declined 25.0 per cent during this five year period, 1958-1963.
Causes for the relative decline in the significance of the conventional record outlet are partly environmental in nature. Some of the significant changes affecting channels of distribution have been discussed previously in Chapter V. The following specific en vironmental changes have been responsible for the decline in the mar- k:: share held by the conventioneil record outlet at retail:
1) The use of self-service merchandising and its adoption in the marketing of records by rack jobbers.
2) The practice of scrambled merchandising which has caused many different types of retail stores such as supermarkets, variety 265
TABLE 50
SALES, NUMBER OF ESTABLISHMENTS, PAYROLL, AND EMPLOYMENT FOR RECORD SHOPS (SIC 5733 PART), 1958 AND 1963
Per Cent Change Item 1958 1963 From 1958 to 1963
Number of Establishments 2,889 2,571 - 11.0
Sales ($1,000) 141,333 153,498 + 8,6
Payroll Entire Year ($ 1 ,0 0 0 ) 14,453 15,457 + 6.9
Total Paid Employees (num ber) 5,539 4,638 - 16.3
Active Proprietors of Unincorporated Busi ness (number) 3,010 2,257 - 25.0
Source: U.S. Bureau of Census, Census of Business: 1958 Retail Trade, United States Summary. Washington: U.S. Government Printing Office, 1960.
U.S. Bureau of the Census. Census of Business: 1963 Retail Trade, United States Summeury. Washington; U.S. Govern ment Printing Office, 1965.
stores, and drug stores to merchandise records, usually on a racked
b a s is .
3) The periodic overproduction of records by manufacturers.
This condition places producers under additional pressures to market products through any type of retail outlets willing to handle records.
4-) The rise of rack jobbers who have been effective in utiliz
ing racks to achieve exposure of records to a mass market on a self-
service basis.
5) The emergence of the discount type of retail store that 266 has discounted records as part of the general pricing philosophy of this type of institution.
6) The increasing price competition in the record industry and particularly at the retail level of the channel of distribution.
Another cause for the retail store's failure to maintain its market position stems from retail store management's dereliction to adjust to these modified market conditions. This failure can be at tributed to one of two things. One, the failure to perceive the changing market environment and/or to understand its ram ifications on their operations. Two, the problem of apathy on management's part. This latter problem is believed by Paul Ackerman, former Ex ecutive Secretary of the American Record Merchandisers and D istrib utors Association, to be the greatest difficulty. Mr, Ackerman states, "Perhaps the greatest obstacle faced by record dealers is apathy: the natural resistance to change, the desire that business be conducted according to the comfortable routine of years ago."^^
Thus the conventional record outlet serves as an example of what commonly happens to the retail marketing institution which fails to adequately adjust in the face of a changing market environment.
Retailers' dissatisfaction with current industry practices and conditions are highlighted by the fact that nearly half of the firms stated that more government regulation is needed. This can be seen from the following data:
^^aul Ackerman, "Now Comes Dealers Big Challenge," Billboard Magazine, March 30, 1963, p. 10. 267
Number of Retailers Per Cent of Retailers Opinions on Govern Holding These Holding These ment Regulations O pinions O pinions
About right 14 11.6
More government regu lation is needed 58 47.9
Less government regu lation is desirable 6 .7
Not fam iliar enough with government r e g u la tio n s to com m ent. 41 33.8
T o ta l 121 100.0
As a group retailers felt more strongly about the need for additional government regulation than any other segment of the trade channel.
One-third of the retailers were not sufficiently fam iliar with govern ment regulations to express an opinion.
What is the importance of the conventional retail outlet under present market conditions and what is its probable future? This type of retail outlet is more vital to the music industry than its share
of the market might indicate. The retail outlet serves as the first
and most significant source of information on the strength and appeal
of new records, both Singles and LP’s. Thus, these retail marketing
institutions serve as the testing ground for new releases. As the
specialty house of the retail trade, such firms also serve as listen
ing posts to consumers' verbal requests for records after air exposure
on radio. Rack jobbers and discount houses generally follow the sales
trends reflected by the conventional retail outlet as a guide in their 268
12 purchasing. Another reason for its importance is the fact that
the retail outlet commonly stocks a considerable variety of labels,
thus ciffording the full-line record manufacturer an outlet at retail •o' for his entire catalog. Discount outlets and rack jobbers tend to
restrict their inventory to hit records or, at least, to proven high
volume sellers.
The outlook for the conventional retail outlet as a marketing
institution occupying a significant role in the phonograph record
industry of the future depends largely upon how well management of
these institutions responds to changing market conditions. One
authority believes that the future is a good one for those stores
who meet the challenge of the market. To do so, he says that the management of the conventional retail outlets must do three things.
"First, the retail store must modernize its merchandising methods in
keeping with principles of modern retailing. Second, management must
consider itself a part of the record business, i.e ., of show business,
and be acutely aware of its basic product and the promotion and mer
chandising of that product. Third, the dealer must understand his 13 community and its cultural slant."
For the remaining retail outlets in the current retail struc
ture, the outlook for the future appears to be better than it was in
the late 1950's. Two reasons can be advanced to support this view
point. First, a substantial number of marginal retail firms have been
weeded out during the period, 1957 to 1964. Second, in order to
^^Record Retailing Today, op. c it. T3 Paul Ackerman, loc. cit. 269 survive the competition of racks and discount stores, the remaining retail outlets have had to improve their operations. Thus a hardier breed of retail stores has evolved during the early 1960*s. An example of adjustment is the empirical evidence cited earlier in this chapter that two-thirds of the retail firms in 1965 were meet ing price competition of racks and discount outlets head on. Statis tics in Table 45 reveal a perceptible slowing down in the rate of loss of market share by retail outlets. For example, since 1962 the share of market held by the retail outlet has declined very little . In 1963 and 1964 the retail outlet's share of the market has remained a constant 46 per cent. Compared to the ]ate 1950*s and early 1960-61 period there has also been a noticeable decrease since
1962 in the rate of growth of the share of the market at retail ac counted for by rack jobbers.
It can be concluded that the retail outlet as a marketing in stitution w ill not play as important a role in the distribution of records at retail in the foreseeable future as it has in the past.
Nevertheless, this marketing institution w ill in the future continue to be one of the major purveyors of records at the retail level and w ill serve as the primary outlet for the testing of consumer demand for new releases. It will also afford the major full-line manufacturer an outlet for his full catalog offerings. These two distribution functions of the conventional retail outlet are vital ones to the major full-line manufacturer and to the continued health of the phono graph records industry. CHAPTER IX
A SPECIAL MARKET, THE MUSIC MACHINE INDUSTRY
The objective of Chapter IX is to analyze a special market for the phonograph record, the juke box operator. The nature and importance of this segment of the phonograph records industry as well as th policies and practices of this marketer are examined in some detail. The justification for such an examination rests on the fact that the juke box operator represents one of the four basic institu tions at retail through which records are marketed. Consumption of a phonograph record is also accomplished when the ultimate consumer plays records by inserting coins into a type of phonograph record player commonly called a juke box.
The juke box as a marketing method in the industry is not new.
Prototypes of present day juke boxes were introduced to the industry and the public in the 1890's. The nickelodeon of the World War I period and of the 1920*s was an integral part of the record industry of those eras. Twice in the history of the phonograph records indus try the juke box has helped the industry to recover from the doldrums and has assisted in building new public interest and acceptance of the phonograph record. The first time the juke box made this type of contribution was in the period of the 1890's when it served to revive public interest in Edison's invention and showed producers that the
270 271 record's greatest potential lay in its entertainment capabilities,^
The second time occurred in the late 1930*s when the juke box helped rekindle the consumer's interest in the phonograph record.
Record Sales To and Through The Juke Box Operators
The relative importance of the music machine industry as a marketer of records at retail during the period 1961-1964, and the structural nature of this segment of the industry w ill be the primary focus of this sub-section. Record sales, at retail values, to the juke box industry for 1957 and for the four-year period 1961-1964 are shown in Table 51, Statistics in this table reveal that the relative share of the record sales dollar held by the music machine operators has remained between 5 per cent and 6 per cent during the period 1961-
1964, Since 1961, unit sales patterns to juke box operators reflect the same basic trend, a fairly constant share of the market volume, rsmging between 12,2 per cent and 14,7 per cent. The absolute de crease in both unit sales and dollar volume in 1964 from the 1963 levels can be explained in part by the programming of more "standard" 9 songs on little LP's which have longer lives than hit Singles. Com pared to 1957, the relative share of the record market held in the early 1960's by juke box operators has declined.
The different types of records purchased by the juke box seg ment of the industry in 1964 are classified into four categories: 45
^For a more detailed treatment of this point than is accorded in Chapter III, see Roland G elatt's, The Fabulous Phonograph, pages 40-49," 2 1965-66 International Music Record Directory, op, c it, , p, 13, 272
TABLE 51
SALES OF PHONOGRAPH RECORDS IN DOLLARS AND UNITS TO THE JUKE BOX INDUSTRY, 1957, 1961-1964
S a le s S a le s (In Millions Per Cent Share (In Millions Per Cent Share of Dollars o f T o ta l o f o t T o ta l Y ear Retail Value) Industry Sales U n its ) Industry Sales
1957® NA NA 60 23.2 1961% 35 6 .0 50 14 .1 1962% 35 5 .4 49 12.2 1963° 42 6 .4 49 14.7 1964° 38 5 .5 54 12.8
S ources :
^"Records," Electrical Herchandising, January 1953.
^1962-63 International Music Industry Buyers Guide and Market Data Report, New York; Billboard Publishing Co., 1962.
^1965-66 International Music-Record Directory and Buyers Guide, New York: Billboard Publishing Co., 1965.
3 rpm monaurals, 45 rpm stereos, 33 1/3 stereos, and little LP's. Be
cause of the nature of the programming of most juke box locations
and because of physical and technological capabilities of juke boxes,
45 rpm monaurals constitute the vast majority of records purchased.
For the four-year period 1960-1963, an average of 90 per cent of rec
ords bought by juke box operators were the 45 rpm monaurals. In the
future little LP's w ill be bought in greater quantities as manufacturers
The little LP, introduced in 1963, is a modification of the LP and designed especially for the juke box. It is a seven-inch LP with the two sides of the disc roughly the equivalent of one side of a standard LP in number of tunes and playing time. 273 produce more of this type of product. However, in the foreseeable future, 45 rpm monaural Singles w ill continue to dominate as the type of product purchased by the juke box operator for two reasons: first, the nature of programming on the typical juke box, which con sists primarily of popular type repertoire, w ill not change; second, the amount of little LP's and 45 rpm stereos produced by manufac turers w ill continue to be limited.
TABLE 52
TYPES OF RECORDS PURCHASED BY THE MUSIC MACHINE INDUSTRY, 1960-1963
Per Cent of Total Records Purchased Type of Record I960® 1961® 1962^ 1963^
45 rpm Monaurals 94.0 85.0 9 2 .4 89.7 45 rpm Stereos 4.0 6.0 3.1 2 .2 33 1/3 rpm Stereos 2.0 8.0 3.9 5.4 Little LP's NA 1.0 .6 2.7
T o ta l 100.0 100.0 100.0 100.0
S ource : a 1962-1963 International Music Industry Buyers Guide and Market Data Report, New York: Billboard Publishing Co., 1962.
^1964 International Coin Machine A._rectory, New York: B ill board Publishing Co., 1965.
Structure of the music machine in d u s try
Marketing of phonograph records at retail through juke boxes is accomplished by about 8,000 music machine operators selling via 274
468,000 machines on location. The number of music machines in the
United States for selected years are as follows:
1942 400,000 1952 460,000 1962 463,000 1963 470,000 1964 468,000
According to this analysis of the music machine industry by
Record Market Research, Inc., the number of juke boxes in the United
States has remained relatively constant since 1952.^ Seven companies supply the music machine industry with juke boxes. The larger com panies in the industry such as Rock-Ola, Rowe Ami, Seeburg, and
Wurlitzer assist the juke box operator by preparing special orders for stereo records and placing these orders with record producers.
These special order stereo records are then distributed by the music machine manufacturing companies through their own distribution facil ities to the juke box operators. Until 1964 all special juke box stereo releases had been the results of special orders from Seeburg and from the Music Operators Stereo Service (a joint venture by Rock-
Ola, and Rowe Ami and W urlitzer).^
Since 1958 a problem facing the juke box industry has been the fact that a substantial number of the machines in existence are unable
^he data for 1942 are taken from Roland G ellat's, The Fabulous Phonograph, page 272. Data for all other years are taken from the 1964 and 1965 International Coin Machine Directories and are reported as educated estimates based on new machine production minus export and the rate of replacement.
^1964 International Coin Machine Directory, New York: B ill board Publishing Co., 1965, p. 19.
^"Columbia Move Major Step in Solving Stereo Dilemma,” B ill board Magazine, June 27, 1964, pp. 1, 61. 275 to play a stereophonic recording. Gradually the music machine pro ducers have been rectifying this problem by manufacturing machines which can play both stereophonic and monaural sound. This can be 7 seen from the following data:
Per Cent of Total Juke Boxes By Type of Capacity M onaural Stereophonic C ap ac ity and Monaural Y ear Only C ap acity
1960 81.0 19.0 1961 78.0 22.0 1962 66.0 34.0 1963 50.0 50.0 1964 39.0 61.0
In 1960 only 19 per cent of music machines could handle stereo recordings. By 1964, 61.0 per cent of juke boxes on location were dual speed machines and could handle both stereo and monaural.
Though a majority of juke boxes can now play both monaural and stereo phonic recordings, the juke box industry is still restricted in its program offerings primarily to monaural sound. The reason for this situation is the reluctance of record manufacturers to produce a 45 rpm recording in both monaural and stereophonic sound and thus have to carry two inventories. The manufacturer recognizes that if a par ticular Single recording catches public fancy it w ill sell as a mon aural. From the manufacturer’s viewpoint, the volume from the music machine segment of the industry is not large enough to justify making
Data for 1960 and 1961 were taken from the "1961 Music Machine Survey," Billboard Magazine, May 15, 1961, p. 9. Statistics for 1962 and 1963 came from the Billboard 1964 International Coin Machine Directory, page 19. The 1964 data source is the 1^5 B ill board International Coin Machine Directory, page 7. 276 a 45 rpm single in both monaural and stereo and consequently have the problems associated with cariying dual inventories. In a per sonal interview, Mr. Aaron Stem field, an editor of Billboard, ex pressed the opinion that a partial solution to this programming and product problem of the music machine industry would be the in- 0 creased production by record producers of the little LP record.
Diversification Policies and Practices of Juke Box Operators
The data in Table 53 show that juke box operators are widely diversified, with many firms operating several other types of coin machines. This high degree of diversification results from the fact that volume and profit potentials from the average juke box route are insufficient to warrant the policy of restricting operations solely to juke boxes. The two most common forms of diversification are amusement games and cigarette machines. Almost nine out of ten operators handle amusement games and nesirly half of them maintain cigarette machines in addition to their juke box routes. The increas ing significéuice of diversification to the product mix of the typical juke box firm’s operations is not entirely reflected by the statis tics in Table 53. The average number of game machines and cigarette g machines per route is increasing, as the following figures show:
Average Number of Machines on Location Type of Equipment 1963 1964 Cigarette Machines 59 73 Games 49 64
^Interview with Aaron Stem field, Editor, Billboard Magazine, December 9, 1965.
^1965 International Coin Machine Directory, op. c it. , p. 7. 277
TABLE 53
DIVERSIFICATION PRACTICES AMONG JUKE BOX OPERATORS 1960-1954
Per Cent of Operators Handling
Other Than Juke Boxes 1960& 1961* 1962% 1963^ 1964°
Amusement Games 90.7 93.6 80.0 82.4 88.0 Candy and Gum NA NA NA 11.0 9.0 Cigarette Machines 42.3 40.1 37.6 41.9 47.0 Food and Drink Machines 12.0 13.2 16.5 14.8 4.0 Kiddie Rides 17.9 16.8 9 .4 6 .8 14.0
S ources :
^"1961 Music Machine Survey," Billboard Magazine, May 13, 1961, p. 9.
^1964 International Coin Machine Directory, New York: B ill board Publishing Co., 1964, p, 22.
^1965 International Coin Machine Directory, New York: B ill board Publishing Co., 1964, p. 7.
A 1964 survey of operators reveals that only 47 per cent of their profits are derived from juke boxes. The rest comes from non juke box lines. From the statistics in Table 53, it can be concluded that most juke box operators generally restrict their operations to some type of amusement offering or cigarette vending. In 1964, only
4 per cent and 9 per cent of operators handled food and drink, and candy and gum, respectively.
Music Machine Operators * Gross Annual Revenue Derived from Juke Box Operations
The average juke box operator’s gross volume was approximately
$57,200 in 1964 from his juke box routes.This figure includes
l°Ibid., p. 6. 278 commissions which have to be paid to location owners and typically amount to 50 per cent of the gross revenue. Music machine operators classified by annual gross dollar volume in 1963 from their juke box operations are shown below
Per Cent of Operators Annual Dollar Gross Volume^ Reporting Volume
Less than $34,200 9.8 34,201 - 46,800 23.0 46,801 - 62,400 17.4 Over $62,400 49.8
^These figures are before payment of commissions to location ow ners.
The above statistics reveal that half of music machine firms grossed less than $63,000 in 1963 (before commissions) from juke box operations. Approximately one-third of the firms reported grossing less than $47,000 in the same year. Thus, the relatively low gross volume achieved on juke box operations can be cited as a major cause for the high degree of diversification.
Net profit patterns and sources of profits for the music machine industry
Net profit patterns of operators on their juke box operations
' 12 for 1963 are as follows:
^^1964 International Coin Machine Directory, New York ; B ill board Publishing Co., 1964, p. 23.
l^lbid,, p. 20. 279
Annual Dollar Net Profits Per Cent of Firms on Juke Box Operations Reporting Profits
Under $10,000 6 3 .4 ,10,001 - 15,000 15.0 15,001 - 20,000 11.6 20,001 - 25,000 5.0 Over $25,000 6 .0
T o ta l 100.0
These data reveal that 63.M- per cent of operators said their
net income from juke box operations in 1963 was less than $10,000 a year. Another 15 per cent of these firms indicated annual profits between $10,001 and $15,000. Only one out of every five operators
reported annual profits on his juke boxes of over $15,000. The size
of dollar net profit patterns shown above is additional empirical
evidence of the need by most operators for diversification.
While juke box operations account for nearly half of their net profits, juke box operators derive their total profits from a number 13 of sources. This can be seen from the following data;
Per Cent of Firms' Total Sources of Profit Profits by Source
Juke Boxes 47.0 Games 34.6 Cigarette Machines 11.0 Food and Drink Machines 2.0 Kiddie Rides 1 .1 O thers 4 .3
T o ta l 100.0
More than a third of the operators' income is derived from games,
while 11 per cent of their income stems from cigarette machines.
^^1965 International Coin Machine Directory, New York; B ill board Publishing Co., 1965, p. 6. 280
Location Problems and Practices
Basic problems facing jxike box operators are securing proper location sites, negotiating ùf terms of payment to location owners, and programming the location. Juke boxes are located predominantly in taverns and bcirs, and in restaurants. Statistics in Table 54 show that, in 1964, 83.0 per cent of machines were found in these two types of locations. Teenage type locations for juke boxes ap pear to be growing in popularity, with 13 per cent of machines in
1964 situated in this type of location, a figure substantially higher than in any of the preceding four years.
TABLE 54
MUSIC MACHINE LOCATIONS BY TYPES OF SITE
Per Cent of Total Machines
Type of Location 1960& 1961* 1962% 1963% 1964^
Taverns and Bars 52.7 53.6 58 .4 6 0 .1 53.0 Restaurants (includ ing diners) 41.2 37 .5 32 .6 3 0 .8 30 .0 Teenage Locations 6.1 8.1 4.1 8.5 13.0 Miscellaneous NA .8 4 .9 .6 4 .0
T o ta l 100.0 100.0 100.0 100.0 100.0
S o u rces:
^"1961 Music Machine Survey,” Billboard Magazine, May 15, 1961, p. 9.
^1965 Internationa1 Coin Machine Directory, New York: B ill board Publishing Co., 1965.
Another basic problem of juke box management is that of nego tiating terms with owners for desired sites or with businesses which 281 request a juke box on their premises. The types of terms employed by the music machine industry in paying location owners are shown in Table 55, Straight commission is the standard method of payment for a juke box location, with four out of five sites in 1964 being paid for in this manner. Commonly, the commission is paid on a fifty-fifty basis or split between the location owner and the opera tor, Thus if a particular box took in twenty dollars in a week, the operator would get ten dollars and the location owner, ten dollars.
Front money is the type of arrangement used for 6.5 per cent of the locations in 1964, This is an agreement in which the juke box operator receives the first ten dollars (or some other specified amount) of weekly receipts and the balance of receipts over this figure is split fifty-fifty between operator and location owner.
Other methods of payment include the minimum guarantee and rentals. Under a minimum guarantee the operator gets ten dollars
Cor some specified amount) as a minimum guarantee per week. The lo cation owner then gets a specified amount over this minimum, if it is available. The remainder from the machine, if any, is split fifty-fifty, A small number, 2,2 per cent in 1964, of locations were under rental terms. With this arrangement, a location owner rents a box from a juke box operator. Typically, rentals range from 3,4 per cent to 3,9 per cent of gross revenue of the juke box. The location owner assumes responsibility for programming the box under usual 14 rental terms.
^^Definitions and descriptions of these methods of payment to location owners are based on an interview with Mr, Aaron Stem field, an editor of Billboard Magazine, on December 9, 1965, 282
TABLE 55
METHODS OF PAYMENT BY JUKE BOX OPERATORS TO LOCATION OWNERS 1960-1964
Per Cent of Firms U tilizing Each Method Method of Payment to Location Owners 1960& 1961' ^ 1962^ 1963° 1964°
Straight Commission 79.0 77.0 83.4 7 1 .7 80.3 Minimum G uarantee 5.0 10.0 5 .7 12.6 6.3 F ro n t Money 9 .0 6 .0 5.9 9 .1 6.5 R e n ta l 4 .0 7 .0 3 .4 3 .9 2 .2 O th er 3 .0 NA 1.6 2 .7 4 .7
Total 100.0 100.0 100.0 100.0 100.0
S ources :
^'1961 Music Machine Survey," Billboard Magazine, May 13, 1961, p. 9.
^1964 International Coin Machine Directory, New York: B ill board Publishing % ,, 1964,
°1965 International Coin Machine Directory, New York: B ill board Publishing Co., 1965.
Aaron Stem field, an editor of Billboard, points up what he feels is a serious problem facing music machine management, that of failure to program the juke box. Data in Table 54 reveal that juke boxes are placed in locations providing exposure primarily to an adult market. Mr. Stem field says that the typical juke box is programmed heavily toward the teenage market. While it is difficult to clas sify programming by location, a recent survey of operators reveals 15 the following data on the relationships between programming and location,
^^1964 International Coin Machine Directory, op. c it. , p. 20, 283
Per Cent of Stops Reporting Type of Program Orientation Type of Program of The Stop Orientation
Pops 57,7 Country and Western 25.4 Rhythm arid Blues 16,9
Total 100,0
Thus, the dominant types of location and typical programming are not congruous, Mr, Stem field concludes that much of the current
"hot single product," such as the pop and country and western re cording, is geared to the teenage market and that nost of the juke box patrons are adults. If the juke box operator is to maximize his volume and profits, more attention by management must be given to the problem of proper programming by location.
As a form of coin operated amusement machines, juke boxes are subject to a license tax and other regulations in many states and municipalities. These regulations, while taking a variety of forms, commonly require a payment of a license fee and the size of the li cense fee may be predicated on the number of machines operated in a locality or state or simply a flat fee for the privilege of being a coin machine operator. Some states and municipalities have no regu- 17 lations or license fee requirements for juke boxes.
Aaron Sternfield, "Phono Key: Programming," Billboard Magazine, January 5, 1963, p, 1, 48,
17por a detailed summary of state and municipal coin machine regulations, the reader is referred to the 1964 International Coin Machine Directory published by Billboard Publishing Co. 284
Buying Policies and Practices of Juke Box Operators
The majority of record purchases by juke box operators are concentrated with one stops. In 1964, 81,9 per cent of total rec ords purchased by the juke box industry were bought from one stops,
A small portion (2,5 per cent) of merchandise is bought by the juke box operator from retailers, and the remaining 15,6 per cent of the goods are obtained from distributors. More than 43 per cent of all 18 operators buy their records exclusively from one stops. By pur chasing from one stops, the operator receives the following benefits:
1) Purchases can be made at one central point, with resultant savings in time, effort, and money in the performance of the buying fu n c tio n ,
2) The advantage of the one stops' professional programming advice can be obtained. This practice,however, produces a short coming, The operator tends to shift the responsibility for program ming on to the one stop and thus a vital area of his operation is neglected. Buying practices of operators over the five-year period may be seen in T ab le 56,
18 1964 International Coin Machine Directory, New York: B ill board Publishing Co,, 1964, p, 20, 285
TABLE 56
SOURCES OF SUPPLY UTILIZED BY JUKE BOX OPERATORS 1960-1964
Per Cent of Total Records Purchased By Type o f Source Source of Supply I960® 1961® 1962^ 1963^ 1964^
One s to p s 75 .0 83.0 76.9 84 .8 81.9 Distributors 22.0 13.0 19.4 12.7 15.6 Retail record shops 3 .0 4 .0 3 .7 2 .5 2 .5 T o ta l 100.0 100.0 100.0 100.0 100.0
S o u rces :
^'1961 Music Machine Survey," Billboard Magazine. May 15, 1961, p. 9.
^1965 International Coin Machine Directory, New York: B ill board Publishing Co., 1965.
The primary factors that influence the buying decisions of 19 operators are shown below:
Per Cent of Replies Indicating Motivating Factor 1963 1964
Charts in trade papers 30.3 29.7 Requests from locations 22.3 25.0 One stop recommendations 19.8 14.7 Personal choice 15.7 18.6 Local radio station charts 10.8 1 0 .7 Miscellaneous 1 .1 1.3 T o ta l 100.0 100.0
The above statistics indicate that charts in trade papers rank first as a factor with requests from locations a close second.
1^1965 International Coin Machine Directory, New York : B ill board Publishing Co., 1965, p. 7, 286
During the two-year period 1963-1964, approximately 30 per cent of
the operators reported that charts in trade papers are the most im portant reason governing their product choices. Recommendations of one stops are the prime buying motivation of 14,7 per cent of the
juke box firms, a drop from the 1963 figure when 19,8 per cent of
operators reported this as their number one motivation. Personal choice is the major factor for 18,6 per cent of juke box operators when buying. Local radio station charts play a smaller role in in fluencing buying of operators than any of the other factors listed.
The Outlook for The Juke Box Operator As ^ Marketer of Records at Retail
The future of the juke box operator segment is not as bright
as that of the industry as a whole. The reasons for this lie in the socio-economic trends of the 1950's and 1960's, Taverns in the
United States are declining in number and as a form of recreation for the lower classes and lower middle classes. Comparisons of trends
in sales and number of establishments for drinking places with that of total retail trade for selected census years over the ten-year period 1954-1963 are shown in Table 57,
These statistics show that between the business census years,
1954 and 1963, the number of drinking places declined by 13,282, a
drop of nearly 11 per cent. During this same period there was virtually no per cent change in the number of total retail establish ments in the United States, Sales volume of drinking places showed
little change during the ten year period 1954-1963, a mere 3 per cent
gain. Total retail sales in the United States during this same period 287
20 grew 43,6 per cent. Thus in retail sales drinking places failed
to keep pace with retail trade during this ten-year period under a n a l y s i s .
TABLE 57
NUMBER AND SALES VOLUME OF DRINKING PLACES, CENSUS OF BUSINESS YEARS, 1954-1963 AND PER CENT CHANGE FOR DRINKING PLACES AND TOTAL RETAIL TRADE, 1954-1963
Per Cent Change 1954-1963 Drinking Places Drinking Total Retail Item 1954 1958 1963 Places Trade
Number o f E s ta b lis h m ents 123,889 114,925 110,605 -10.7 0 ,0
Sales (000) 4,360 4,163 4,493 + 3 .0 +43,6
S ources :
Data is taken from the U. S. Census of Business, Retail Trade, for the respective years.
The causes for the decrease in the number of taverns and bars
are urban renewal and the migration of lower middle income classes to the suburban developments as their incomes rise. Historically the tavern has represented a primary form of entertainment for the lower
classes and lower middle classes. Taverns also serve as the number one location for juke boxes. Thus with this continued decline in the
20 Neither of these census sales figures is adjusted for changes in price levels. If they were adjusted, dollar sales of drinking places would show an actual decline. 288
number of taverns and bars and their significance as a form of en
tertainment, the location potential for the juke box has diminished.
Concomitantly, with greater disposable incomes available, more and more of the lower middle classes have purchased record
players for the home. Empirical data on the decline in number of
taveras, increase in number of homes having phonograph record play
ers, and lack of growth in the number of juke boxes on location sub
stantiate the static or probably future decline in this segment of
the industry. CHAPTER X
PART 1 - SUMMARY AND CONCLUSIONS
The aim of this study was to analyze the marketing of phono graph records in the United States with particular emphasis on cur rent marketing problems, policies, and practices. An institutional and functional approach was emphasized in the analysis. While the marketing viewpoint has been stressed, economic and managerial fac tors have necessarily been considered. The overall purposes have been to develop through original research some body of knowledge concerning the marketing policies and practices in this industry and the marketing institutions through which distribution is effected.
With the accomplishment of these objectives it is hoped that a bet ter insight can be gained into the vital economic process of market ing phonograph records.
Nature of The Product and Its H istorical Development
The first major section dealt with the nature of phonograph records as a consumer goods product and traced their historical de velopment from Edison's invention in 1877 to the present time.
Product and historical perspectives were necessarily considered be cause they provide a basis for a better understanding of the contem porary marketing problems, practices, and policies in the phonograph records industry,
289 290
H istorically, it was found that the phonograph record went
through a series of technological improvements which have contrib uted substantially to the product's general public acceptance.
During the acoustical recording period (prior to 1925) the product
form changed from Edison's original cylinder to that of its present
form, a flat disc. In addition to technological improvements, this
change in shape contributed substantially to the product's ease of handling and storage. In 1924 a major technological breakthrough
occurred with the perfection of the electrical recording process which resulted in a greatly improved product. As a result, a much wider range of musical sounds could be reproduced and performing
artists' groups were not restricted in size as before.
Another milestone in product development was reached with the
successful commercialization of the 33 1/3 long play record by Colum
bia Records Corporation in 1948. The new 33 1/3 LP marked a tremen
dous technological advance, for it offered the consumer twenty-three minutes of uninterrupted playing time and thereby enhanced serious
music reproduction and enjoyment. Record costs per minute of play
ing time were also substantially reduced. In 1949 a new record form,
the seven-inch 45 rpm Single, made its appearance. Developed and
promoted by RCA, the 45 rpm also gained consumer approval. Rapid
public acceptance of these two new record forms spelled the demise
of the "old" 78 rpm record which had been the standard physical form
for more than thirty years; and by 1956 the 78 rpm was no longer
marketed in the United States,
The dimension of stereophonic sound was added to the record
in 1957, thereby giving the product greater depth and fullness of 291 sound. The resulting improvements in tonal qualities of stereo phonic sound records over monaural further enhanced possible con sumer enjoyment of the product. The necessity and role of the phonograph record player as a requisite adjunct to the utilization of the phonograph record was also discussed.
Different aspects of phonograph records which affect demand were examined in some detail. Five viewpoints were employed in this product analysis. They included purpose, physical characteristics, repertoire, price, and sound reproduction. The effects of each of these aspects of the product were shown and conclusions of interest to management drawn. The implications of physical characteristics of the product on market segmentation, repertoire capability and price were explored and appropriate conclusions reached. Processes of monophonic recording and stereophonic recording were described and the resulting basic product quality differences were pointed up with all their ramifications. Certain conclusions were reached as to the nature of this product, e.g., its intangible character, its diverse forms, the degree of risk involved, and its perishable q u a lity .
Magnetic tapes are not viewed by the industry as phonograph records and were therefore excluded from this study by definition.
Examination of Consumption Patterns and Channels of Distribution for Phonograph Records
The purposesof the second major section of the study were to
(1) examine consumption patterns of records with a view toward draw ing conclusions which would be helpful to a better understanding of the factors and forces which shape consumption; and (2) to investigate 292
channels of distribution employed in the marketing of this product.
Trends in record distribution were also analyzed to provide a per
spective on current conditions and probable future direction.
Analysis showed that the most fertile markets for records
are metropolitan areas of over 500,000 population. Examination of
the data revealed that nine highly urbanized states accounted for
about two-thirds of total record sales. The many important market
ing implications resulting from such high degrees of geographical
concentrations of sales were pointed out.
It was shown that numerous economic and demographic factors such as family income, age of household head, educational level of household head, and occupation influence consumption of records. A positive correlation exists between the rate of consumption of this product and income, educationallevel of household head, and his oc cupation. As an example, the household headed by the college trained
individual had an average record consumption rate of 61 per cent greater than the household headed by the high school graduate. Pro fessional and managerial families spent more than twice as much for records as did families headed by operatives or service workers.
An analysis based on the application of standard marketing concepts to consumer buying motives revealed the following signifi cant motives in the acquisition of phonograph records; Pleasure, emulation or conformity, prestige, money saving, and convenience.
H istorical patterns of record distribution from 1930 to 1965 were analyzed. The evolution of the various channels of distribution utilized in the marketing of records since 1948 were traced and the current channels employed were summarized. The numerous trends in 293 distribution since 1950 were discussed along with their implications.
Causal factors effecting changes in distribution patterns and chan nels from 1948 to 1965 were pointed out.
Institutional and Functional Analysis of Record Producers, Wholesale Institutions, and Retail Outlets
The third section of the study had as its objectives to:
1) Examine the anatony of the record manufacturing industry and the marketing policies and practices of the record producer,
2) Analyze the wholesale structure and each of the marketing institutions at this level in the channel of distribution,
3) Review the marketing of records at the retail level.
In the analysis of each level of the trade channel cited above, both institutional and functional approaches were used to the degree permitted by practicality and space lim itations. The functions of buying and selling were stressed, since they represent the heart of the marketing process. Other marketing functions were also considered but within the basic context of buying and selling.
Changes taking place in the structural character of the record manufacturing industry during the period 1948-1965 were examined and their implications pointed out. For the purpose of analysis, record producers were divided into two basic groups, small independent firms and large or major firms, the latter usually being affiliated with diversified corporations. It was found that many small producers often "subcontract" a number of basic production functions out to specialized firms. Competitive market advantages of small independent producers and major firms were examined. Small firms can compete with the giant firm because of the advantage of speed in decision-making and record producing, flexibility of operation, a lower break-even 29W point, and because they often specialize in one type of repertoire.
If the small producer can determine the product combination of song and artist desired by the public, then he can achieve market success, for a record hit is a hit regardless of the theoretical capabilities of the producer. Large firms have the benefits of company name and prestige, full line product offerings, better distribution facili ties, and greater financial resources.
Among the distribution policies and practices of record manu facturers examined were direct marketing to rack jobbers, one stops, retailers, and consumers; dual distribution policies; forward verti cal integration; credit policies; and return goods practices.
Pricing policies and practices of producers were reviewed, including the use of functional and quantity discounts. It was con cluded that the setting of realistic retail list prices by manufac turers for the different classes of record products was a pressing need.
Sales promotion policies and practices were scrutinized and it was established that record manufacturers are promotional minded, with 70 per cent of the firms spending more than 6 per cent of sales on advertising and sales promotion. The methods of sales promotion and advertising emphasized by producers have not changed to any sub stantial degree since the middle 1950's.
Analysis of the wholesale structure showed that there were three types of wholesalers in the channel of distribution: distrib utors (including manufacturers' sales branches), rack jobbers, and one stops. All three of these wholesale institutions are merchant 295 middlemen. Analytical efforts were organized around each of these three types of wholesaling institutions.
Independent distributors historically have been the backbone of the wholesaling structure. Prior to 1950, 95 per cent of record distribution was effected through them. The relative decline in importance of this historical wholesaler was analyzed and documented, and the factors contributing to this development reviewed. In an effort to meet current competitive market conditions, distributors have in the early 1960's instituted a number of policies. For ex ample, this type of wholesaler has engaged in forward vertical inte gration to a substantial degree. By 1965 one out of four distributors owned either one stops or rack jobbing firms or both. One out of five distributors also had integrated operations at retail. In addi tion, many of these wholesalers have diversified their operations by dealing in record accessories, phonograph record players, tapes, tape recorders, and even appliances. Both of these practices represent a change from common practice prevailing in the pre-1955 period.
Numerous other marketing policies and practices of distributors were examined, most of them under the general context of the selling function. Among the policies and practices reviewed were those deal ing with advertising and sales promotion methods and expenditures, sources of information on consumer demand, inventory control, pricing, credit terms granted, and return goods privileges extended.
The rack jobber is relatively new as a marketing institution in the record industry. Approximately 80 per cent of these whole salers have been in the record business less than eleven years. How ever, in this short period of time, this type of wholesaler's share 296
of the record market has grown rapidly. In 1965 * the rack jobber
was typically the largest wholesaler in the industry in terms of
dollar sales volume and scope of geographical marketing area.
Thirty-five per cent of rack jobbers operate one stops and 27 per
cent have leased outlets at retail. It was shown that this type of wholesaler performed a number of v ital maurketing functions for his
customers, the retailers. Among the more important of these func
tions performed by the rack jobber for the retailer are;
a) plans and anticipates the retailer's merchandise needs
b) assembles goods from many sources
c) buys in large quantities with resultant lower prices and
reduced transportation costs
d) extends credit
e) offers prompt delivery by performance of the storage
fu n c tio n
f) performs a variety of merchandising services such as stock
rotation, pricing of goods, and display.
Equally important are the services the rack jobber renders to
the manufacturer and/or distributor.
a) sells the manufacturer’s customers (certain retailers)
that are not feasible for the manufacturer to service
b) reduces the manufacturer’s cost of distribution by ef
fecting selling economies and transportation economies through quan
tity buying. Also, the manufacturer’s storage costs are reduced by
the rack jobber’s assumption of the storage function.
c) cultivates market intensively by regular selling and
servicing retail outlet 297
d) simplifies credit and accounting problems of the producer.
Examination was made of a number of facets of the buying and selling functions performed by rack jobbers including practices employed in purchasing records, inventory control methods, sources of information on consumer demand used, methods of servicing racks on location, and the time frequency used in servicing racks.
Like rack jobbers, one stops are a relatively new type of wholesaler in record distribution, having emerged since 1950. Ap proximately 40 per cent of one stops have come into existence since
1960. The original purpose of one stops was to service the juke box industry. However, because these wholesalers offered the convenience of a number of labels under one roof, retailers gradually began to patronize this type of firm. As a merchant wholesaler one stops per form most of the basic marketing functions such as buying, selling, storage, credit extension, risk bearing, and provision of market in formation. The success achieved by this type of middlemen is attested to by their rapid growth rate between 1950 and 1964. In 1963 approxi mately 24 per cent of dollar volume at wholesale flowed through this group of wholesalers.
Analysis revealed that one stops are typically the smallest type of wholesaler in the industry. Many of these firms are oper ated by distributors or rack jobbers and, relative to the other two classes of wholesaQ.ers, fewer one stops have engaged in forward integration.
The buying and selling functions of one stops were examined in some detail. Among the facets of the selling function analyzed were methods of selling and advertising commonly employed, the use 298
of quantity discounts, the extension of credit, and return goods p o l i c i e s .
The changes in distribution patterns at retail during the
fifteen-year period, 1950-1965, were documented. The magnitude of
the decline in importance of the conventional methods of retailing
records was shown and the development of the new methods of market
ing at retail were examined. Prior to 1950 about 75 to 80 per cent
of records at retail were sold through conventional record specialty
shops or record departments in multi-departmentized stores like the
department store. The balance of record volume moved through juke b oxes.
It was found that phonograph records are currently (1965) marketed four ways at the retail level to ultimate consumers. The
four institutional sources from which consumers may choose to buy
records are: conventional outlets such as record specialty shops
or record departments in department stores; racks located in retail
outlets; from mail order and club operations of record producers or
retailers; and from juke boxes.
The primary focus of Chapter VIII was on the conventional re
tail outlet because this is the class of retail marketing institution which accounts for the largest share of the record dollar and is the
most important type of retail outlet to the record industry.
About 7500 retailers handle records in the United States.
These include specialty shops or record departments in multi-depart ment ized stores. Most of these conventional specialty shops and
record departments are small, doing less than $100,000 volume annually.
Typically, conventional record outlets are diversified, handling a 299 variety of related goods such as phonograph record players, tape recorders, and radios and televisions.
Among the buying policies and practices of retailers examined wero the sources of information on demand employed in purchasing and the methods of actually buying records. Inventory control techniques were also pointed up.
Various aspects of the selling function reviewed include ex penditures for advertising and sales promotion and methods of promo tion an^ their efficiency. Pricing policies and practices of retailers were considered under the general umbrella of the selling fu n c tio n .
The primary reason for the failure of the conventional retail outlet CO retain its dominant share of the record market was manage ment's failure to perceive changing market conditions, understand
+heir im plications, and make adequate adjustment to these modified market conditions. It appears that the decline in the retail outlets' market position has been arrested at least temporarily, for its mar ket share has been stabilized at around 46 per cent since 1962.
As a marketing institution at retail, the music machine opera tor currently accounts for about 5 per cent to 6 per cent of industry sale:;. This present relative share of the record dollar is substan tially lower than that held in the pre-1950 period when the juke box operator had in some years accounted for as much as 25 per cent of the record volume.
It was pointed out that the consumption of records through the juke box is generally restricted to 45 rpm monaurals because of programming policies of the juke box operators, the technical 300 capabilities of many juke boxes, and product policies of record pro ducers. Marketing is accomplished through about 8,000 music machine operators via 468,000 machines on location. Juke box operators are widely diversified. The reason for the high degree of diversifica tion is the relatively low gross revenue derived by the average operator from juke box routes.
Basic problems dealing with the location of boxes and methods of payment to location owners were discussed in detail. Also buying practices of the juke box operator were reviewed. The failure of management to properly program juke boxes was pointed out. This problem arises out of the fact that the dominant type of location for boxes and the typical programming are not congruous. Taverns, bars, and restaurants (83 per cent of boxes are located in these in stitutions) are patronized largely by adults while the typical juke box progrsunming consists of current pop hits or country and western hits, both of which find their greatest acceptance among teenagers.
Conclusions
Throughout the study, specific conclusions have been drawn whenever applicable to the particular phases of the analysis. The following are broad, general findings which are of primary signifi cance and which are appropriate to the study as a whole.
1. Product analysis was important to this study, for the various facets of the product examined provide requisite background information and also are related to consumer demand. Such aspects of the product as purpose, repertoire, physical characteristics (LP or Single), and nature all affect demand. 301
It can be concluded that many basic types of this prod uct have a highly perishable nature due to the sudden shifts in demand. It can also be concluded that records as a product class involve a relatively high degree of risk. This stems from inability of the marketer to pre-test market demand for a given record and from vascillating consumer repertoire tastes. Analysis showed that many diverse forms of the product (in the form of repertoire) are not only necessary but feasible to satisfy the wide variety of consumer tastes. Facts and conclusions derived from product analysis can serve as a basis for directing management efforts dealing with many phases of the marketing process such as in defining market segments, in developing demand schedules, in sales forecasting, and in creating advertising strategy,
2, Basic demographic and economic factors can and should be employed by record producers and marketers in defining consumer de mand, Such factors as age, income level, occupation, and educational level achievement affect the consumption of records in various ways.
For example, the dollar amount of records purchased, the type of repertoire consumed, and other pertinent facets of consumption are influenced by the consumer’s age, his income level, and his occupa tion, Such basic marketing tasks as designing the product, determin ing market potentials, defining sales potentials, and establishing sales quotas are predicated on an adequate definition of consumer demand and market segmentation. While forecasting the degree of con sumer acceptance for a particular recording is very difficult, empir ical data indicate that there is a definite and positive relationship 302
between general record demand and such demographic and economic
factors as have been cited in this study.
3. The structural character of the phonograph records manu
facturing industry underwent substantial alteration in the 1950’s
and early I960's. In the pre-1950 period, the industry was unmis
takably oligopolistic in character, with four major firms, Columbia,
RCA Victor, Capitol, and Decca, dominating it. Throughout the 1950's
and early 1960's the industry expanded tremendously, with many new record producers entering the market. By 1965, there were some 890
record producers in the United States. The industry in 1965 was
s till characterized by a high degree of concentration but instead of
four major producers, there were then twelve to fifteen dominant
companies and a substantial number of medium-sized firms. Several
important ramifications of this change in the character of the indus
try are: greater variety of product offerings; periodic overproduc
tion of records resulting in greater pressure on producers to experi
ment with .any types of marketing methods and channels in their need
to move goods; increased competition which has effected many of the
marketing innovations and current market practices described previously
in this study.
4, At the wholesale level, distribution patterns, practices,
and policies in the record industry have undergone radical changes
since 1950, This basic conclusion is substantiated by the following
specific conclusions:
a) Channels of distribution employed in the marketing
of phonographic records have increased in number and complexity.
Prior to 1950 a relatively simple and stable distribution system 303
existed. Most records moved from the manufacturer to independent
distributor to conventional retail outlets. In the mid-I960's the
distribution structure was complex, with numerous channels of dis
tribution being utilized to market records.
b) New basic distribution policies and practices of
manufacturers and wholesalers have emerged and historical ones have
been discarded. Several examples w ill serve to illustrate the nature
of these changes. One, prior to 1950, most manufacturers marketed
through independent distributors. An exclusive agency type arrange-
' ment was commonly employed and the distributor was given sole market
ing rights for the producer's line in his assigned territory. In the
early 1960's, manufacturers and distributors began dropping the ex
clusive agency arrangement and by 1965 most independent distributors
handled a variety of different producer's labels.
Two, since i960 many manufacturers have instituted
the policy of selling direct to rack jobbers, one stops, and retailers,
thus completely by-passing the distributor. Three, manufacturers
began in 1955 to sell records directly to ultimate consumers via
record clubs. Fourth, during the fifteen-year period 1950-1965, a
substantial proportion of the larger record producers have vertically
integrated, setting up their own sales branches to service the larger
and more concentrated metropolitan markets. Fifth, with the growth
of large-scale rack jobbers servicing m ulti-state areas, and the in
creasing handling of records by large retail chains, the procedure
of central buying by these institutions either directly from the manu
facturer or from the distributor in the buyer's home office territory
has come into existance. The results of this practice of central 304 buying have had profound marketing implications on the distribution of records. As an illustration, the traditional method of assigning distributors sales quotas based on their territories' BPI (buying power index), is no longer valid as a result of central buying.
5. As a result of the marketing revolution in the phonograph records industry there has been a decline in the importance of the traditional marketing institutions and the emergence of new ones.
Because of their failure to perceive the . changing market conditions and to make adequate adjustments to them, the two tradi tional marketing institutions in the record industry, the independent distributor at the wholesale level and the conventional outlet at re ta il, declined in relative importance and in the share of market held by each. Since 1955 hundreds of independent record distributors and thousands of retail record specialty stores have gone out of the rec ord business. Statistical data cited previously in the study conclu sively substantiate this finding. It is concluded that this decline in the relative importance of these two traditional marketing insti tutions w ill continue in the foreseeable future, though not at the accelerated rate taking place in the ten-year period 1955-1965.
Two new types of wholesalers, rack jobbers and one stops, have appeared since 1950 and have captured a substantial share of the record market at wholesale. By 1965 the rack jobber had emerged as the "strongest" and most dynamic institution at the wholesale level, and had succeeded in capturing about 37 per cent of the record volume a t r e t a i l .
The emergence and subsequent success of these new types of wholesalers can be explained by the fact that they met market 305 needs which were not being adequately fulfilled by the existing wholesale institution. The phenomenal growth of the rack jobber can be explained in part by the fact that this marketing institution helped provide greater exposure for the record at retail at a point in time in the industry’s development when greater exposure of the product was needed. The one stop’s growth is predicated on the fact that they provided retailers and juke box operators greater conven ience in their buying function by assembly of many producers' lines under one roof.
It is concluded that the rack jobber will account for an even larger share of the record dollar at wholesale in the foreseeable future and as a marketing institution w ill play an even more important role in the marketing of phonograph records,
6 , Distribution patterns, practices, and policies at the re ta il level have undergone substantial innovations during the fifteen- year period 1950-1965, This basic conclusion is predicated on the following findings:
a) Currently records are marketed through a variety of different types of mass merchandising outlets. Most of these types of retail institutions (examples are discount department stores and supermarkets) handle records as a secondary or ’’minor” line and usu ally on a racked arrangement. In the pre-1950 period, records were marketed as specialty goods or at least semi-specialty goods primarily through record specialty stores and conventional record departments in multi-departmentized stores such as department stores,
b) By 1965 a substantial portion of record volume at re ta il was racked. This self-service technique of marketing had 306 captured 37 per cent of the record volume in 1965, Just ten years previously, 1955, only 5 per cent of record volume at retail was racked. It is concluded that this method of selling records on a self-service basis from display stands serviced by rack jobbers w ill continue to grow in importance, and that more and more conventional record shops and record departments w ill employ this technique of m ark e tin g ,
c) Record clubs and mail order operations of manufac turers selling directly to ultimate consumers constituted a major method of retailing records in 1965 and accounted for about 110 mil lion dollars or close to 14 per cent of total retail volume. Just eleven years ago, 1954, this technique of retailing records was not even utilized. It is concluded that this method of marketing records at retail is firmly established and will continue in the foreseeable future to account for 12 to 15 per cent of total record volume,
d) In the mid-1960*s, both basic classes of records, LP’s and Singles, were commonly discounted at retail from the manufacturer’s suggested price. This practice of pricing the record below the pro ducer’s suggested price is common among rack jobbers and even among conventional retail record stores. Prior to 1950 most records were offered and sold at retail at the producer's suggested list price,
7, Analysis indicates that the survival ofthe conventional retail record outlet as a marketing institution at retail is requisite to the well being of the phonograph records industry. This is so be cause this institution performs the following vital and unique func tions which no other institutions at retail effect to any substantial d eg ree ; 307
a) Afford the full-line record producer an outlet for his entire line of repertoire. As the specialty house of the indus try the conventional record outlet commonly stocks a wide range of repertoire. Racked operations at retail generally do not handle much breadth of repertoire.
b) Serve as the primary avenue for testing consumer reaction to new record releases and as the primary source of informa tion on demand trends. Generally, most racked outlets stock primarily the "hits." In following their basic merchandising policy of stock ing only h its, racked operations rely on consumer demand trends as reported by the conventional retail outlets.
c) Furnish the consumer with depth and breadth of prod uct not available in the typical racked operations. Affording con sumers breadth of assortment from which to choose products is a vital marketing activity.
8. It is concluded that the outlook for the juke box opera tor is not as bright as the outlook for the industry as a whole. The reasons for this conclusion lie in the socio-economic trends of the
1950's and 1960*s. Statistics cited show a decline in the number of taverns and drinking places, the prime locations for juke boxes.
Second, there is a decline in the importance of the tavern as a pri mary form of entertainment for the lower and lower middle income classes. Third, an increasing percentage of American homes have phonograph record players. The importance and relative share of the market held by the juke box operator as a marketer of records at re ta il w ill probably decline. 308
9. These innovations in distribution patterns, practices,
and policies at the wholesale and retail level cited in conclusions
four, five, and six have had both beneficial and undesirable effects.
The gains achieved, however, outweigh the disadvantages. The great
est benefits derived are that wider distribution of records to the
consuming public has been achieved with the result that records have been transformed from a specialty good or a semi-specialty good into a mass consumed good; second, generally lower prices for records to the consumer have resulted. Undesirable effects resulting from the
changes are cut-throat competition in the record industry with eill
its accompanying ills , confusion, and misunderstanding among various
segments of the industry.
10. There is a need in this industry for an industry-wide trade association or three strong effective trade associations (for
each segment of the industry) which w ill work together effectively.
The two most pressing needs to be met by such a trade association or
associations are a research program involving the collection and dis
semination of industry-wide statistics and data for management use;
and second, a program of industry self-regulation.
11. There is little doubt but that a great deal of confusion
and misunderstanding exist among the various institutional segments
of the phonograph records industry as to the nature and implications
of the marketing revolution which has taken place in the industry
during the fifteen-year period, 1950-1965. Much of this lack of
perception on the part of management is based on the rapidity and
magnitude of this change. Second, there has been a general lack of 309 any comprehensive research on the industry or any industry statis tics and data available for management utilization. PART I I - RECOMMENDATIONS
1. Record producers should aneilyze their present distribu tion policies in light of current market condition^ This analysis A should consider the changes in marketing policies and practices and in marketing institutions which have taken place in the period, 1950-
1965 and evaluate their implications. Consideration should also be given to ramifications of the changes in the structural character of the record manufacturing industry during this period. After such study record producers should select distribution policies and chan nels which w ill most adequately effect the marketing job. Further, these distribution policies should be clearly defined to the whole sale and retail institutions in the trade channel. As a result of past failures to clearly define their distribution policies, record manufacturers bear a heavy responsibility for much of the current confusion, misunderstanding, and cut-throat competitive conditions in the industry. Specifically, policy formulation by producer should i/ & involve such things as:
a) Determination of whether the company w ill sell direct to rack jobbers, one stops, and large scale retailers and^if so, under ^ what conditions.
b) The development of a scale of functional discounts which would be equitable to the various classes of these wholesalers.
310 311
c) The development of a scale of quantity discounts for each class of buyer (e.g., wholesalers and retailers) if it is found such discounts can be justified under the Robinson-Patman
A ct,
Consideration should also be given by management to the development of a set of realistic suggested prices for the product at retail. If these objectives could be accomplished, market condi tions would be improved.
2. Record producers and marketers should utilize common economic and demographic factors discussed in this study in defining market segmentation and demand.
Further study of the relationships between these demo graphic and economic factors and record demand should be undertaken.
While the findings of the 1956 Life Study of Consumer Expenditures shed considerable light on relationships between record demand and certain demographic and economic factors, these findings need to be up-dated and the possible scope of research broadened.
3. It is recommended that further research be undertaken on the relevance of the various product facets such as purpose, rep ertoire, physical characteristics, sound reproduction, perishability, and price to record demand. While this study has developed some general conclusions about relationships between demand and these various product facets cited, more study in depth would be helpful.
Very little documented statistical data was available in 1965 to management to help it in the job of relating product to demand.
4. Currently there is little documented information available 312 on consumer motivation in the record buying process. A study in depth of consumer motivation in record buying would be useful in pro: ■ ag management with greater insights and guidance for various marketing efforts such as product design, channel selection, point of sale techniques, and advertising.
5, To improve their marketing efficiency, independent dis tributors should analyze how they might best service market needs under present market conditions. This is imperative if this type of wholesaling institution is to survive. It is recommended that in dependent distributors consider integrating their operations on a horizontal and vertical basis. Wherever market conditions appear favorable, distributors should develop rack jobbing operations and establish one stops. In order to protect their primary market, dis tributors should improve and expand the quantity and quality of merchandising service to conventional retail outlets. Distributors should also give serious consideration to developing voluntary re tailer cooperative groups. This latter suggestion would benefit not only the distributor but also help the independent record retailer.
There is considerable precedent for this practice in other lines of tra d e .
Independent wholesalers should handle a reasonably wide variety of producers' lines so as to be able to appeal to a wide segment of the market and also to better insure themselves of having a hit record most of the time.
6 . It is recommended that conventional retail record out lets study their own geographical market area in terms of needs to be met and on that basis define their own store character. Internal 313 store policies and merchandising procedures should be examined in the light of current market conditions. Retail store management must perceive the changes that have taken place in the marketing of records at retail, and understand the implications of these changes relative to their own operations.
Modern self-service techniques of merchandising, e,g ,, display and layout must be employed by retail record specialty stores.
Most conventional outlets need to meet price competition of racked operations because of the inherent nature of pop records. Many rec ord shops can best compete by accentuating their specialty store character. Independent retail outlets should give serious considera tion to the use of voluntary buying groups to solve some of their problems. There is considerable precedent for this course of action in o th e r li n e s o f tr a d e . Some c o n v e n tio n a l s to r e s may f in d i t d e s i r able to shift to a racked operation,
7, Management individually and collectively should make every effort to alleviate the confusion and misunderstanding currently prevailing among the various segments of the phonograph records in dustry, Industry leaders should initiate steps to institute a pro gram of industry self-regulation aimed at clarifying trade practices and eliminating undesirable ones. Establishing healthy lines of com munication and promoting a better understanding of the functions and the problems of each segment of the industry are desirable objectives.
Collective efforts might best be accomplished through a trade association.
As suggested previously, individual company management could make a real contribution toward these objectives by careful 314 analysis of the implications of this marketing revolution on its own operations and by clearly defining its own marketing policies.
Any efforts which helped to achieve these objectives would contrib ute toward improving the marketing process in this industry.
8. It is recommended that an industry-wide trade associa tion be established which would embrace all levels, manufacturers, wholesalers, and retailers. It appears that one association would be best, for in the past, trade associations embracing only one institutional segment were inadequate to cope with the problems or failed to cooperate with each other.
In addition to the usual functions of a trade association such as political lobbying and trade promotion, a research and data collection function should be organized. Industry-wide statistics including operating data should be developed and such data made available for management's guidance. There are few industry-wide statistics now available for use other than the few published by
Record Market Research Corporation, a subsidiary of Billboard Magazine,
A program of industry self-regulation should be under taken. An effective program of industry self-regulation would cut down on many of the ills which now plague the industry and would pro mote better understanding between the various institutional segments of each other's problems. To the extent that an industry trade as sociation could accomplish these two objectives, the marketing proc ess would be helped.
The most logical nucleus for such a trade association as recommended is the National Association of Record Merchandisers, for currently it is the most dynamic trade group in this industry. APPENDIX A
For the study primary research had to be undertaken to se cure requisite information either not available through secondary research or incomplete. In consultation with the Dissertation Com mittee at Ohio State University and the Industry Advisory Committee a decision was reached to employ mail questionnaires as a means of primary research.
The Industry Advisory Committee is composed of ten leading executives representing various industry groups such as manufac turers, wholesalers, retailers, trade publications, and trade asso ciations.^ Under the guidance of the Dissertation Committee at Ohio
State University and this Industry Advisory Committee the five ques tionnaires incorporated as part of this Appendix were developed. It was decided that separate questionnaires were to be utilized for re searching each of the five institutional segments of the industry— manufacturers, distributors, one stops, rack jobbers, and retailers.
There is, however, a general sim ilarity of purpose, format and ques tions pervasive in all five questionnaires.
In approaching the problem of sampling it was determined that each level of the trade channel, manufacturers, wholesalers, and
^For the names of these executives and the organizations they represent, the reader is referred to the Preface of this study.
315 316 retailers, presented different problems and therefore might well re quire individual sampling procedures.
Lists of firms in each of the five segments of the industry were developed in collaboration with the Industry Committee and
Billboard Magazine, the leading trade publication in this industry.
Billboard Magazine's yearly publication, ^ International Buyer's
Guide and Directory of the Music-Record Industry, is considered to be the most authoritative and complete compilation of firms in the industry. This 1965-66 International Buyer's Guide and Directory of the Music-Record Industry served as the primary source for the mailing lists employed.
It was the judgment of the Industry Committee and the faculty of The Ohio State University that a sample of producers should be drawn rather than attempting to research the universe. A 30 per cent stratified-random sample of the 890 record producers-manufac turers currently in operation was used. This 30 per cent sample was selected with the anticipation of receiving a 10 per cent overall return from the universe. It was not expected that 100 per cent of the questionnaires sent to a 30 per cent sample of record firms would be returned, A larger in itial size sample was utilized for manufac turers than retailers, based on the assumption that the standard de viation of the firm size is higher among the manufacturers than among retailers. Thus it was necessary to get a larger sample of manufac turers than retailers in order to secure a similar degree of accuracy in both samples and compensate for the anticipated larger standard e r r o r . 317
Stratification of manufacturers was based on five categories as discussed in Chapter I, A random sampling technique was utilized to select manufacturers from each category except the first category which represented the large firms in the industry. In this group, the universe was used. An actual 9 per cent sample of the universe of record manufacturers was achieved. The 267 manufacturers sampled represented more than 90 per cent of the industry's dollar sales volume.
There are approximately 7,500 retailers currently engaged in selling records. Because of this large number, the use of a sample was deemed especially necessary. An initial 5 per cent stratified- rêindom sample was selected with the anticipation of receiving a 2 per cent sample of the universe. The design of the stratification technique was predicated on geographical location and dollar sales volume size categories. The United States was divided into eight geographical regions, with each region accounting for approximately
12 1/2 per cent of the total dollar record volume. Retail outlets were then classified into sixteen size categories (based on dollar sales volume done) within each of the eight geographical regions.
This sample design results in a 128 retailer strata. A sample of three firms from each of the 128 strata was selected using random number tables, thus deriving a sample of 384 retailers.
This stratified-random technique employed for the retail sam ple is the same one Record Market Research Corporation employs in
^The reader is referred to Chapter I, page 13 for a detailed discussion of the five categories of manufacturers employed for stratification purposes. 318
its own sampling for determining its top ten and top one hundred 3 lists of best selling records published weekly. The actual return
rate achieved on the retailer universe was 1,8 per cent. The uni
verse of the wholesale segment of the channel was relatively small,
so questionnaires were sent to the entire universe of distributors,
rack jobbers, and one stops.
Questionnaires were distributed to the industry on July 22,
1965, accompanied by a cover letter signed by members of the Industry
Advisory Ccsranittee urging participation in the study. A follow up
letter in the form of a reminder was sent two weeks later on August
7, 1965 (both letters are included as part of this Appendix). The
actual size of the sample and the return rates for each of the five
institutional segments of the industry are shown below:
Total Number of Number o f Per Cent of Re Institutional Questionnaires Usable turns for Each Segment Sent R eturns Institution
Manufacturers 267 78 29.2 Distributors 357 109 30.5 Rack Jobbers 184 66 35 .9 One S to p s 241 58 24 .1 R e ta ile r s 383 132 34.5
Totals 1,432 440 30.7
Thus of the total sample of 1,432 firms, an overall return rate of
approximately 31 per cent was achieved. The per cent return from
^Record Market Research Corporation, a subsidiary of Billboard, is the leading research agency in the industry. Among other things, it compiles weekly a list of best selling pop Singles and LP records, which is quoted internationally as a buying and general marketing guide. The above sample stratification design was predicated on Rec ord Market Research's stratification techniques used in compiling its weekly best selling lists of records. 319 each of the five institutional segments was fairly consistent, rang ing from 2>i,l per cent to 35,9 per cent.
Recognizing that the questionnaires contain both qualitative and quantitative answers and that some of the quantitative data per mit establishment of frequency distributions with only a small number of classes, analysis does indicate that the sample sizes employed in this study are sufficiently large to permit valid inferences of the population.
For example, for each of the five major segments of the indus try employed in this study, the data from the questionnaires permit the construction of a frequency distribution for sales. However, the distribution for manufacturing and retailing is highly skewed; therefore, only the data for distributors, one stops, and rack job bers were employed. Using the formula n = ^ ^ » and a confidence %2 coefficient of 95 per cent, the confidence lim its for distributors, one stops, and rack jobbers are respectively $94,000, $199,657, and
$437,000, Thus, in each case the size of the confidence lim its are small enough to permit valid predictions about the population with
95 per cent confidence. In addition, it should be noted that this formula applies to infinitely large populations, whereas the popula tions of this study are all finite. Thus, the data indicate that the sample sizes enployed in this study are sufficiently large to permit valid inferences about the populations. 320
COLLEGE OF WILLIAM AND MARY FOUNDED IN 1693 WILLIAMSBURG, VIRGINIA July 22, 1965
To Members of the Phonograph Records Industry
As most of you know, substantial changes have taken place in the marketing of phonograph records during the past 15 years. In view of a need for greater knowledge of current marketing practices and policies and in an effort to develop a better insight into what has taken place in distribution in our industry. Professor Algin B. King of the College of William and Mary in Virginia has undertaken a research study entitled: The Marketing of Phonograph Records: An Industry Study, This study w ill be presented to the Faculty of the Ohio State University as a doctoral dissertation.
In an effort to assist and guide Mr. King in this research program we have served as an industry committee over the past five months and the attached questionnaire w ill serve as a prime means through which information on the marketing problems, policies and practices of our industry will be developed.
We are fam iliar with the purposes and objectives of Mr. King's research study and believe that it will serve a useful purpose in fur thering industry knowledge of a most important facet of our industry, by pointing up the problems, policies, and practices in the marketing of phonograph records. The study w ill be objective in nature and is not designed to favor any segment or group in the phonograph records industry. Individual company answers w ill be maintained in complete confidence and will be used only on an integrated basis with data from other firms. It is our hope that the findings of this study will be published.
As a member of the phonograph records industry your help is needed in supplying the requisite information for this research study. We should therefore like to solicit your help and ask you to fill out the attached questionnaire and return it at your earliest convenience.
All firms participating in the study will be furnished a copy of the basic findings of the survey.
Sincerely yours,
The Industry Committee Assisting The Research Study of Professor King, The Marketing of Phonograph Records: An In d u s try Study 321
Mr. Alvin Bennett, President Liberty Records, Inc.
Mr, John Y. Burgess, Vice President RCA Victor Record Division
Mr, H al B. Cook, P u b lis h e r The Billboard
Mr. Dan Danziger, President The Disc Shop
Mr, William P. Gallagher, Vice President Columbia Records
Mr. Cy Leslie, President Pickwick International, Inc.
Mr. Jules Malamud, Executive Director National Association of Record Merchandisers, Inc, (Chairman of the Committee) COLLEGE OF WILLIAKI AND MARY 322 Williamsburg, Virginia August 7, 1965
To Members of the Phonograph Records Industry
In case you haven’t returned a filled-In questionnaire this is just a reminder to please fill one out and return it to me at your earliest convenience. Final tabulations w ill be made around August 21st so w e'll have to receive it by approximately that date. We urge you to participate in this survey so that we can return some meaningful statis tics to you people in the phonograph records industry.
In case you have returned a completed questionnaire please disregard this request except for one thing. In order to insure complete confidentialness of the data we did not code the questionnaires in any way; thus we need your name and address so that we can send you a tabulated result of the questionnaires. Please return your name and address to us in the enclosed envelope. You are entitled to receive this tabulated result only if you return a com pleted questionnaire.
Thanks for your cooperation.
S in c e re ly ,
Algin B, King, Professor of Business Administration
ABKzjfl
E n clo su re 32J The College of William and Mary, Williamsburg; Virginia, Bureau of Business Research
» Resume of the Study of THE MARKETING OF PHONOGRAPH RECORDS: AN INDUSTRY STUDY
OBJECTIVES 3, It will provide a better insight for management of each segment in The major objectives of this work are solving marketing problems, anti ( 1) to develop new knowledge of marketing cipating trends, formulating more problems and practices in the marketing effective marketing practices with of phonograph records; ( 2) to develop the end result that the marketing insights and knowledge which w ill result of phonograph records is more in an improvement in the marketing process productive. for all segments of the phonograph records industry; and (3) to a^d to the general To Colleges and Universities store of marketing knowledge to the end that marketing as a vital economic process Thp results of this study w ill provide may become more p ro d u c tiv e , knowledge regarding the marketing problems, policies, and practices of METHODOLOGY an important multi-million dollar in dustry to the general body of marketing 1. Pertinent information from published know ledge, books and from general and industry periodicals is being integrated with HOW PARTIOTPATING FIRM DATA WILL BE USED this study. 2. This questionnaire (and a similar Your responses to this questionnaire will one, each designed to fit the par be combined with those of other partici ticular segment of the record pating firms. The data will be analyzed industry) is being sent to firms to determine the results of your aggre in the industry. Thus, questionnaires gate experience. are being circulated to record manu facturers, record distributors, rack Questionnaires are identified only by jobbers, one stops and record retailers, code number for anonymity in processing. 3. Intensive interviews with selected Only broad aggregates of data, under companies will reinforce the study, rules preventing disclosure of individual firm data, w ill be published. PRACTICAL VALUE OF THE STUDY AVAILABILITY OF THE STUDY To Corporate Management in the Phonograph Records Industry All participating will be sent the tabulated results of the questionnaires 1, It will provide a definitive picture regardless of what type, if any, of a of the current marketing problems, publication results from the study. It policies and practices of the phono is hoped that the study w ill be published. graph records industry by basic segments of the industry, i.e., DIRECTION OF THE STUDY manufacturers, distributors, one stops, rack jobbers and retailers, Research is being conducted by Algin B„ 2, It will provide each segment of the King, Professor of Business Administra industry with a betteriunderstanding tion at the College of William and Mary. of "the total marketing picture" in An industry committee whose composition the industry and a better understanding is noted on the cover letter has been of the problems and requisite role of assisting and guiding Mr, King's efforts other segments of the industry. in this research program. Professor King's doctoral dissertation study on the mar keting phase of the phonograph records industry is under the general direction of Dr, T,N, Beckman of the Ohio State University, a nationally known marketing a u th o r ity . j2 k QUESTIONNAIRE - To M anufacturers
I How long has your company been in business?
le s s th a n 3 y e a rs 3-5 years 6-15 years 16-25 years over 25 years
2. Do you own any pressing plants?
Yes No
If yes, how many pressing plants does your company own?
one two th r e e four or more
3. Do you own any re c o rd in g s tu d io s ?
Yes No
I f y e s , how many re c o rd in g s tu d io s does your company own?
one two th r e e four or more
4. Does your company have any wholly owned distributors?
Yes No
If yes, how many wholly owned distributors does your company have?
1-4 5-10 .11-15 16-20 ___ 21-25 more than 25
5. How many wholly owned distributors did your company have 10 years ago? i.e ., in 1955. none less than 5 \ 5-10 11-15 16-20 21-25 more than 25 Manufacturers 32$
6 , Does your company market its products (exclusively) (primarily) (some) (none) through independent distributors, i.e., distributors not owned by you? (Circle one)
7. Approximately how many independent distributors does your company currently u t i l i z e ?
. none less than 5 . 6-10 11-15 16-20 21-25 more than 25
8. How many independent distributors did your company utilize 10 years ago? i.e ., in 1955.
none less than 5 6-10 11-15 16-20 21-25 more than 25
9. What proportion of your current annual (1964) dollar sales is accounted for by sales to each of the following segments of the industry? % o f s a le s
Distributors owned by my company %
Independent distributors (not owned by my company) %
Direct to rack jobbers (with no intervening distributors involved) ______%
Direct to One Stops (with no intervening distributors involved) ______%
Direct to any large retail users and/or retail dealers (with no intervening distributors or other middlemen involved) %
Premiums or other promotional purposes product sold to companies other than regular wholesale or retail segments of the record industry %
10. Does youf company operate a record club at the consumer level?
_____ Yes No
If yes, what proportion of your total dollar sales volume is accounted for by your record club sales? '
% of total dollar sales volume
11. Approximately what % of your sales dollar is spent for advertising and sales promotion in connection with your product offerings? Manufacturers 326
12. Which do you consider the most important methods in promoting and selling your records? (Number them in the order of importance.) For example, point of sale #1 r a d io ttl, e t c . '
(a) Newspaper advertising (b ) R adio Cc) T.V. (d) Consumer magazines (e) Trade advertising - i.e., trade magazines, trade papers, etc. (f) Promotional men contacting disc jockeys, etc. (g) Point of sale aids for retail dealers (h) Others (please list other methods specifically by name)
13. Do these methods currently utilized differ significantly in their relative importance from those used in years past?
Yes No
If yes, show how they differ by comparing methods used 8 to 10 years ago by marking their relative importance in use then, below.
(a) Newspaper advertising (b ) Radio (c ) T.V. (d) Consumer Magazines (e) Trade advertising - i.e., trade magazines, trade papers, etc. (f) Promotional men contacting disc jockeys (g) Point of sale aids for retail dealers (h) Others (please list specifically by name)
14. Does your company give "free merchandise" as a form of quantity discount or as a promotional device to stimulate sales on the following product classes?
(a) Singles ______Yes _____ No (b) Albums ______Yes _____ No
15. What is your discount structure to various segments in the marketing structure? That is, what is your functional or trade discount structure (for example - 40% off to retailers, 40% + 10% to rack jobbers, etc.) on each basic class of product to: Singles Albums (a) independent distributors ______(b) rack jobbers ______(c) one stops ______(d) retail dealers ^
16. Do you grant quantity discounts in the sale of records? (As an example, on purchases of 100-500 records - a 5% quantity discount is given, 501-1,000 records - a 10% quantity discount is given, etc.)
Yes No '
If yes, list your quantity discount structure below: Manu^cturers 32?
17. Do you grant cash discounts to buyers? (By cash discounts we mean a concession off billed prices for prompt payment of invoice, i.e., 2% 10 d a y s .)
Yes No
If yes, please list your cash discount policy below;
18. Do you grant buyers credit terms? (By credit terms we mean a specified period of time in which to pay the invoice, i.e. net 90 days or 1/3 of invoice due in 30 days, another 1/3 due at 60 days, etc.)
Yes No
If yes please list your terms or credit policy below:
19. Does your company allow merchandise to be returned under certain conditions? (For example, do you allow 10% return of goods within a 60 day period, etc.)
Yes No
If yes, list your return policy schedule below :
For Singles ______
F or Albums
20. Different types of ultimate consumer markets want different types of record products by repertoire classes. Check what you think constitutes the basic market segment or segments (by age group) for each product listed by repertoire c l a s s . Teen Easy Listening Market Segments Current Hits Beat LPs - Vocals & Country R&B by Age Groups bn Singles LPs Instrumentals Jazz Folk LPs LPs Classical un der 12
13-20 years
21-30 years
31-50 years \ ; over 50 years Manufacturers 328 21. What are the primary sources of information on consumer product demand and sales trends utilized by you? (Please number in order of importance as a source of information.) * (a) internal sales records of your own company (b) reports of salesmen, distributors, and promotion men (c) popularity charts of trade papers such as Billboard and Cash Box (d) our own market research studies (e) outside Market Research studies conducted by Billboard's Research D epartm ent (f) other - please specify ______
22. In your opinion, would the adoption by the industry of a standardized speed, for example, 33 1/3 rpm, be of substantial benefit to the phonograph records industry? Yes ______No
23. What do you feel are the most pressing marketing problems facing the record manufacturer? List them in the order of their significance, 1 .
3.
4.
24. Annual Dollar Sales Volume Patterns in 1964 for the Record Manufacturing Industry Annual $ Volume Brackets (check the one appropriate for your 1964 Sales Volume) less than $500,000 _____ 2,000,001 - 3,000,000 _____ 8,000,001 - 12,000,000 500,001 - 1,000,000 _ 3,000,001 - 5,000,000 12,000,001 - 20,000,000 1,000,001 - 2,000,000 _____ 5,000,001 - 8,000,000 _____ over $20,000,000
25. Annual Net Profit Patterns for 1964 in the Record Manufacturing Field % of Profit on Sales (check appropriate box) less than 2% profit , ______9% - 12% p r o f i t 2% - 4% profit 5% - 8% p r o f i t ______over 12% profit
Thank you for your cooperation.
Please check to see that all statements are completed. Each is important.
Please return in the attached Business Reply envelope to:
Professor A.B. King Bureau of Business Research The College of William and Mary Williamsburg, Virginia 329 The College of William and Mary, Williamsburg, Virginia, Bureau of Business Research
' Resume of the Study of THE MARKETING OF PHONOGRAPH RECORDS: AN INDUSTRY STUDY
OBJECTIVES 3. It will provide a better insight for management of each segment in The major objectives of this work are solving marketing problems, anti ( 1) to develop new knowledge of marketing cipating trends, formulating more problems and practices in the marketing effective marketing practices with of phonograph records; ( 2) to develop the end result that the marketing insights and knowledge which w ill result of phonograph records is more in an improvement in the marketing process productive. for all segments of the phonograph records industry; and (3) to add to the general To Colleges and Universities store of marketing knowledge to the end that marketing as a vital economic process The results of this study will provide may become more p ro d u c tiv e . khowledge regarding the marketing problems, policies, and practices of METHODOLOGY an important multi-million dollar in dustry to the general body of marketing 1 . Pertinent information from published know ledge. books and from general and industry periodicals is being integrated with HOW PARTICIPATING FIRM DATA WILL BE USED this study. 2 . This questionnaire (and a similar Your responses to this questionnaire will one, each designed to fit the par be combined with those of other partici ticular segment of the record pating firms. The data will be analyzed industry) is being sent to firms to determine the results of your aggre in the industry. Thus, questionnaires gate experience. are being circulated to record manu facturers, record distributors, rack Questionnaires are identified only by jobbers, one stops and record retailers. code number for anonymity in- processing. 3. Intensive interviews with selected Only broad aggregates of data, under companies will reinforce the study. rules preventing disclosure of individual firm data, will be published. PRACTICAL VALUE OF THE STUDY AVAILABILITY OF THE STUDY To Corporate Management in the Phonograph Records Industry All participating will be sent the tabulated results of the questionnaires 1. It will provide a definitive picture regardless of what type, if any, of a of the current marketing problems, publication results from the study. It policies and practices of the phono is hoped that the study will be published. graph records industry by basic segments of the industry, i.e., DIRECTION OF THE STUDY manufacturers, distributors, one stops, rack jobbers and retailers. Research is being conducted by Algin B. 2. It will provide each segment of the King, Professor of Business Administra industry with a better understanding tion at the College of William and Mary. of "the total marketing picture" in An industry committee whose composition the industry and a better understanding is noted on the cover letter has been of the problems and requisite role of assisting and guiding Mr. King’s efforts other segments of the industry. in this research program. Professor King's doctoral dissertation study on the mar keting phase of the phonograph records industry is under the general direction of Dr. T.N. Beckman of the Ohio State University, a nationally known marketing a u t h o r i t y . 330
1. How long has your company been in business? I le s s th an 3 y e a rs 3-5 years 6-15 years 16-25 years over 25 years
2. Do you own a one stop operation?
Yes No
If yes, how many one stop operations do you own?
one 2-4 5-8 more th an 8
3. Are you involved in a rack jobbing operation?
No
If yes, in how many locations do you have racks?
1-5 6-10 11-15 16-25 more th a n 25
4. Do you own any retail outlets?
Yes No
If yes, how many retail outlets or retail leased departments do you own?
1-5 6-10 11-15 more th a n 15
5, Is your company owned by a record manufacturing company?
Yes No
If yes, do you both sell (have sales force) and warehouse the product or only have a sales office? (Check one) ;
(a) both warehouse and sell the product. (b) only maintain a sales office with no warehousing facilities. Distributors 331
6 . Approximately how many different manufacturers' lines do you normally handle? (Check one) ,
o nly 1 _____ 2-5 lines 5-10 lines 10-15 lines more than 15 lines
7. What proportion of your 1964 record dollar sales volume is accounted for by each of the following classes of your customers? % of dollar sales accounted for by each class of customer Rack jobbers ______% One s to p s ______% Traditional record retail dealers ______% Large discount retail outlets . ______% Juke Box operators %
8, Define the basic geographical marketing area in which you operate, i.e ., have accounts, etc., by checking the appropriate area as listed below.
one state area two state area 3-5 state area more than 5 state area
9. Does your firm have a formal inventory control system? If so, check the basic type of system used and/or describe your system if listed answers are not adequate.
(a) no formal inventory control system is used. (b) a periodic physical count system is used, i.e ., records are counted once a week, or once every two weeks, etc. (c) a perpetual inventory control system in which every unit sold is recorded daily, etc. (d) other - please describe other ______
10. Approximately what % of your own sales dollar (not cooperative money) is spent for advertising and sales promotion in connection with your product offerings? %
11. Which do you consider the most important method in selling your product? (Number them in the order of importance.) For example, point of sale #1, radio #2, etc.
(a) newspaper advertising (b) radio advertising (c) T.V. advertising (d) magazine (e) trade advertising (f) promotional men contacting disc jockeys, etc. (g) point of sale aids for retail dealers (h) others (please list other methods specifically by name)
12. Do these methods currently utilized differ significantly in their relative importance from those used in years past? ^
Yes ■ '''\ No Distributors 332
If yes, show how they differ by comparing methods used 8 to 10 years ago by marking their relative importance in use then, below,
(a) newspaper advertising (b) radio (c ) T.V. (d) consumer magazines (e) trade advertising - i.e., trade magazines, trade papers, etc. (f) promotional men contacting disc jockeys (g) point of sale aids for retail dealers (h) others (please list specifically by name)
13. What is your company's distribution policy with regard to the giving of free merchandise to various classes of middlemen and retailers?
Albums Singles
As a firm, we give free merchandise as a form of a quantity discount, or as a promotional device to stimulate sales. We simply pass on the "next buyer" the free goods deal given by the manufacturer as a promotional device, etc. We do not give free merchandise for any cause or reason.
14. What is the discount structure to each of the various segments in the marketing structure? That is, what is the functional or trade discount (for example, 40% off to retailers, 40+10% to rack jobbers, etc.) on each basic class of product:
Singles Albums (a) rack jobbers ______(b) one stops ______(c) retail dealers ' (d) juke box operators ______
15. Do you grant quantity discounts in the sale of records? (As an example, on purchases of 100-500 records - 5% quantity discount is given, 501-1000 records - 10% quantity discount is given, etc.)
Yes No -----
If yes, list your quantity discount structure below:
IG. Do you grant buyers credit terms? (By credit terms we mean a specified period of time in which to pay the invoice, i.e ., net 90 days, etc.)
Yes No
If yes, please list your terms or credit policy below.
17. Does your company allow merchandise to be returned under certain conditions? (For example, do you allow 10% return of goods within a 60 day period, fete.)
Singles • Albums Yes Yes . va ■ , No No \ \ ■ / Distributors ^33
If yes, does this policy represent: I your own p o lic y or simply the passing on of the manufacturer’s return guarantee.
Please list your return policy schedule below:
18. Do you sell your customers on terms of (check ones applicable)
(a) exchange (b) returns (c) no returns or exchanges (d) rebates or added discounts in lieu of returns and exchanges
19, What are the primary sources of information on consumer product demand and sales trends utilized by you?
(a) internal sales records of your own company (b) reports of salesmen, promotion men, and other marketers such as retailers, rack jobbers, etc. (c) popularity charts of trade papers such as Billboard or Cash Box (d) local radio station charts (e) manufacturers suggestions (f) other - please specify ______
Please number these sources in the order of their importance as a source of information to your company in guiding you in your buying and other marketing decisions by filling in the blanks with 1, 2, etc.
20. In your opinion would the adoption by the industry of a standardized speed, e.g., 33 1/3 rpm, substantially benefit the phonograph records industry?.
Yes No
21. What do you feel are the most pressing marketing problems facing the distributor? List them in the order of their significance.
1 .
3,
4.
22. Do you feel that government regulation of marketing practices in the industry is
(a) about right (b) more government regulation is needed ' (c) less government regulation than now exists is desirable (d) am not familiar enough with government regulation to express an opinion.
\ \ Distributors
23. Annual Dollar Sales Volume Patterns in 1964 for Record Distributors » Annual $ Volume Brackets (Check the one appropriate for your 1964 Sales Volume)
less than $100,000 100.001 - 250,000 250.001 - 500,000 500,001 - 1,000,000 1 , 000,001 - 2 , 000,000 2.000.001 - 3,000,000 3.000.001 - 5,000,000 5.000.001 - 8,000,000 8, 000,001 - 12, 000,000 ____ over $12,000,000
24. Annual Net Profit Patterns for 1964 in the Wholesale Distributor Field (check appropriate box)
% of Profit on Sales
under 2% profit 2 to 4% p r o f i t 5 to 8% profit 9 to 12% profit over 12% profit
Thank you for your cooperation.
Please check to see that all statements are completed. Each is important.
Please return in the attached Business Reply envelope to: I Professor A.B. King \ Bureau of Business Research The College of William and Mary Williamsburg, Virginia
\ 335 The College of William and Mary, Williamsburg, Virginia, Bureau of Business Research
Resume of the Study of THE MARKETING OF PHONOGRAPH RECORDS: AN INDUSTRY STUDY
OBJECTIVES 3. It will provide a better insight for management of each segment in The major objectives of this work are solving marketing problems, anti (1) to develop new knowledge of marketing cipating trends, formulating more problems and practices in the marketing effective marketing practices with of phonograph records; (2) to develop the end result that the marketing insights and knowledge which w ill result of phonograph records is more in an improvement in the marketing process productive. for all segments of the phonograph records industry; and (3) to add to the general To Colleges and Universities store of marketing knowledge to the end that marketing as a vital economic process The results of this study w ill provide may become more productive. knowledge regarding the marketing problems, policies, and practices of METHODOLOGY an important multi-million dollar in dustry to the general body of marketing 1. Pertinent information from published know ledge. books and from general and industry periodicals is being integrated with HOW PARTICIPATING FIRM DATA WILL BE USED this study. 2. This questionnaire (and a similar Your responses to this questionnaire will one, each designed to fit the par be combined with those of other partici ticular segment of the record pating firms. The data will be analysed industry) is being sent to firms to determine the results of your aggre in the industry. Thus, questionnaires gate experience. are being circulated to record manu facturers, record distributors, rack Questionnaires are identified only by jobbers, one stops and record retailers. code number for anonymity in processing. 3. Intensive interviews with selected Only broad aggregates of data, under companies will reinforce the study. rules preventing disclosure of individual firm data, will be published. PRACTICAL VALUE OF THE STUDY AVAILABILITY OF THE STUDY To Corporate Management in the Phonograph Records Industry All participating will be sent the tabulated results of the questionnaires 1. It will provide a definitive picture regardless of what type, if any, of a of the current marketing problems, publication results from the study. It policies and practices of the phono is hoped that the study will be published. graph records industry by basic segments of the industry, i.e., DmEGTION OF THE STUDY manufacturers, distributors, one stops, rack jobbers and retailers. Research is being conducted by Algin B. 2. It will provide each segment of the King, Professor of Business Administra industry with a better understanding tion at the College of William and Mary. of "the total marketing picture" in An industry committee whose composition the industry and a better understanding is noted on the cover letter has been of the problems and requisite role of ; assisting and guiding Mr. King's efforts other segments of the industry. in this research program. Professor King's doctoral dissertation study on the mar keting phase of the phonograph records industry is under the general direction of Dr. T.N. Beckman of the Ohio State University, a nationally known marketing a u t h o r i ty . 336 jÇilESTlONNAlRE - To &aük Jobberô
1. How long has your qinpariy been in businéfis?
lesa than 3 year# 3-5 y e a rs 6-10 years 11-15 years over 15 y e a rs
2. Is your company owned by a wholesale distributor?
i.es No
3. Define your basic geographical marketing area in which you operate, i.e ., have racks, etc., by checking the appropriate area as listed below.
(?) one city or metropolitan area (b) more than a metropolitan area but less than an entire state (c) 1 to 3 state area (d) 4 to 6 state area (e) 7 or more state area
4. Indicr:e the app:oximate number of rack locations you have currently by checking the apnrjpriate blank below.
(a ) 1-10 (b ) 11-20 (c) 21-40 (d) 41-60 (e) more than 60
5. In the situation where you are not operating a leased department in a retail outlet, do you have
(a) complete say so as to what product offerings are selected for the given stores rack. (b) to share this responsibility with the management of the retail store in which the rack is located,
6. Do you operate any leased departments in retail stores?
Yes No
7. If the answer is yes, under what type of an arrangement,' i.e., a % of sales; a dollar rent guarantee; etc.
a % of sales a dollar rent guarantee for a year ■ other - please specify other \
8, Do you operate a one stop operation either separately or in Connection with your rack jobbing bUsihesk?
. Yes ^ No Rack Jobbers 337
9. List your major sources of supply (by type of source, i.e., distributor, manufacturer, other) and the approximate proportion of your records purchased from each for years 1964 and 1960.
1964 Source of Supply % of Total Purchased from Each 1. Manufacturer (direct buying with no distributor involved) %
2. Distributor %
3. Other %
1960 1. Manufacturer (direct buying with no distributor involved)
2. Distributor
3. O ther
10. What proportion of your sales volume in 1964 is accounted for by each of the following classes of your customers, i.e., type of store in which or through which you sell? % of Sales Volume Accounted for by Each Class Glass of Customer of _Custom er ______
Discount Department Stores %
Variety Stores %
Supermarkets %
Department Stores %
Drug Stores %%
O th ers %
11. Approximately what % of your sales dollar is spent for advertising and sales promotion in Connebtion with your product offerings?
%
12. Which do you consider the most important method in selling your product? (Number them in the order of importance.) For example, point of sale #1, radio #2, etc.
(a) Newspapers (b) Shoppers guides ^ (c) Radio (d) T.V. (e) Point of sale aids for retail dealers (f) Personal selling by company salesman (g) Trade magazines and papers (h) Others (please specify others) Rack Jobbers 336
13. Do these methods currently utilized differ significantly in their relative importance from years past? * Yes No
If yes, ,ihow how they differ by comparing methods used 8 to 10 years ago by marking their relative importance in use then below.
Newspapers ^ Shoppers guides Radio T.V. Point of sale aids for retail dealers Personal selling by company salesman Trade magazines and papers Others (please specify others)
14. How do you service your accounts?
(a) Route men (b ) M ail (c) Phone (d) Combination of above methods (e) Other (please specify)
15. How often do you service your accounts?
(a) more than once a week (b) once a week (c) twice a month (d) once a month or less often
16. How do you buy your products (check the methods utilized)?
(a) from vendor's salesman calling on my place of business (b) via the telephone (c) via mail, i.e., placing a regular order by letter or order blank (d) personally visiting the manufacturer or distributor's place of business (e) alJ of the above methods are used
17, Different typ 13-20 years . 21-30 years 31-50 years over 50 years \ Rëck Jobbers 53c) 18. What are the primary sources o£ information on consumer product demand and sales trends utilized by you? (a) internal sales records of your own company Please number these sources in the order of- their importance as a source of information to your company and a motivation in buying and other marketing decisions in the blank spaces provided, 19. Does your firm have a formal inventory control system? If so, check the basic type of system used and/or describe your system if listed answers are not adequate. (a) No formal inventory control system is used (b) A periodic physical count system is used, i.e., records are counted once a week, every 2 weeks, etc. (c) A perpetual inventory control system in which every unit sold is recorded daily, etc. 20. In your opinion would the adoption by the industry of a standardized speed, for example, 33 1/3 rpm, be of substantial benefit to the phonograph records industry? Ves No 21. Do you feel that government regulation of marketing practices in the industry is (a) about right (b) more government regulation is needed _____ (c) less government regulation than now exists is desirable (d) not fa m ilia r enough w ith government re g u la tio n to comment on i t . 22. What do you feel are the most pressing marketing problems facing the rack jobber? (List them in the order of their significance.) 2 . 3. 4. 23. Annual $ S ales Volume P a tte rn s in 1964 fo r Rack Jobbers Annual Volume Brackets (Check the one appropriate,for your 1964 Sales Volume) less than $100,000 _____ ^ 500,001 - 1,000,000 5,000,001 - 8,000,000 100,001 - 250,000 _____ 1,000,001 - 2,000,000 8,000,001 - 12,000,000 250,001 - 500,000 _____ 2,000,001 - 3,000,000 over $12,000,000 ____ 3,000,001 - 5,000,000 Rack Jobbers 3U0 24. Annual Net Profit Patterns for 1964 in the Rack Jobber Field (check appropriate box) % of Profit on Sales under 2% profit 2% to 4% profit 5% to 8% profit over 8% profit Thank you for your cooperation. Please check to see that all statements are completed. Each is important. Please return in the attached Business Reply envelope to: Professor A.B. King Bureau of Business Research The College of William and Mary Williamsburg, Virginia 341 The College of William and Mary, Williamsburg, Virginia, Bureau of Business Research Resume of the Study of THE MARKETING OF PHONOGRAPH RECORDS: AN INDUSTRY STUDY OBJECTIVES 3. It will provide a better insight for management of each segment in The major objectives of this work are solving marketing problems, anti (1) to develop new knowledge of marketing cipating trends, formulating more problems and practices in the marketing effective marketing practices with of phonograph records; (2) to develop the end result that the marketing insights and knowledge which w ill result of phonograph records is more in an improvement in the marketing process productive. for all segments of the phonograph records industry; and (3) to add to the general To Colleges and Universities store of marketing knowledge to the end that marketing as a vital economic process Ttve results of this study w ill provide may become more p ro d u c tiv e . knowledge regarding the marketing problems, policies, and practices of METHODOLOGY an important multi-million dollar in dustry to the general body of marketing 1. Pertinent information from published know ledge. books and from general and industry periodicals is being integrated with HOW PARTICIPATING FIRM DATA WILL BE USED this study, 2. This questionnaire (and a similar Your responses to this questionnaire w ill one, each designed to fit the par be combined with those of other partici ticular segment of the record pating firms. The data will be analyzed industry) is being sent to firms to determine the results of your aggre in the industry. Thus, questionnaires gate experience. are being circulated to record manu facturers, record distributors, rack Questionnaires are identified only by jobbers, one stops and record retailers. code number for anonymity in processing. 3. Intensive interviews with selected Only broad aggregates of data, under companies will reinforce the study. rules preventing disclosure of individual firm data, will be published. PRACTICAL VALUE OF THE STUDY AVAILABILITY OF THE STUDY To Corporate Management in the Phonograph Records Industry All participating will be sent the tabulated results of the questionnaires 1. It will provide a definitive picture regardless of what type, if any, of a ■of th e c u r r e n t m ark etin g problem s, publication results from the study. It policies and practices of the phono is hoped that the study will be published. graph records industry by basic segments of the industry, i.e., DIRECTION OF THE STUDY manufacturers, distributors, one stops, rack jobbers and retailers. Research is being conducted by Algin E. 2, It will provide each segment of the King, Professor of Business Administra industry with a better understanding tion at the College of William and Mary. of "the total marketing picture" in An industry committee whose composition the industry and a better understanding is noted on the cover letter has been of the problems and requisite role of assisting and guiding Mr. King’s efforts other segments of the industry. in this research program. Professor King’s doctoral dissertation study on the mar keting phase of the phonograph records industry is under the general direction of Dr. T.N. Beckman of the Ohio State University, a nationally known marketing a u th o r ity . QUESTIONNAIRE - To One Stops 1. How long has your company been in business? I less than 3 years 3-5 years 6-10 years 11-15 years over 15 years 2. Is your company owned by a wholesale distributor? Yes No Define the basic geographical marketing area in which you operate, i.e., have accounts, etc., by checking the appropriate area as listed below. one city or metropolitan area more than a metropolitan area but less than an entire state approximately the entire state area a 2-4 state area 5 or more state area List your major sources of supply (by type of source, i.e., distributor, manufac turer etc.) and the approximate proportion of your records purchased from each for years 1964 and 1960. 1964 Source of Supply % of Total Purchased from Each 1. Manufacturer (direct with no distributor involved) % 2. Distributor % 3 , Other % 1960 1. Manufacturer (direct with no ' distributor involved) % 2. Distributor % 3 . O ther ______% What proportion of your sales volume in 1964 is accounted for by each of the following classes of your customers? % of Sales Volume Accounted for by Each Class Class of Customer of Customer ______ 1. Discount Department Stores ______• 2. Variety Stores ______3. Department Stores ______4. Retail Record Stores ______5. Juke Box Operators ______6. O thers Approximately what % of your sales dollar is spent for advertising and sales promotion in connection with your product offerings? % One Stops 343 7. Which do you consider the most important method in selling your product? (Number them in the order of importance.) For example, point of sale #1, direct mail #2, e t c . trade magazines or papers point of sale aids for retail dealers personal selling by company salesmen direct mail solicitation of customer ra d io newspapers other (please specify) ______ Do these methods currently utilized differ significantly in their relative importance from years past? Yes No If yes, show how they differ by comparing methods used 8 to 10 years ago by marking their relative importance in use then, below. trade magazines or papers point of sale aids for retail dealers personal selling by company salesmen direct mail solicitation of customer ra d io newspapers other (please specify) ______ 9. Does your company give free merchandise as a form of quantity discount or as promotional device to stimulate sales on the following product classes? (a) Singles Yes No (b) Albums Yes No 10. Do you operate any leased departments in retail stores? Yes No If the answer is yes, under what type of an arrangement? a % of sales a dollar rent guarantee other (please specify) 11. Do you sell your customers on terms of (check ones applicable) (a) exchange (b) returns (c) no returns or exchanges (d) rebates or added discounts in lieu of returns and exchanges L 344 One Stops 12. How do you generally buy your records (check the methods utilized)? % (a) from vendor's salesman calling on my place of business (b) via the telephone (c) via mail, i.e ., placing a regular order by letter or order blank (d) personally visiting the manufacturer or distributor's place of business (e) all of the above methods are used 13.. Do you grant quantity discounts in the sale of records? (As an example, on purchases of 100-500 records - 5% quantity discount is granted; 501-1000 records - 10% quantity discount is granted, etc.) Yes No If yes, list your quantity discount structure below: 14. Do you grant buyers credit terms? (By credit terms we mean a specified period of time in which to pay the "invoice, i.e., net 90 days, etc.) Yes No If yes, please list your terms or credit policy below: 15. Does your company allow merchandise to be returned under certain conditions? (For example, do you allow 10% return of goods within a 60 day period, etc.) Yes No If yes, does this policy represent: your own policy or simply the passing on of the manufacturers return guarantee Please list your return policy below: 16. Different types of ultimate consumer markets want different types of record products by repertoire classes. Check what you think constitutes the basic market segment or segments (by age group) for each product listed by repertoire c l a s s . Teen Easy Listening Market Segments Current Hits Beat LPs - Vocals & Country R&B by Age Groups on Singles LPs Instrumentals Jazz Folk LPs LPs Classical under 12 13-20 years 21-30 years 31-50 years over 50 years One Stops 345 17. What are the primary sources of information on consumer product demand and sales trends utilized by you? (a) internal sales records of your own company ~ ~ ~ (b) reports of salesmen, promotion men and distributors ~ ~ ~ (c) popularity charts of trade papers such as Billboard or Cash Box (d) local radio station charts ' (e) others (please specify) ______ Please number these sources in the order of their importance as a source of information to your company and a motivation in buying and other marketing decisions in the blank spaces provided. 18. Does your firm have a formal inventory control system? If so, check the basic ■ type of system used and/or describe your system if listed answers are not adequate, (a) No formal inventory control system is used. (b) A periodic physical count system is used, i.e ., records are counted once a week, or once every two weeks, etc. (c) A perpetual inventory control system in which every unit sold is recorded daily, etc. (d) Other - please describe other ______ 19. In your opinion would the adoption by the industry of a standardized speed, e.g. 33 1/3 rpm, substantially benefit the phonograph records industry? Yes No 20. Do you feel that government regulation of marketing practices in the industry is (a) about right (b) more government regulation is needed (c) less government regulation than now exists is desirable (d) don't know enough about government regulation to express an opinion. 21, What do you feel are the most pressing marketing problems facing the one st(pp operator? (List them in the order of their s gnificance.) 1 . 2 . 3. 22, Annual $ Sales Volume Patterns in 1964 for One Stops Annual Volume Brackets (Check the one appropriate for your 1964 Sales Volume) less than $100,000 _____ 2,000,001 - 3,000,000 100,001 - 250,000 3,000,001 - 5,000,000 250.001 - 500,000 5,000,001 - 8,000,000 500.001 - 1,000,000 8,000,001 - 12,000,000 1,000,001 - 2,000,000 _____ over $12,000,000 ^ 346 One Stops 23. Annual Net Profit Patterns for 1964 in the One Stop Field (Check appropriate box) % of Profit on Sales under 2% profit 2 to 4% profit 5 to 8% profit over 8% profit Thank you for your cooperation. Please check to see that all statements are completed. Each is important. Please return in the attached Business Reply envelope to; Professor A.B. King Bureau of Business Research The College of William and Mary Williamsburg, Virginia" 3U7 The College of William and Mary, Williamsburg, Virginia, Bureau of Business Research Resume of the Study of THE MARKETING OF PHONOGRAPH RECORDS: AN INDUSTRY STUDY OBJECTIVES 3. It will provide a better insight for management of each segment in The major objectives of this work are solving marketing problems, anti (1) to develop new knowledge of marketing cipating trends, formulating more problems and practices in the marketing effective marketing practices with of phonograph records; (2) to develop the end result that the marketing insights and knowledge which w ill result of phonograph records is more in an improvement in the marketing process productive. for all segments of the phonograph records industry; and (3) to add to thé general To Colleges and Universities store of marketing knowledge to the end that marketing as a vital economic process The results of this study will provide may become more productive. knowledge regarding the marketing problems, policies, and practices of METHODOLOGY an important multi-million dollar in dustry to the general body of marketing 1. Pertinent information from published know ledge. books and from general and industry periodicals is being integrated with HOW PARTICIPATING FIRM DATA WILL BE USED this study. 2. This questionnaire (and a similar Your responses to this questionnaire w ill one, each designed to fit the par be combined with those of other partici ticular segment of the record pating firms. ' The data will be analyzed industry) is being sent to firms to determine the results of your aggre in the industry. Thus, questionnaires gate experience. are being circulated to record manu facturers, record distributors, rack Questionnaires are identified only by jobbers, one stops and record retailers. code number for anonymity in processing. 3. Intensive interviews with selected Only broad aggregates of data, under companies w ill reinforce the study. rules preventing disclosure of individual firm data, will be published. PRACTICAL VALUE OF TOE STUDY AVAILABILITY OF THE STUDY To Corporate Management in the Phonograph Records Industry All participating will be sent the tabulated results of the questionnaires 1. It will provide a definitive picture regardless of what type, if any, of a of the current marketing problems, publication results from the study. It .policies and practices of the phono is hoped that the study will bo published. graph records industry by basic segments of the industry, i.e., DIRECTION OF THE STUDY manufacturers, distributors, one stops, rack jobbers and retailers. Research is being conducted by Algin B. 2. It will provide each segment of the King, Professor of Business Administra industry with a better understanding tion at the College of William and Mary. of "the total marketing picture" in An industry committee whose composition the industry and a better understanding is noted on the cover letter has been of the problems and requisite role of assisting and guiding Mr. King's efforts other segments of the industry. in this research program. Professor King's doctoral dissertation study on the mar keting phase of the phonograph records industry is under the general direction of Dr. T.N. Beckman of the Ohio State University, a nationally known marketing a u th o r ity . 3U8 QUESTIONNAIRE - R etail Record Stores or Record Departments 1, Please check your classification as to the basic nature of your retail business (in terms of what constitutes the majority of your dollar sales volume). (a) Primarily a phonograph record shop (b) Music store (musical instruments, sheet music, etc.) (c) Variety store (d) Appliance store (e) Discount store (f) Department store (g) Books, cards, gifts & stationery (h) Hi fi store (i) Other (please indicate type of dealer) 2. How many years has your store stocked records? 1-2 years 3-5 years 6-10 years 11-20 years over 20 years 3. Do you handle (check ones you handle)? budget singles prerecorded tape - reel regular price singles prerecorded tape - cartridge budget LPs blank tape - reel regular price LPs blank tape - cartridge 4. Do you sell other items than records? (Check the ones you handle.) table phonographs _____ hi fi components console phonographs ______transistor radios portable phonographs _____ other type radios tape recorders _____ T.V. tape decks _____ record accessories List your major sources of supply (by type of source i.e., distributor, one stops, manufacturer, etc.) and the approximate proportion of your records purchased from each for years 1964 end 1960 and 1955. 1964 % of Total Dollars Purchased from Each Source of Supply LPs Singles 1. Direct from Manufacturers with no distributors or other middlemen involved % % 2. Distributors %'0 3. One S to p s ' % % 4. Rack Jobbers % % 5. Others % %'0 Retail Record Stores or Record Departments 3U9 1960 LPs Singles 1. Direct from Manufacturers with no distributor, or other middlemen involved % % 2. Distributors % % 3. One S to p s % % 4. Rack Jobbers % % 5. Others % % 1955 1. Direct from Manufacturers with no distributors or other middlemen involved % % 2. Distributors % % 3. One S to p s % % 4. Rack Jobbers % % O th ers %'O 6, Approximately what % of your sales dollar is spent for advertising and sales promotion in connection with your product offerings? % Which of the following is the most important factor in selling your product? (Number them in the order of importance.) For example, point cf sale displays #1, radio #2, etc. radio advertising TV advertising newspaper advertising in store displays, counter displays, window displays, etc, direct mail personal selling by store salesmen your own record clubs air play on radio by disk jockeys others (please list others specifically by name) 8. Do these methods currently utilized differ significantly in their relative importance from years past? Yes No If yes, show how they differ by comparing methods used 8 to 10 years ago by marking their relative importance in use then, below. radio advertising _____ T.V, advertising newspaper advertising Retail Record Stores or Record Departments 350 In store displays, counter displays, window displays direct mail personal selling by store salesmen your own record clubs 2222 air play on radio by disk jockeys others (please list specifically) 9. Does your store sponsor a "record club"? Yes No 10. Do you feel that (a) The cover of the LP is an important selling point in customer selection. (b) The cover of the LP is a relatively minor factor in customer selection. 11. Do you feel that a colored sleeve on a single stimulates extra sales on the record? Yes No 12. How do you buy most of your records? (Check the methods utilized.) (a) from vendor’s salesman calling on my place of business (b) via the telephone (c) vif mail, i.e., placing a regular order by letter or order blank (d) personally visiting the manufacturer's or distributor's place of business (e) all of the above methods are used 13. As a matter of policy do you discount records, that is, sell records below the manufacturers' suggested price on either basic class of record, singles or albums? Yes No If your answer is yes, please check whatever answers are appropriate. Some of the time Most of the time Discount on singles ______Discount on LPs 14. To what degree do you consider the record catalog, such as the Schwann catalog or individual manufacturer catalog, to be a vital factor in your business as asales volume aid, a substitute inventory, etc.? Albums Singles ______(a) The record catalog is a very important and vitalfactor in my business as a sales volume aid, etc. ______(b) The record catalog is not an important and vital factor in. my business as a sales volume aid, etc. ______(c) The record catalog is a useful assist in building sales volume but generally would account for less than 15% of my s a l e s . 15. Different types of ultimate consumer markets want different types cf record products by repertoire classes. Check what you think constitutes the basic market segment or segments (by age group) for each product listed by repertoire c l a s s . Retail Record Stores or Record Departments 3^^ Teen Easy Listening Market Segments Current Hits Beat LPs - Vocals & Country R&B by Age Groups on S in gles LPs Instru m en tals Jazz Folk LPs LPs C la ssic a l under 12 13-20 years 21-30 years 3j-50 years over 50 years 16. What are the primary sources of information on consumer product demand and sales tren d s u til iz e d by you? (a) internal sales records of your own company (b) reports of manufacturers, distributors, and one stops (c) popularity charts of trade papers such as Billboard or Cash Box (d) local charts from radio stations (e) customer requests (f) others (please specify) Please number these sources in the order of their importance as a source of information to your company and a motivation in buying by numbering them in the order of importance in the blanks provided (for example, #1 Pop & LP popularity charts of trade papers, #2 reports of manufacturers, distributors, etc.) 17, Does your firm have a formal inventory control system? If so, check the basic type of system used and/or describe your system if listed answers are not adequate. (a) No formal inventory control system is used. (b) A periodic physical count system is used, i . e . ,records arecounted once a week, once every two weeks, etc. (c) A perpetual inventory control system in which every unit sold is recorded daily, etc. (d) Other (Please describe other) ______ 18. In your opinion would the adoption by the industry of a standardized speed, for example, 33 1/3 rpm, be of substantial benefit to the phonograph industry? Yes No 19. Do you feel that government regulation of marketing practices in the industry is (a) about right, (b) more government regulation is needed. (c) less government regulation than now exists isdesirable, (d) not familiar enough with government regulations to comment. 20, What do you feel are the most pressing marketing problems facing the record retailer? List them in the order of their significance. 2, Retail Record Stores or Record Departments 352 3. 4. 21. Annual $ Sales Volume Patterns in 1964 for Record Retailers Annual $ Volume Brackets (Check the one appropriate for your 1964 Sales Volume in Records) less than $50,000 50.001 - 100,000 100.001 - 150,000 150.001 - 200,000 200.001 - 350,000 350.001 - 500,000 500.001 - 750,000 750.001 - 1,000,000 1 , 000,001 - 2 , 000,000 over 2,000,000 22. Annual net profit patterns for 1964 in the Retail Dealer Field (Check appropriate box) % of Profit on Sales under 2% profit 2-4% p r o f i t 5 - 8% profit over 8% profit Thank you for your cooperation. Please check to see that all statements are completed. Each is important. Please return in the attached Business Reply envelope to: Professor A.B. King Bureau of Business Research The College of William and Mary Williamsburg, Virginia BIBLIOGRAPHY A. BOOKS Bain, Joe S. Pricing, D istribution, and Employment. New York: H'^nry Holt and Co., 1958. Ball, John Jr. The Phonograph Record Industry. Boston: Bellman Publishing Co., Inc., 1947. Beckman, Theodore N., and Davidson, William R. Marketing. 7th edition. New York: Ronald Press, 1962. Billboard 1964 International Coin Machine Directory. New York: Billboard PublishingCo,, 1964. Billboard 1965 International Coin Machine Directory. New York Billboard Publishing Co., 1965. Billboard 1962-63 International Music Industry Buyer's Guide and Market Data Report. New York: Billboard Publishing Co., 1962. Billboard 1963-64 International Music Industry Buyer's Guide and Market Data Report. New York: Billboard Publishing Co., 1963. Billboard 1964-65 International Music-Record Directory and Buyer's Guide. New York: Billboard Publishing Co., 1964. Billboard 1965-66 International Music-Record Directory and Buyer's Guide. New York: Billboard Publishing Co., 1965. Brief, Henry. Radio and Records; A Concert in Sound. New York: Record Industry Association of America, Inc., 1964. Davidson, William R., and Brown, Paul. Retailing Management. 2nd edition. New York: The Ronald Press Co., 1960. G ellatt, Roland. The Fabulous Phonograph. Philadelphia; J. B. Lippincott Company, 1955, Gilotaux, Pierre. L'Industrie Du Disque. Paris: Presses Univer sitaires De France, 108, Boulevard Saint-Germain, 1962. 353 354 How To Understand High Fidelity. New York; Maco Magazine Corpora tion, 1956, Matthews, John B., Jr., Buzzell, Robert D., Levitt, Theodore, and Frank, Ronald G, Marketing, An Introductory Analysis. New York: McGraw-Hill Book Co., 1964. Mueller, John H. and Heuner, Kate. Trends in Musical Taste. Bloomington, Indiana: Indiana University Publications, 1942. 1957 Electrical Merchandising Yearbook. New York: Electric Mer- chandising Week, McGraw-Hill Publications, 1957. 1963 Electrical Industry Association's Yearbook. New York: Elec tric Merchandising Week, McGraw-Hill Publications, 1963. 1964 Electrical Industry Association's Yearbook. New York; Elec tric Merchandising Week, McGraw-Hill Publications, 1964. Read, Oliver and Welch, Walter L. From Tin Foil To Stereo—Evolu tion Of The Phonograph. Indianapolis : Howard W. Sams and Co., Inc., 1959. Record Rack Merchandising. New York: Billboard Publishing Co., 1964. Record Retailing Today. New York: Billboard Publishing Co., 1964. Reichardt, Richard. Die Schallplatte Als Kulturelles Und Skonomisches Phonomen. Zurich: Polygraphischer Verlag, 1962. Rummel, J. Francis and Ballaine, Wesley C. Research Methodology In Business. New York: Harper and Row, Publishers, 1963. Shemel, Sidney and Kraslovsky, M. W. This Business of Music. New York: Billboard Publishing Co., 1964. Slott, G. S. From Microphone To Ear. 3rd edition. Eindhoven, Hol land: Gentrex Publishing Company, 1960. Stanton, William J. Fundamentals of Marketing. New York: McGraw- H ill Book Company, 1964. The Fifty Year Story of RCA Victor Records. Department of Informa tion, New York: Radio Corporation of America, 30 Rockefeller Plaza, New York 20, New York, 1953. Webster's New International Dictionary. 2nd edition. Springfield, Mass.: G. and C. Merriam Co., Publishers, 1955. Wingate, John W., and Schaller, Elmer 0. Techniques Of Retail Mer chandising. 2nd edition. Englewood C liffs, N.J.: Prentice- Hall, Inc., 1956. 355 Your Future Is Sound, New York: Columbia Records Corporation, 1956. Your Wonderful World of Records. New York: Record Industry Asso- ciation of America, tnc., 1963. B. ARTICLES AND PERIODICALS Ackerman, Paul. "Now Comes Dealers Big Challenge," Billboard (March 30, 1963), 10. "Album Competition Spurs Search For Packaging Lures," Billboard (November 7, 1960), 1. "Brylcreem To Launch TV, Newspaper Push for LP Record Album," Advertising Age. Volume 32 (July 10, 1961), 10. B u sin ess Week (Septem ber 13, 1 9 4 1 ), 45. "Capitol Throws Price Bombshell," Billboard (March 7, 1964), 1. "Columbia Launching Ad Drive in 22 Papers," Billboard (November 7, 1 964), 23. "Columbia Move Major Step In Solving Stereo Dilemma," Billboard (June 27, 1964), 1, 61. "Columbia Records," Billboard (October 21, 1962), 19. "Disk Club Deadbeats Burgeon Says Report," Billboard (April 10, 1 961), 3. "Dot Test Of Own Store Rack Proves Value Of Exposure," Billboar. (December 22, 1962), 5, Grevatt, Ron. "Tale Of Three Cities Reflects Big Change In Pattern Of Distributing Records," Billboard (September 29, 1962), 6. "HereVs An Inside View Of The Record Industry: What It Can Mean For You and Your S to r e ," E l e c t r i c a l M erchandising Week (May 11, 1 964), 23. "Hi Records Signs 5 Year Pact With. London D istributing Network," Billboard (May 12, 1962), 6. "How To Sell More Classical Records," Billboard (January 12, 1963). "Independent Record Distributors Survey-1964," Billboard (June 27, 1964), 25-26. "Judkin's Asks For 'R ealistic' Readjustment Of List Prices," B ill board (March 7, 1964), 3, 10. 355 "Kapp Views Recording A rtist As Long-Term Asset To Label,” Billboard (January 18, 1964), 45. "Knowing His Customers' Taste Pays Off For Colorado Dealer,” B ill board (July 21, 1962), 27. ”1961 Music Machine Survey,” Billboard (May 15, 1961), 9. North American Review (June, 1878). "Phonograph Records,” Fortune, XX (September, 1939), 94. "Profiles Of The Tape Euyçr,” Billboard (March 9, 1963), 52, 54, 55. "RCA Victor, Buick Set $2,300,000 Tie-In Debut For Dynagroove Sound," Advertising Age (March 4, 1963), 6, "RCA Will Market Lear Type System For Industry," Billboard (March 27, 1965), 1, 8. Read, Oliver and Riley, James. "Evolution of The Phonograph, Part I," Radio and Television News (November, 1955), 56, 57, 59, 149, 150-154. Read, Oliver and Riley, James. "Evolution of the Phonof.aph, Part II," Rauio and Television News !D*cember, 1955), 57, 149-157. "The Record Business—It's Murder," Fortune (May, 1961), 187. "Record Market Opens Door To Higher Production," Domestic Commerce (March, 1947), 51. "Records," Electrical Merchandising Week (January, 1958), 138-143, "RIAA Publishes Own Rules," Billboard (February 29, 1954), 6. "Rice Offers A Design For Living," Billboard (November 21, 1964), 3, Rolontz, Bob and Maker, Jack. "Sharp Changes Loom In Distribution Set-Up," Billboard (November 10, 1962), 4, Rolontz, Bob. "Victor and Columbia Indie-Distributors Add New Lines," Billboard (October 20, 1962), 4. Sternfield, Aaron. "Phono Key: Programming," Billboard (January 5, 1965), 1, 48. Sternfield, Aaron. "Record Marketplace, Talent Proving Ground," Billboard Magazine On Campus (March 27, 1965), 7 - 10. "The Schwann Catalog," Opera News (November, 1965). "Williams Promotion To Cost $100,000," Billboard (January 18, 1964), 46. ------'- '3 357 C. PUBLIC DOCUMENTS Federal Trade Commission, Trade Practice Rules For The Phonograph Record Industry. Washington: U.S. Government Printing Of fice, 1964. Makle, S. E. Building Sales To Younger Customers. ^ Small Marketer Md. Washington, D. C.: The Small Business Administration, 1962. U. S. Bureau of the Census. Census of Business, 1954, Retail Trade, 2. 2" Summary. Washington, D. C.: U. S. Government Printing Office, 1956. U. S. Bureau of the Census. Census of Business, 1958, Retail Trade, IJ. 2* Summary, BC58-RA1. Washington, D. C. : U. S. Govern ment Printing Office, 1960. U. S. Bureau of the Can-us. Census of Business, 1963, Retail Trade, 2« 2* Summary, BC63-RA1. Washington, D. C.: U. S. Govern ment Printing Office, 1965. U. S. Bureau of the Census. 1958 Census cf Manufactures, Vol. I ll, Area Statistics. Washington, D. C.: U, S. Government Print ing Office, 1962. U. S. Bureau of the Census. 1963 Census of Manufactures, Industry Series, Phonograph Records (Preliminary Report). Washington, D. C.: U. S. Government Printing Office, 1965. U. S. Bureau of the Census. Statistical Abstract of the United States: 1964, (Eighty-fifth edition.) Washington, D. C.: U. S. Government Printing Office, 1964. D. REPORTS Life Study of Consumer Expenditures, Volume 2* Research Conducted for Life Magazine by Alfred Politz Research, Inc. New York: Life, 1957. Malamud, Jules. 1962 NARM Study. A Report Distributed to the Mem bership and Other Interested Persons. Bala Cynwyd, Pennsyl vania: National Association of Record Merchandisers, Inc., 1963. Malamud, Jules. 1963 NARM Study. A Report Distributed to the Mem bership and Other Interested Persons. Bala Cynwyd, Pennsyl vania: National Association of Record Merchandisers, Inc., 1964. 358 Malamud, Jules. 1964 NARM Study. A Report Distributed to the Mem bership and Other Interested Persons. Bala Cynwyd, Pennsyl vania; National Association of Record Merchandisers, Inc., 1965. Music Performance Trust Funds. Eighth Report And Statement Of Truste?,. New York: Samuel R. Rosenbaum, Trustee, 1953. Recording Industries Music Performance Trust Funds, Twenty-third Combined Reports and Statement of Trustee. New York: Samuel R. Rosenbaum, Trustee, 1960. E. UNPUBLISHED MATERIAL Beckman, Theodore N. "The Rack Jobber: A Phenomenon In American Wholesaling," A paper read before the 1964 Convention of the National Association of Record Merchandisers, Miami, April 20, 1964. (Mimeographed.) Beckman, Theodore N. and Doody, Alton F. "Memorandum On The Posi tion Of The Rack Jobber In The Wholesaling Structure." An unpublished memorandum, March 25, 1964. (Mimeographed.) Beckman, Theodore N. and Doody, Alton F. "The Rack Jobber In The Phonograph Record Industry." An unpublished report, March 10, 1964. (Mimeographed.) "Consumption of Phonograph Records." A special release of unpub lished data on consumer expenditures for records and con sumption of phonograph records from Life Study Of Consumer Expenditures, Volume I (New York: Life, 9 Rockefeller Plaza, 1957). C otterell, Robert. "Trends In The Distribution Of Phonograph Rec ords." Unpublished MBA thesis. The (Sraduate School of Busi ness Administration, University of Southern California, 1963. Curtis Publishing Co., Research Department. "Market For Records," Philadelphia, 1961. (Mimeographed.) Doody, Alton F. "A Marketing Perspective For The Record Merchan diser." A speech delivered to the National Association of Record Merchandisers, Miami Beach, Florida, April 10, 1962. (Mimeographed.) G ilbert, Florence. "The History of Columbia Records and Related Companies." Unpublished paper prepared for William Gallagher, Vice President of Marketing, Columbia Records, 1962. (Mimeographed.) 359 Glover, John Desmond. "Economic Analysis of the Proposal to in crease Copyright License Fee for Phonograph Records," A statement of John D, Glover before the Subcommittee on Patents, Trademarks, and Copyrights of the Committee on the Judiciary, United States House of Representatives, 89th Congress, First Session. Cambridge, Massachusetts: Cam bridge Research Institute, 1965. "History of Capital Records." An unpublished release from the Public Relations Department, Capitol Records Corporation, Hollywood, California, 1963. 'Mimeographed.) Mellin, David R. "The Phonograph Recording Industry: A Study In Technological Change." An unpublished Masters thesis. De partment of Economics, The Ohio State University, 1952. Noonan, ï "Current Patterns of Distribution of Phonograph Records, 1965." A special release to the author, April 1965, New York: Record Market Research, Inc. (Mimeographed.) F. OTHER SOURCES Billboard. Personal interviews with Hal B, Cook, Publisher, Febru ary' 26, 1965, April 9 and 10, 1965, and June 20, 1965, and with Aaron Sternfield, Editor, December 9, 1965. Disc Shop, Washington, D. C. Personal interview with Don Danziger, President. September 3, 1965. Industry Advisory Committee. Conference and personal interviews with Industry Advisory Committee on April 9, 1965, and June 20, 1965. Members present were John Burgess, Jr., Vice Presi dent, RCA Victor Records Division, Henry B rief, Executive Secretary, Record Industry Association of America, Hal Cook, Publisher, Billboard, William Gallagher, Vice President of Marketing, Columbia Records, Cy Leslie, President, Pickwick International, Inc., Jules Malamud, Executive Director, Na tional Association of Record Merchandisers. Also present was Tom Noonan, Research D irector, Record Market Research. Mercury Records Corporation. Personal interview with Irwin Steinberg, Executive Vice President. September, 1965. Record Market Research, Inc., a subsidiary of Billboard. Personal interviews with Thomas Noonan, Research Director, February 26, 1965, April 9, 10, 1965, and June 20, 1965.