profession in order to demonstrate its products, and canvasses the profession, individually and in groups. As a consequence, selling costs are an appreciable item of expense, at a rough estimate about 25 percent, on the average, of gross sales.

In its export business, the company has two types of selling procedures. For covering Europe and adjacent territories, the company has appointed an exclusive agent to sell to wholesalers and perform all the selling functions with the profession that the company does in the domestic market. Net prices to this exclusive agent are about 30 percent lower on the average than domestic wholesale prices. This discount is not the same for all items in the line but varies from approximately 25 to 35 percent, depending upon the profit margin in the item and foreign prices for similar items. The management was inclined to believe that the net returns to the company on this portion of export business was on the average somewhat less than the net return on domestic business when selling expenses in the domestic market are deducted. However, an unqualified answer was difficult to get because the ratio of selling expenses to sales differs from year to year as the volume of domestic business fluctuates. While it cannot be said that the discount to the exclusive distributor on the whole represents a price concession there are price concessions in the higher discounts given on a few items in the line.

The remainder of the export business is handled precisely the same as domestic; that is, the company sells directly to wholesalers in the various markets and performs all the selling functions with the profession that it performs in the domestic market. It advertises in the local professional journals, prints catalogs in various foreign languages, and canvasses the profession in various ways to acquaint it with the products of the company. Standard prices for this class of export business are identical with domestic prices and the bulk of the sales are consummated at those prices. At the present time, however, in a few markets the company is giving price concessions, averaging about 5 percent, due to the fact that a foreign producer is trying to get a foothold in those markets.

The management has never attempted to compute profit statements separately for overall domestic and export business. There is apparently some difference of opinion within the organization as to which is the more profitable although the executive interviewed believes that there could not be a significant difference.

Example 21.-The company in this case manufactures a few highquality stationery items-fountain pens, mechanical pencils, and inks. In the domestic market all sales are made directly to the retailer, but in export markets the company has two types of customers. In Latin America and the Far East the company's own salesmen deal directly with the retailers at prices the same as in the domestic market. In Europe and most other territories, the company has appointed exclusive distributors who assume all local selling and credit functions. The price policy of the company in terms of discount from standard list prices is as follows: On the direct-to-retailer business there is a slight difference between domestic and export procedure designed to expedite the conduct of the business. In the domestic market the basic discount is 40 percent, to which is added quantity discounts on a sliding scale from 4 to 10 percent in proportion to the volume of purchases. In exports on the direct-to-retailer business,

the basic discount is likewise 40 percent. Instead of a sliding scale of quantity discounts, however, the company offers an additional 10 percent on orders of 12 dozen or over only. There is a greater difference in the price policy because domestic customers are given cash discounts of 2 percent while export customers are given 5 percent for cash and 2 percent for payment on first presentation of papers.

To its exclusive distributors abroad the company gives a basic discount of 50 and 10 percent, but there are some variations which made the discount slightly greater in a few markets.

The company computes a separate profit statement for its export department and has found that export business is consistently less profitable than domestic. The reasons for this are that (1) sales expenses in exports under direct-to-dealer business are considerably higher than in the domestic market, being apt to run around 20 percent of receipts in exports and about 10 percent domestic. This is due to the fact that more expensive type of salesmen must be used in export, travel abroad is more expensive, and advertising expenditures are larger abroad in proportion to volume. (2) On the exclusive distributor business the net return to the company is lower than domestic sales receipts minus selling costs. (3) Larger cash discounts are paid in the export business and the company has to wait longer for its money on business which is not discounted-for example, it takes about 5 months to get money on a 90-day sight draft from certain distant points..

Example 22.-This case and the one following present an interesting contrast because of the different results achieved by two companies producing the same commodities and following substantially the same price policy. This company manufactures a complete line of standard and portable model typewriters. In the domestic market the standard model machines are sold direct to the consumer through the branch sales offices of the company and by the company's own salesmen. The bulk of the portable machines, on the other hand, are distributed through retail establishments of various types. Thus the standardmodel machines are sold by the company only at retail at well-known list prices, which are the same throughout the nation, but from which, however, discounts are given to large consumers, depending upon the quantity purchased. The portable machines are sold to dealers at standard trade discounts, which do not vary with quantity.

In export markets the company has appointed exclusive dealers to handle all machines. While the company has field representatives traveling abroad who call on the dealers in order to stimulate their sales efforts and advise on policy, the independent dealers must do their own advertising and bear all distribution and selling expenses. The list prices used in exports are slightly lower than the domestic list prices. But as export prices are all subject to discounts given to the dealer, the list prices are not particularly meaningful. On standardmodel machines the discount given to dealers abroad varies somewhat from market to market in order to allow the local dealer to meet the competition existing in his market. The range of variation is approximately from 40 percent off the export list price to somewhat over 50 percent.

The management has attempted to compute the average net prices received by the company on domestic and export sales. It finds that the average net received on domestic sales through branch offices, after

deducting advertising, commissions, and branch expenses, is approximately $58, while the average net received on export sales of an identical machine would be approximately $55.

Net prices received by the company on portable models are more nearly comparable as the bulk of the sales, both domestic and export, are to dealers. Net export prices in most instances are slightly less than domestic prices for the higher-price models and slightly more than domestic prices for the cheaper models. There are some variations from the standard export prices. In a few markets the company is getting higher prices on the whole line, while in other markets where the competition is more intense, prices are even lower than the standard export prices.

The management has separate profit and loss statements prepared for export sales and has found that its export business is less profitable than domestic. The average net price in the domestic market, less all the costs involved in direct-to-consumer business is still higher than the average net price received from export sales. In addition, there are other costs in export, which, while not very great, still contribute to make export business less profitable. For example, there is some special manufacture for export, the products must be more expensively packaged, etc.

Example 23.-The second company also produces a complete line of standard and portable model typewriters, as well as other products which will not be considered here. Its selling policy in the domestic and export markets is essentially identical with that of the preceding case. It, too, has found it necessary to give price concessions from its standard export discounts in order to meet the encroachment of foreign competition which is producing lower priced machines.

The company has separate profit and loss statements prepared for its export business, but in contrast to the previous case, it has found export to be more profitable than domestic. The cost of advertising, distribution, selling, and the maintenance of branch offices are more in this case than the difference between the net price received in the domestic market and the net wholesale price received on export sales. The company has virtually no advertising expenses in export and selling costs are very small. In addition, a considerable part of its sales in the domestic market are to large users at substantial dis

counts.

Type 9.

Standard export prices lower than domestic prices for some commodities. The price policy in the six cases of this type can be described as follows: The company has standard export prices which are closely adhered to but their export prices for at least some of the products in the company's line are lower than the domestic prices for identical products. That is, the standard net export price is lower than the standard net domestic price for some products, with full consideration given to whatever differences in the cost of doing business that there might be. In two of these cases export sales are made to a different type of customer and invoice prices had to be adjusted for that fact.

The one case of group III which made no exceptions or concessions from its standard export prices is among these six cases. In the other five cases there were some special price concessions given to par

ticular markets in addition to the price concessions existing in the standard export prices.

In one case, a paint and varnish company, selling costs on exports as a whole are so much lower than on domestic business that exports are more profitable despite the fact that standard export prices on approximately 21 percent of the items are lower than domestic prices. The six cases of this type are shown in the following table:

Example 24.-This company manufactures a few items of office supplies. In the domestic market the company sells only directly to the consumer through its own sales branches and traveling salesAll customers in the domestic market are sold from the same price sheet which shows prices in a descending scale as quantity purchased increases.

men.

In export markets the company sells to independent wholesalers who must assume the burden of distributing the product to independent retailers or to the consumer. The domestic price sheet is used for export sales, but as these are wholesale transactions prices are subject to a trade discount. The only significant difference in the cost of doing business, domestic and export, is the maintenance in the domestic market of the branch salesrooms and salesmen which perform the retail function. The expenses of the sales branches and of the salesmen attached to each vary approximately from 38 percent of sales to 50 percent, with the average about 45 percent. The standard discount given in exports is 50, 10, and 5. Thus, the standard net export price is lower than the domestic price less average selling expenses. In addition, the company gives somewhat higher discounts in a few markets where competition is unusually intense. Profitability of export sales is calculated separately from domestic, and consistently shows export business to be less profitable than domestic, owing primarily to net prices of exports being lower.

Example 25.-This company manufactures a few types of machinery products of which compressors and pumps are the primary items. It maintains several branch sales offices in the domestic market and also distributes through independent manufacturers' representatives. Sales are made either direct to the consumer or to other manufacturers who incorporate the equipment in their products receiving a discount of 15 percent under list. The company distributes abroad through local commission representatives. Its standard prices. for export are identical with domestic prices. However, the billing is f. a. s. New York and includes export packing. These costs represent a price concession of about 5 percent.

The company has never prepared comparative profit statements for domestic and export business. Since the organization is rather

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small and exports only between 5 and 6 percent of its output, the management does not believe that any extensive record keeping would be justified. It estimates that in view of the commissions paid to local agents and the moderate price concession that is made on export sales, that export business is slightly less profitable than domestic. Example 26.-The manufacturing efforts of this company are concentrated upon two products of stationery goods. Although the company makes several other products, they are of minor importance and are not exported. One of its two main products, which accounts for the bulk of its sales, both domestic and export, is produced to sell in three price classes for three different types of trade. Only that product which in the domestic market represents the highest price class is sold in export, as foreign prices for all but first-quality goods in this line are so low that the company cannot compete on a price basis. In the domestic market the company issues separate price lists for wholesalers and retailers, but in export only one price list is used, as the distinction between wholesalers and retailers in many foreign markets is usually not clearly drawn. From the company's standpoint, however, export sales are comparable to sales to wholesalers in the domestic market. The standard export price for this product is 20 percent lower than the standard domestic price to wholesalers for identical commodities. In a few markets, the company is selling as much as 25 percent below its standard export price in order to meet special temporary circumstances.

The firm's other major product is manufactured to sell in domestic. markets in a specific price class; some models are made to sell at retail for $1 while other models sell for $1.50. The domestic prices to wholesalers are $6 and $9 per dozen, respectively. As the $1 and $1.50 prices have no significance in export markets, the company has established export prices of $7.20 and $10.80 per dozen, respectively, for these models, or a price 20 percent higher than the domestic for the largest selling items.

The company has never attempted to calculate separate profit-andloss statements for export sales. There is no doubt in the management's mind that export business is much less profitable than domestic. While selling costs for export are somewhat lower than in the domestic market, they are not sufficiently lower to offset the 20 percent lower price received in export on sales of the firm's major product. In fact, the management is inclined to believe that the export department was run at a loss before the introduction of its new product 3 years ago, for which it receives a higher price from export customers. Type 10.

Domestic and export sales departments establish prices independently on basis of factory costs plus distribution costs; some concessions in export. The distinguishing characteristic of pricing policy in cases of this type is that the export and domestic sales departments are operated as independent business units and each unit is completely autonomous over matters of selling policy and price. It so happened that all the cases using this type of procedure made some of their export sales at lower than domestic prices. Each sales department is charged by the factory at factory costs (labor, materials, and factory overhead) for all orders it places. It is also charged its share of general administrative overhead. It spends whatever it sees fit on selling and distribution, and each department fixes its own prices in an effort