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SCORE or more large retail concerns, headed by Marshall Field & Company of Chicago and Macy & Company of New York, have declared war on the profit-sharing or premium-slip system. In an announcement issued by Marshall Field & Company it was stated that in the future they will not sell any merchandise, either in their retail or wholesale departments, which includes profit-sharing coupons. Immediately, a number of other large retailers in other cities followed suit.

The National Retail Dry-Goods Association, composed of merchants who do not believe that coupons are consistent with good business methods, has renewed its attack on this form of advertizing. This organization is about four years old and has a membership of nearly 350 department stores in all parts of the country. Its officers claim that the business of its members aggregates more than $500,000,000 annually. The American Newspaper Publishers' Association, at their meeting in New York last month, passed resolutions opposing the "alleged profit-distributing coupon plans and similar schemes," asserting that they had attained a growth which made them "a menace to legitimate business." These resolutions conclude with the remark that "the best interests, not only of the newspapers of the country but of all business enterprizes, are not served by such methods of exploitation."

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HE coupon system itself is so old that no one knows when it originated. Its ramifications began with the discounts for cash, which have been a trade custom from time immemorial. Our ancestry was familiar with the "baker's dozen," sometimes known as lagniappe; and our grandparents were educated to expect presents of chromos with each pound of tea, and other premiums with various purchases of merchandise. From these the system has grown until it is asserted that the profits to the concerns that manufacture and sell trading-stamps and the other forms of premium slips amount to more than $100,000,000 a year.

Twenty years ago the present forms of trading-stamps made their appeararce and were sold to merchants in quantities. The aim was to encourage cash business, and stamps amounting to a certain percentage of each sale were given by the merchant to his cus

COUPON SYSTEM

tomer. Merchants who thought it was an opportunity to "put something over" on their competitors were quick to adopt this plan. The customer was supplied with a book into which to paste the stamps, and when the book was filled it could be redeemed for a piece of bric-a-brac or a piece of furniture upon presentation to the trading-stamp company. In a great many homes, especially in the smaller cities and towns, housewives will show you something "which didn't cost a cent; we got it with trading-stamps."

The use of trading-stamps was not confined to any one line of business nor was it limited to the smaller merchants. Houghton & Dutton, one of the large department stores in Boston, made a feature of trading-stamps. In their advertizing they emphasized their stamp offers. As the stamps came into general use there was the same competition which has always existed in business; double and triple offerings were made. Then there was a reaction among the merchants. Everybody in the trade was offering stamps of some form or other, and, instead of stimulating new business, the system became an added expense or tax. Neighboring merchants banded together to abolish the stamp. Associations were formed for the purpose of securing legislation which would make trading-stamps illegal. In some states laws were passed, only to be declared unconstitutional.

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EW companies were formed and new forms of stamps were issued. In some instances the companies agreed to redeem the stamps with cash instead of premiums. A book containing stamps representing purchases amounting to one hundred dollars would be redeemed at two dollars and fifty cents in cash, and really amounted to a cash discount of two and a half per cent. Enormous profits were secured by the concerns that manufactured and sold the stamps to the merchants, because only a fraction of the stamps sold and distributed were ever returned to the companies issuing them-this being true with both premium trading-stamps and cash tradingstamps.

Some large retail concerns, especially those operating chain stores, have issued premium slips of their own, thus eliminating the trading-stamp premium houses and effecting a large saving. The United Cigar Stores Company is

no doubt largely responsible for the widespread use of premium slips, and so general has the plan become that the tobacco business may fairly be said to be committed to this plan of merchandizing.

A year ago, thirty-eight independent manufacturers of cigars and tobacco, located in fourteen different states, made an attack on the system and introduced four bills to the Ways and Means Committee of the House of Representatives. A large volume of testimony was presented, and all angles of the situation were discussed. The objection to the system was based on the fact that in giving a premium the manufacturer or dealer was forcing the sale of his own or certain brands in preference to other goods, thus helping to establish a form of monopoly. John W. Yerkes, appearing in behalf of one of the bills, said: "They do not give away these things to a grateful public except when they use that gift as a menace to strike down competition."

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HE witness was asked by a member of the committee as to the possibility of the use, in tobacco retailing, of rebates which would in effect be a reduction in price, and he replied: "The reason they do not reduce the price, the reason they do not issue a rebate in cash, the reason they use a coupon, has been made abundantly clear in the argument of counsel for a great company that supplies trading-stamps to retail merchants. He said: 'It is because if you give them one or two cents when the sale is made, that ends the transaction, and the next time he wants to buy anything he may go into a different store; but with these coupons, the consumer has to have so many of them to get what he wants in the way of premiums. This is the reason they use the coupon instead of a cash discount: it brings the customer back for more goods so as to get more coupons.'

S. M. Stroock appeared as the representative of the United Cigar Stores Company and said in part: "Our company is not the only retailer which issues coupons. There are a number of important retailers around the country who have a coupon system of their own. Then there are a number of retailers who issue trading-stamps which are redeemable by other concerns. It is fair to say but a very small propor

tion of the number of dealers in the United States issue and redeem their own coupons." Mr. Stroock stated that the premium system of his company cost about $2,000,000 a year, and it was his impression that the manufacturers of cigars, tobacco and snuff spent about $5,000,000 on premium schemes where the coupons were packed with the goods.

Mr. Stroock continued:

“Our premium system is an advertizement, and, as a matter of fact, not only is it an advertizing medium but it is the only form of advertizing in which the consumer directly benefits.' Asked what his company would do if the coupon business were discontinued, he replied: "We would find some new way of advertizing our business, I suppose. So far as the manufacturers are concerned who sell us goods, I think experience has shown that they would simply sell that much less goods; in other words, the goods they market through our premium department go to a class of people who would not other wise buy these goods. Experience has shown that. I say experience has shown it, because there have been some classes of trade that have adopted a coupon system and then dropped it, and then, after they dropped it, that line of goods which they had been handling had fallen off almost completely."

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HE United Cigar Stores Company, according to the testimony, spend upwards of $2,000,000 annually on their premium system, but only about $80,000 a year for newspaper advertizing. The writer asked the publisher of a large city newspaper if this discrepancy in the advertizing expenditures of the cigar concern had any bearing on the attitude of the American Newspaper Publishers' Association towards the profit-sharing coupon system. "Of course not," was his reply. "We are against the premium coupon and sim

ilar schemes because we are convinced that they are fundamentally wrong. But, if these schemes were not permitted, advertizers would have more money to spend in the newspapers."

Our

The United Cigar Stores Company say: "We do not think that system of coupons stimulates sales any more than any other form of advertizing. We think every form of ad

vertizing is an inducement. We believe the consumption of any article is diminished by the withdrawal of the advertizing or inducement for its purchase." Thomas P. Littlepage, representing an independent tobacco concern, said: "The question of the coupon is purely an advertizing proposition. The courts have said it was a clear, legitimate advertizing proposition. Is the coupon a fair way of advertizing? Is it open to all? We maintain that it is. All manufacturers have the same opportunity. Whether or not they are capable of maintaining independent

depots and stores is not material; they have the same opportunity of using the coupon system."

John H. Jones, representing R. Whalen & Company of Rochester, New York, said:

...

"In modern retailing, to spell success, a merchant has to accomplish two things only: first, attract customers; second, retain their trade. Both these things are accomplished by the coupon system. . . As used by the retailer, the premium system is a means of giving a discount on small payments, as low as five cents, and is almost wholly confined to cash transactions. It therefore encourages cash payments, which is a great advantage to the retailer.

"To the manufacturer, the coupon offers a plan of profit-sharing. He packs a coupon in each package of his goods and redeems these coupons in premiums which are paid for out of the profits he makes on the increased sales of his goods. To say that the goods are sold at a higher price or a lower quality because of the coupons is absurd, for competition regulates both price and quality. One of the chief advantages of the premium system is that it retains old customers as well as attracts new ones.

"It has been found by experience that a discount of two or three per cent. is the average amount that a business can stand as a discount, and that a premium costing from two dollars up is the kind that will attract and retain custom, as it is of permanent character and value. An important point in this connection is that has been made. The merchant gives noththe discount is not given until the trade ing until he has received the patronage of the customer. No other system of advertizing can do this for a merchant. What a merchant pays for general advertizing is so much bread thrown upon the waters. Whether it returns cake or dough is beyond his power and control. No method has yet been devised to tell how much trade will result from a thousand dollars

a

spent in newspaper, circular, billboard, or theater program advertizing; but there is no question about the return from thousand dollars spent for goods given as a bonus for patronage actually conferred."

N DIRECT conflict with the above testimony was that of Nicholas Ehrlich, of Brooklyn, New York:

"We are opposed to coupons, inserts, free gifts, free presents the 'something for-nothing' idea. They are only shields to cover unfair competition. They are used as a mask on the face of unscrupulous business men to cover the defects of their business transactions. They are not able to sell an article on its face value. Speaking generally, the coupon business is a fraud and deception on the consumers by the unfair business man. The average coupon is supposed to be worth four per cent.-four cents on the dollar. When the consumer redeems it he receives only two cents on the dollar. About fifty per cent. of the coupons go astray and are never redeemed, which makes for the average consumer only one cent on the

"The average consumer is not competent to purchase articles for his needs. He has to consult the salesman. The salesman, trying to make up the expense of the coupon, gives an inferior quality to the innocent, inexperienced buyer, while he cannot do that with a competent buyer. The business man considers the coupon an expense, just as light, heat, etc. He divides his customers into two classes: one class of able, experienced buyers, who give only a small profit to the seller, and another class who know nothing of

quality, value or price, and have to depend on the fairness of the man behind the counter, and this coupon expense is charged up to the latter class."

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HE plan of manufacturers to pack a premium coupon with their goods, or to offer premiums for the return of so many wrappers or trade-marks cut from wrappers, was in use long before the trading-stamp was invented. Soap manufacturers were among the first to adopt this method of pushing the sale of their product. At first the premiums were chromos and novelties of little intrinsic value. Competition, however, brought about a change in the character of the articles offered, and to-day many valuable premiums are offered, things of

established merit.

Last year the California Fruit Growers Association redeemed over forty millions of the tissue paper wrappers from "Sunkist" oranges and lemons. The Quaker Oats Company, through extensive advertizing, have disposed of car loads of aluminum steam cookers, in exchange for a given number of trade-marks cut from packages of their goods and one dollar extra. The advertizing pages of most magazines and newspapers contain many such offers. The criticism is sometimes made that the amount of money required in addition to the coupons or trade-marks is frequently equal to the cost of the article at wholesale. Where this is true, the money required is usually considerably less than the retail price of the article. The manufacturer offering the premiums buys in such large quantities that he secures them at a very low

reason why we do not oppose the tradingstamp as we do the coupon is that the trading-stamp is a matter between the merchant and his customer. He buys the stamp himself, and hands them out to his patrons. He knows what he is doing; they know what they are getting. It is all right out in the open. Personally, I don't believe in it. The great majority of our members don't believe in it. Estimating offhand, I should say between eighty-five and ninety per cent. of the retail merchants of the country don't believe in it and don't use it. We are content to let the trading-stamp alone. It isn't actually dishonest, and in the course of time I believe people will be educated away from it. The best department stores don't use it any more. It's only the cheaper ones, whose patrons are not yet educated up to the realization that you can't get something for nothing, who cling to this artificial trade stimulus.

"But the so-called profit-sharing coupon is a different proposition. It is slipped into packages of merchandize by the manufacturer, sometimes even without the knowledge of the retailer through whose hands pass the wares. It is something that is done secretly. The manufacturer naturally has to pay the coupon company for its services, and that price has to be added to the list value of his wares."

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P TO this time, none of the attempts which have been made to regulate the coupon and tradingstamp business by law have been successful. None of the laws which have been enacted in several states have withstood the test of constitutionality. The law passed in the State of Washington, levying an annual license tax of $6,000 on merchants who use coupons or trading-stamps, was declared unconstitutional by the Federal Circuit Court of Appeals on the Pacific Coast and upheld as constitutional by the Supreme Court of the State of Washington. The State of Washington has therefore appealed from the ruling of the Federal Circuit Court of Appeals to the Supreme Court at Washington, D. C., which will hear the arguments in the case this month.

The National Retail Dry-Goods Association through its officers is appealing to its members for funds with which to conduct the battle. The proposition is to start off with a budget of at least $12,500 a year. That this campaign is not to be a flash-in-thepan scheme, but a deliberate intention to camp on the job and fight it out by creating public sentiment, is indicated by the plan to pursue the following fivesided contest against coupons and coupon companies:

First-An effort will be made to unite all retail associations in opposition to the scheme, including local and national organizations of grocers, hardware men, druggists, clothing dealers, confectioners, tobaccc and dry-goods retailers.

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Second-An effort will be made to secure the passage of stringent bills in every State in the Union legislating against coupon or premium giving by manufacturers. These bills will be fashioned after the one introduced in Pennsylvania.

Third-An effort will be made to arouse sentiment against the system among all associations of manufacturers and chambers of commerce.

Fourth-Use all possible publicity to eliminate the use of coupons by creating public opposition and by arousing hostility among retailers. In this connection it is proposed to have the field secretary address meetings of chambers of commerce and retail associations, and secure adoption of agreements recommending that every proper effort be made to discourage the use of articles containing, or advertized to contain, coupons.

Fifth-The association intends to establish an information bureau to educate all retailers as to the expenses, profits and methods of coupon companies.

The bill which is to be urged in every State declares that dealing in coupons is "illegal and contrary to public policy," and provides that, at the suit of the Attorney General, such The bill dealing shall be enjoined. does not, however, prescribe any penalty. The legal counsel for the association says: "There is no fine or imprisonment prescribed. It is simply a prohibited business, prohibited under the police power of the State as being detrimental to the morals of the people. By virtue of its not being a penal statute, it will be possible more easily to obtain favorable action of the courts, for the proof will be easier to obtain, since the concern can be obliged to show its books for the purpose of discovery, which could not be required of them were it a penal statute."

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HE writer interviewed a large Chicago manufacturer who has for a number of years inclosed a premium coupon in each package of his goods. He says:

"While I am and always have been of the opinion that premium schemes are not in accord with the best economic principles, I use them in my business because I have found them one of the best forms of advertizing. Most of the propaganda against them has been simply ludicrous. The arguments against premium or profit-sharing coupons have been simply the same arguments which have, under one guise or another, been directed against advertizing of standard, trade marked merchandize. The merchant doesn't want the consumer to be influenced by the manufacturer. He wants to control the situation-but he can't. There is nothing secret or underhanded about the coupon system. Manufacturers who use them spend hundreds of thousands of dollars in advertizing so that the public will know about the coupons and make use of them. That's what

we want them to do. The department stores are taking a leading part in this fight against the coupon system, just as they took a leading part against price maintenance, and just as they have fought every attempt on the part of manufacturers to establish and maintain the demand for branded merchandize."

The New York Times says: "Hitherto legislation of this kind has failed to get the support of the courts before which it has been brought, and it is regarded by many lawyers as exceedingly doubtful whether any legislation can be devised with this end in view that will not be held to be unconstitutional." The Sperry & Hutchinson Company and The Hamilton Corporation, both of New York City, are using large space in the newspapers to present the advantages of the coupon system to the public, if not to influence the attitude. of the newspapers themselves. "It will have no effect on our business," said W. T. Posey, president of the United Profit-Sharing Corporation. "Out of thirty-six thousand dealers who handle merchandize bearing premium slips we have received protests from not more than ten or twelve."

A letter to get business ought to look the prospect squarely in the eye and land your proposition right where he lives. It should express his innermost desires, getting under his conventional veneer and touching the tenderest spot of his self-interest. In short, it ought to attract his attention and arouse his interest precisely as the dinner-bell does when he is hungry but does not know it until the bell suggests it.

"FRIEND COMPETITOR"

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COMPETITION is the life of trade-perhaps. But it increases the cost of everything we buy. Within certain limits, competition holds down the price of the things we eat, the things we wear, and the shelter over our heads; but, from an economic standpoint, competition through duplication of service increases the cost of everything.

In Chicago there are about six thousand grocers, and three thousand could adequately supply every demand. In other words, the consumers in Chicago are paying rent and other fixed overhead expenses which aggregate one hundred per cent. waste.

What is true of the grocery business is true of almost every other line in Chicago; and this same condition prevails in practically every city, town and hamlet in the United States. What are we going to do about it?

This is a free country, and any man who wants to go into business and has the money to make a start has the privilege. On the other hand, the government has laid down certain limits in trust legislation beyond which business cannot go in any cooperative plans it may undertake. It is up to the busi

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