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^BERKELEY
LIBRARY

UNIVERSITY OF
>y^ CALIFORNIA



From

the

personal

collection

of




Ewald T. Grether

Professor and Dean, 1924-1966
School of Business Adnninistration



V — 1



Modern Business



A SERIES OF TEXTS PREPARED AS

PART OF THE MODERN BUSINESS

COURSE AND SERVICE OF THE

ALEXANDER HAMILTON

INSTITUTE




ALEXANDER HAMILTON mSTTTUTE
NEW YORK



Modern Business

EDITOR-IX-CHIEF

JOSEPH FRENCH JOHNSON

Dean, New York University School of
Commerce, Accounts and finance

MANAGING EDITOR

Roland P. Falkner

associate editors
Leo Greendlinger, Charles W. Hurd



Volume Titles Authors

1. Business and the Man Joseph French Johnson

2. EcoNo^nics OF Business The Editors

3. Organization and Control .... Charles W. Gerstenberg

4. Plant Management Dexter S. Kimball

5. Marketing and Merchandising . . . The Editors

6. Advertising Principles Herbert F. de Bower

7. Salesmanship and Sales Management . John G. Jones

8. Credit and the Credit Man .... The Editors

9. Accounting Principles . . . . . . The Editors

10. Cost Finding Dexter S. Kimball

11. Corporation Finance . . . . William H. Walker
13. Business Correspondence Harrison McJohnston

13. Advertising Campaigns Mac Martin

14. Railway Traffic Edwin J. Clapp

15. Foreign Trade and Shipping .... J. Anton de Haas

16. Banking Major B. Foster

17. Domestic and Foreign Exchange . . E. L. Stewart Patterson

18. Insurance The Editors

19. Office Management . . . . . . The Editors

20. The Exchanges and Speculation . . Albert W. Atwood

21. Accounting Practice and AuDrnNO John T. Madden

22. Financial anIb Business Statements Leo Greendlinger

23. Investment Edward D. Jones

24. Business akb the Government . . . Jeremiah W. Jenks



MARKETING
AND MERCHANDISING



BY

THE EDITORS

IN COLLABORATION WITH

RALPH STARR BUTLER akd JOHN B. SWINNEY



MODERN BUSINESS
VOLUME 5



ALEXANDER HAMILTON INSTITUTE
NEW YORK



BUS.&ECON.
LIBRARY



COPYRIGHT, 1918, 1919, BY

ALEXANDER HAMILTON INSTITUTE



COPYRIGHT IN GREAT BRITAIN, 1918, 1919, BY

ALEXANDER HAMILTON INSTITUTE



The title and contents of this volume as well as the
business growing out of it, are further protected
by laws relating to trade marks and unfair trade.
All rights reserved, including translation into
Scandinavian.



Registered trade mark, Reg. TJ. S. Pat. Off., Marca
Registrada, M. de F.

Made in U. S. A.



PREFACE



fcoai



In all business, profits depend ultimately upon the
ability to sell goods and services advantageously. A
factory may possess every facility for maximum
production at minimum cost, but unless the selling
methods are carefully designed to meet the peculiar
requirements of the product and of the market, the
business cannot be conducted at a profit. The profes-
sional man and the business house dealing chiefly in
services instead of goods likewise find the basis of
profit largely in the ability to get in touch with those
who need what they have to offer and in satisfying
that need in the most acceptable manner.

The present text deals with the more general selling
problems both of the manufacturer and the dealer.
Under the heading "Marketing" it is the point of view
of the manufactm-er that dominates the treatment.
Under the heading "Merchandising" the Text is con-
cerned with the dealer both at wholesale a^d at retail.

The Modern Business Text in further volumes
takes up special problems of selling. Two different
expressions of the selling idea, advertising and sales-
manship, are presented in separate Texts, while the
general principles of salesmanship are exemplified in
the Text on Business Correspondence. Further-
more, it may be noted that some aspects of the market-



vi PREFACE

ing of raw materials receives attention in the Text on
*' Speculations and the Exchanges."

Our obligation to the two collaborators in this vol-
ume is gratefully acknowledged. In one sense it is
general rather than specific since their contributions,
dealing often times with the same topics from slightly
different points of view, have in the present volume
been fused into one.

The Editors.



TABLE OF CONTENTS

PART I— MARKETING

CHAPTER I

MODERN DISTRIBUTION

SECTION PAGB

1. Producer and Consumer 3

2. What Determines the Distributing Machinery . 4

3. Increased Specialization in Industry .... 5

4. Large-Scale Production 7

5. Economic Basis of Modern Marketing ... 7

6. Selling Problems Versus Manufacturing Problems 8

7. Who Is a Middleman.? 9

8. Greatest of the Middlemen 10

9. Middlemen and the Manufacturer 11

10. Middlemen and the Consumer 11

11. Aid in Stabilizing Prices 12

12. Middleman as a Producer 12

13. Four Kinds of Utilities 14

14. Some Middlemen Must Go 15

15. Middlemen and Competition 16

CHAPTER II

THE FIELD OF MARKETING

1. Growing Importance of Distribution . , . . 19

19
20



2. What Is Marketing.? . . . .

3. Agencies Used to Reach Markets .

4. Boundaries of the Market .

5. Mapping Out a Plan of Campaign

6. Single Purpose of Selling Activities



23
24



viii MARKETING AND MERCHANDISING

SBCTION" PAGK

7. Need for Studying Marketing . . , . . . .25

8. Survey of the Marketing Field . . . . . .25

CHAPTER III
STUDY OF THE PRODUCT

1. Necessary Considerations Before Marketing . . 27

2. Testing the Product 27

3. Tests for Quality 28

4j. Raw Materials 29

5. Plant Capacity 30

6. Labor Supply .31

7. Costs and Profits 32

8. Influence of Price 32

9. Naming the Product . . . . . . . . 34

10. Quality of Attraction 36

11. The Container 37

12. Examining the Product for Selling Points . . 38

13. Demand for the Product ....... 39

14. Estimating Consumption 41

15. Testing Out Demands in Advance 42

16. Demand Aff^ected by Nature of Goods .... 43

17. Seasonal Demand 44

18. "Family of Products" . 46

CHAPTER IV

STUDY OF THE MARKET

1. What Constitutes the Market 48

2. Sources of the Market 49

3. Geographical Limits of Markets 60

4. Methods of Making Purchases 51

6. Tendency of Market to Increase or Decrease . . 54

6. Competitive Influences 65

7. Transportation Limits Markets 67



CONTENTS ix

CHAPTER V

TRADE CHANNELS

SECTION PAGE

1. Trade Channels and Their Development ... 60

2. Development of Trade Channels 60

3. Old Chain of Distribution 61

4. Middlemen Decreasing 61

5. Competition in Present-Day Marketing ... 63

6. Methods of Trade in Selling Staples 63

7. Functions of the Manufacturer . . . . .64

8. The Jobber 65

9. The Retailer . 65

10. The Consumer 65

CHAPTER VI
SELLING TO THE JOBBER

1. Consumer Unfamiliar with Jobber's Service . . 67

2. Jobber Specializes in Distribution 67

3. Jobber Provides Sales Force 68

4. Jobber's Intensive Cultivation of Markets . . 68

5. Jobber Gives Storage Service 69

6. Jobber's Credit and Accounting Service ... 69

7. Using Jobber's Services in Part 70

8. Making the Jobber's Service More Profitable . . 71

9. Jobber and the Private Brand 71

10. Why Manufacturers Make Private Brands . . 73

11. Profit on Private Brands 74

12. Dangers in Making Private Brands .... 75

13. Should All Goods Bear Manufacturer's Name.? . 76

14. Summing Up the Case of the Private Brand . . 76

CHAPTER VII

WHOLESALE MIDDLEMEN

1. Functions of Other Types of Middlemen ... 79



X MARKETING AND MERCHANDISING

SICTION PAGE

2. Overlapping of Functions . . . . . . .80

3. Manufacturer's Selling Agent 80

4. What the Sales Agent Does 81

5. Classes of Selling Agents 8S

6. The Agent's Compensation 83

7. Mill Agents 83

8. Factors, Commission Merchants and Brokers . 84

9. Functions of the Commission Merchant ... 85

10. Necessity for the Commission Merchant ... 85

11. Activities and Compensation of Commission Mer-

chants 86

12. Commission Merchants and Manufacturer's Agent 86

13. Commission Contracts 87

14. Rates of Commission 87

15. How the Commission Merchant Aids the Manu-

facturer 88

16. Loans and Advances 89

17. Tl^e Banking Function 89

18. The Broker 90

19. Extent of Merchandise Brokerage 90

^0. Broker's Contract 91

21. Broker's Commission 91

22. Broker's Organization and Operating Method . 92



CHAPTER VIII
SELLING TO THE RETAILER

1. Retailer's Problems Affect the Manufacturer . . 94

2. Channels Thru Which Retailer Is Reached . . 94

3. Need for Warehouses in Direct Selling ... 94

4. Difficulties in Keeping Complete Stocks ... 95

5. Expensive to Handle Small Orders .... 96

6. Credit Arrangements Difficult 96

7. Why the Manufacturer Sells Direct .... 97

8. Jobber Unable to Give Exclusive Attention . . 97



CONTENTS xi

SXCTION ^ ^ PAGE

9. Jobber Indifferent to Manufacturer's Advertising 98

10. Manufacturer Checks Up Advertising .... 98

11. Jobbers Cut the Price 100

12. Selling Direct 100

13. Complete Lines Now Handled by Manufacturers . 100

14. Nature of Commodities May Demand Direct Sell-

ing



101



15. Dense Population Aids Selling Direct .... 102

CHAPTER IX
SELLING THRU EXCLUSIVE AGENCIES

1. Choice of Means 103

2. Legal Questions Involved 103

3. Interests of the Dealers and Manufacturers . . 104

4. Why Retailers Like Exclusive Agencies . . . 105

5. Prices Maintained 105

6. Benefits of Advertising . . . . . . 105

7. Prestige 106

8. New Trade 106

9. Close Relations With Manufacturer .... 106

10. Opposition of Dealers 107

11. Abuse of the Exclusive Agency Idea .... 107

12. Manufacturer's Position 108

13. Are Exclusive Agencies Taken Away .'* . . . . 108

14. Does the Exclusive Agency Discourage Compe-

tition.? 109

15. Why Manufacturers Favor Exclusive Agencies . 110

16. Shopping Lines Ill

17. Large or Expensive Stock Ill

18. When More Sales Attention Is Needed . . .112

19. Installation, Operation, Service 112

20. Control of Price . 113

21. Value in Introducing Goods 113

22. Unadvertised Goods 113



xii MARKETING AND MERCHANDISING

SECTION PAOB

2S. Dealers Give Active Support 113

24. When Manufacturers Oppose the Idea . . . 114

25. Desire for Greater Sales 115

26. Do Exclusive Agents Always Push Goods.? . .115

27. Extent of Exclusive Agencies 115

28. Dealers Versus Manufacturers 116



CHAPTER X

INFLUENCING RETAIL SALES

1. What National Advertising Is . . . . . .118

2. Manufacturers' Claims for National Advertising . 119
S. Claim of Quality 119

4. Value in Manufacturer's Name 121

5. Increase in Sales .,...:... 122

6. Decrease in Selling Costs . 122

7. More Frequent Turnovers 123

8. Manufacturers Provide Selling Aids .... 124

9. Opposition to National Advertising . . . . 125

10. National Advertising Does Not Confer Quality . 125

11. Name on the Goods 126

12. Influence of National Advertising 127

13. Question of Profits 128

14. Advertising Lines Make Dealers Dependent . . 129

15. Channels for Unadvertised Goods Narrowing . 130



CHAPTER XI
SELLING TO THE CONSUMER

1. Means of Direct Selling 132

2. Specialty Salesmen 132

3. Manufacturers' Chain Stores 135

4. Mail-Order Selling 135

6; Direct-By-Mail Selling 137



CONTENTS xiii
CHAPTER XII
GOOD-WILL AND PRICE MAIN;rENANCE

SECTION PAGE

1. Price Maintenance Defined 139

2. Price Maintenance an Issue 139

3. Rise and Development 140

4. Advertising Standardizes Price 141

5. Price-Cutting Advertises Dealer Who Does It . 143

6. Price-Cutting Demoralizes Trade 143

7. Problem for National Advertisers 144

8. Price Cutters' Defense 146

9. Price Maintenance Thru Contracts .... 146

10. Price Maintenance Thru Contract Illegal . . 147

11. General Effect on Distribution 149

12. Ray of Hope for Price Maintenance .... 150

13. Issue One of Trade-Mark Protection . . . '. 152

14. Price Maintenance and the Public Interest . .153

15. Waiting for Congress or the Supreme Court . . 157

CHAPTER XIII

REACHING THE MARKET AND THE COMPLETE
CAMPAIGN

1. Absence of Standards in Selling 160

2. Correct Judgment Necessary to Marketing . .160

3. Shopping Lines and Convenience Goods Defined . 161

4. Shopping Centers 162

5. Marketing Shopping Lines and Convenience Goods 162

6. Determining Price 164

7. Components of Price 164

8. What Determines Profit .165

9. Sales Policy . 167

10. Credit 167

11. Quantity Prices and Discounts 168

12. Free Deals and Secret Discounts 169

13. Guarantees 171



xiv MARKETING AND MERCHANDISING

SECTION PAGB

14. Service .17^

15. Preparing Budgets Before Marketing . . . 173

16. Cooperation with Dealers 174

17. Sales Records .175



PART II— MERCHANDISING

CHAPTER I
THE JOBBER

1. Scope of Treatment 179

2. What Are Jobbing Lines.? . 180

3. What Is the Jobber's Pay.? . . . . . .180

4. Jobber and Retailer . . 181

5. Difficulty in Keeping Complete Stocks . . .182

6. Necessity of Seeing Many Salesmen .... 182

7. Unbalanced Stocks 183

8. Need of More Capital 184

9. More Storage Space Required 184

10. Credit Arrangements Would Cease .... 184

11. Elimination of the Small Dealer 185

12. When the Jobber is Necessary 185

13. Jobber's Service to Consumer 186

CHAPTER II
MODIFICATION OF THE JOBBER'S SERVICE

1. Manufacturing Jobber Defined 188

2. Advantages of Combining Distributive Functions 188

3. Economy in Methods of Production .... 188

4. Economies in Stockkeeping 189

5. Long Credits on Private Brands 189

6. Methods of Organization . . . ♦ . . . . 190

7. Semi-Jobber Defined 191

8. Why Semi-Jobbing Has Developed .... 191

9. Methods of Organization 192



/ CONTENTS XV

SECTION ^ PAQB

10. Cooperative Jobbing Idea 193

11. Forms of Cooperation 194

12. Buying Arrangements of Cooperative Associations 195

13. Merchandise Limited to Staple Brands . . . 195

14. Selling Expenses Low 196

15. Returning and Exchanging Goods . . . . 196

16. System of Pricing 196

17. Short-Term Credits 197

18. Deliveries 197

CHAPTER III
PROBLEMS OF THE JOBBER

1. Radius of Successful Competition 199

2. Analysis of Business Conditions 200

3. Conditions in the Industry 201

4. Studying the Needs of the Consumer .... 202

5. Knowing the Retailer 203

6. Analyzing Competition 204

CHAPTER IV

RETAIL COMPETITION

1. Magnitude of Retailing 206

2. Retailing Before the Civil War 206

3. Changed Conditions in Retailing After the Civil

War 207

4. New Basis of Competition 209

5. Necessity of Retail Store ....... 210

CHAPTER V

RETAIL TYPES'

1. Rise of the General Store ....... 211

2. How the Country General Store Holds Trade . 212

3. Why the Country General Store Loses Trade . 213

4. Opportunity of the Country Store 213

V — 2



XVI



MARKETING AND MERCHANDISING



SSCTIOK ^ PAGK

5. Competitive Strength of the Specialty Store .214

6. Convenience 214?

7. Complete Stocks 215

8. Personal Service . . . . . . . . .215

9. Rapid Turnover 216

10. Low Expenses 216

11. Points of Weakness in Specialty Stores . . .218

12. Limited Opportunities for Trade . . . . . 218

13. Limited Opportunities for Advertising . . . 219

14. Limited Lines 220

15. Weakness in Buying 220

16. Poor Management 221

17. Future for Specialty Store 221

18. Rise of the Department Store 222

19. Two Kinds of Department Stores 223

20. Why the Department Store is Popular . . . 223

21. Elements of Department Store Strength . . . 224

22. Economies in Combination . . . . . . 226

23. Possibilities in Handling Low-Salaried Help . . 226

24. Advertising and Service Advantages .... 226

25. Credit on a Better Basis 227

26. Better Management 228

27. Manipulation of Departments 228

28. Financial Advantages 229

29. Elements of Weakness in Department Stores . . 229

30. Expensive Delivery Systems 231

CHAPTER VI

CHAIN STORES

1. Rise of the Chain Store 233

2. Kinds of Chains . . . 234

3. Some Better Known Chains 235

4. Tendencies Shown in Chain-Store Field . . . 236
6. Elements of Strength in Chain Stores . . . 238



CONTENTS xvii

SECTION PAQB

6. strength in Financing 238

7. Advantages in Picking Sites 239

8. Standardization of Stores 240

9. Standardization of Selling Methods .... 240

10. Buying Advantages 241

11. Pricing . . . . .242

12. Use of Loss Leaders 243

13. Low Expense of Operation 243

14. Other Advantages 244

15. Quick Turnovers and Low Profits 245

16. Strength of Service 246

17. Strength in Organization 247

18. Advantages in Advertising ■ 248

19. Advantages of Accounting Methods .... 249

20. Weaknesses of Chain Stores 250

21. Meeting Chain-Store Competition 251

22. What the Chain May Teach 252

23. Chain Stores and the Manufacturer .... 253



CHAPTER VII

MAIL-ORDER SELLING

1. Significance of Mail-Order Development . . . 255

2. Extent of Mail SeUing 257

3. Retailer's Attitude Toward Mail-Order Selling . 258

4. Jobber's Attitude . . 259

5. Manufacturer's Attitude 259

6. Attitude of the Public ........ 260

7. Kinds of Mail Selling 260

8. Why Goods Are Sold by Mail 261

9. Is Mail-Order Selling "Legitimate".? . . . .262

10. Justification of Selling by Mail 264

11. Creating Business by Mail-Order 265

12. Competitive Strength of Mail-Order Selling . . 266

13. Wide Variety of Selection 266



xviii MARKETING AND MERCHANDISING

SECTION PAGE

14. Low Capital and Overhead . 26T

15. National in Scope 268

16. Selling Power of the Catalog 268

17. Low Prices 269

18. Elements in Selling Price 269

19. Influence of Quantity upon Price 271

20. Trade Favors 271

21. "Loss Leaders" 272

22. Advantages of Mail-Order Houses Not Inherent 273

23. Retaiiler and Mail-Order Competition .... 273

24. Purchaser Picks Out His Own Goods .... 274

25. Quick Delivery 274

26. Merchants' Good-Will .275

27. Personal Service 275

28. Appealing to Community Pride 275

29. Competing in Price and Service 276

30. Competing by Mail 276

31. One reason for Failure to Compete .... 277



CHAPTER VIII
TRAINING THE SALES FORCE

1. "The Salesman is the Store" 279

2. Explaining the Store Policy ...... 280

3. Teaching the Store System 281

4. Beginning Actual Selling 282

5. Special and General Bulletins 283

6. Studying Merchandise . 283

7. Libraries and Rest Rooms 284

8. Junior Courses 284

9. Cooperating with Public Schools 285

10. Training Non-Selling Employes 285

11. Results of Educational Work 286



CONTENTS xix

CHAPTER IX
BUYING

SECTION PAOK

1. Necessity of Good Buying 287

2. Buying Organization 287

3. Guides to Buying . 288

4. Lines to be Carried 289

5. Estimating Possible Business 290

6. Buying According to Budget 292

7. Figuring the Turnover 292

8. Proper Use of Turnover 294?

9. Determining Gross Profit 296

10. Price Confirms Quality .297

11. Attitude Toward Discounts 297

12. Accrediting the Discounts 298

13. Pricing Goods 299

14. Profits 300

15. Buying by Monthly Quota 300

16. Keeping in Touch with the Market .... 301

17. Selecting the Wholesaler 302

18. Concentration of Purchases . . . . . . 302

19. Buyer's Attitude Toward Salesmen .... 303

20. Selecting Merchandise for Qualit}' .... $04

21. Style Novelty and Exclusiveness 304

22. Stocking New Lines 305

23. Buyer Must Act as Merchant ...... 305



CHAPTER X

STOCKKEEPING

1. Necessity for Good Stockkeeping 307

2. Depreciation and Its Causes 307

3. Receiving the Goods 308

4. Invoicing the Goods 309



XX l^IARKETING AND MERCHANDISING

SECTION PAGE

5. Marking the Goods 310

6. Appraising the Goods 310

7. Keeping Reserve Stocks Low 311

8. Arrangement of Reserve Stocks 313

9. Active or "Forward" Stock 314

10. Importance of Keeping Track of Stock . . .314

11. Methods of Preparing for Inventory .... 317

12. Preliminary Work 317

13. Inspecting Stock . . . . . . . . . 318

14. Changes After First Count 318

15. Taking Stock While Business Goes On . . . 319

16. Arrangement of Inventory Books 319

17. Subdividing the Inventory 319

CHAPTER XI
COOPERATION FOR SERVICE

1. Problems of Changing Conditions ..... 321

2. Working Toward a Conclusion 321

3. Increasing Organization 322

4. Phases of Cooperation 323

5. Combine of Department Stores 325

6. Effects of Retail Cooperation 327

7. End is Service .......... 328



PART I
MARKETING



MARKETING

CHAPTER I

MODERN DISTRIBUTION

1. Producer and consumer, — In our modern eco-
nomic life producer and consumer generally do not
come directly in contact. There is a gap between
them usually bridged by one or more middlemen
whose function it is to gather up the products of field,
mine and factory and bring them to the user in the
forms desired. These middlemen constitute the mar-
ket to which the producer sells and from which the
consumer buys. A study of market distribution is
mainly, therefore, a study of middlemen and their
services.

So accustomed have we become to this form of
business organization, that it is difficult for us to
conceive conditions where, as in primitive times, each
man or group of men in a family or a clan, themselves
directly produced all which they consumed. But if
we recall the frontier life in early American history,
or the later life on Northern farms and Southern
plantations, where most or much of the food, cloth-
ing and shelter was "raised" or otherwise provided
by the farmers and frontiersmen themselves, and little



4 MARKETING

at first obtained by an exchange of goods with other
farmers or the outside world, we can visualize the time
when there was no exchange of goods whatever. The
wants of men must have been very simple then. Thus
when exchanges began to take place, they were, of
course, made directly between the producer and the
consumer. One had to hunt up the other. When in
the course of time this procedure became onerous and
expensive, relief arrived in the person of a go-between
or middleman.

It is apparent, consequently, that the three success-
sive steps in economical development have been pro-
ducing for one's own needs ; producing for direct ex-
change with one's neighbors; and producing for the
general market. Neither of the earlier steps has al-
together disappeared. Hundreds of thousands of
city dwellers, for example, reverted to the first when
they raised their own vegetables in "war gardens."
Direct exchange prevails and must prevail indefinitely
in many lines where the relation is necessarily intimate
— telephone and telegraph, merchant tailoring, con-
struction, domestic service, professional services and
the like. But the great bulk of modern production is
for the general market.

2. What determines the distributing machinery, —
The means and methods by which goods pass from
producer to consumer are sometimes simple, some-
times extremely complex. There is and can be no
manner of distribution common to all products, and
the number and importance of the several links in



MODERN DISTRIBUTION 5

the chain, as well as the relation between them, vary
according to circumstances. Custom and tradition
count for less than they did in the past. Modern
business seeks to apply practical tests. It makes
changes whenever it believes advantage will result.

The form of distribution which any given line has
taken or may take depends largely upon the relative
economic strength of the different elements in it.
Large and powerful manufacturers, for example,
dominate some lines and modify the methods of dis-
tribution there. In other lines, the producers, who
may be farmers, are powerless because individual and
unorganized. In many fields, the jobber was once
all-powerful. Individual consumers are nominally
and at this time the weakest link in the chain, tho in
their political capacity or thru their political and ju-
dicial representatives, they nevertheless exert a po-
tent influence on the methods of distribution. Wit-
ness the recent control of business in the interest of
the war. Consumer cooperation in buying has had
a definite beginning in America, but there is nothing
to indicate that it will duplicate in the near future the
remarkable gi'owth of the great European wholesale
cooperatives.

It is this tangled web of relations that the present
volume is designed to study and elucidate. In the
first part, "Marketing," it is concerned with the prob-
lems of the producer; in its second part, "Merchan-
dising," with those of the dealer.

3. Increased specialization in industry, — The evo-



6 . MARKETING

lution from the period of general production without


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