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Bringing Radio into America's Homes: Marketing New Technology in the Great Depression

Published online by Cambridge University Press:  01 June 2016

Peter Scott  and
James T. Walker
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Abstract

We examine the early marketing and distribution of entertainment radio sets. Manufacturers used distribution networks to both maximize profits and create barriers to entry. Lacking the market power of auto manufacturers, they developed cooperative strategies with authorized distributors and dealers. Dealers often complained about the costly activities manufacturers required of them. However, these underpinned the dominant quality and branding competition model of the 1920s, while the Depression-era switch to a simpler radio format, sold on price, proved catastrophic for the specialist retailer.

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Type
Research Article
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Business History Review , Volume 90 , Issue 2 , Summer 2016 , pp. 251 - 276
Copyright
Copyright © The President and Fellows of Harvard College 2016 

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80 U.S. Dept. of Commerce, Bureau of Foreign and Domestic Commerce, “Merchandise Problems,” 8.

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89 Ryan, “109 Radio Merchants Answer the Question.” The dealers whose returns were tabulated had sales ranging from $900 to $40,000 and totaling $7.2 million. There was some bias toward larger firms (who would be in a better position to produce the necessary accounting data). Their average net sales of $66,184 are higher than Census averages for 1929 ($52,769 for radio and musical instrument stores and $28,625 for radio and electrical shops, or $35,030 for both). U.S. Department of Commerce, Fifteenth Census of the United States: 1930: Distribution. Vol. 1: Retail Distribution (Washington, D.C., 1933), 48.

90 Ryan, “Expenses, 29.5%, Profit, 8.2%.”

91 Survey schedule, published in Radio Retailing, July 1929, 83. Occupancy included rent, light, heat, water, etc. Where the property was owned by the retailer, a notional rent was estimated, based on 6 percent of the cost of land and buildings, together with depreciation at 2.5 percent of building costs. Selling expense involved the costs of the sales force, selling-related stationery, other miscellaneous selling expenses, delivery (including depreciation on equipment at 40 percent of cost), and demonstration expenses. Publicity included advertising, circulars, and window dressing. Gross margins were found to be substantially smaller than the discounts from selling prices received by retailers—reduced by trade-ins; sets sold at prices below original list prices (including obsolescing stock or, occasionally, stock where the manufacturer had cut the list price); and breakages and returns.

92 Of the 109 firms in the full sample, seven do not have information on publicity expenditure and one has no information on occupancy.

93 One caveat with this methodology is that higher profits may have an impact on promotional expenditures. This endogeneity issue is not accounted for and may lead to estimates that are biased upward (Richard Schmalensee, The Economics of Advertising [Amsterdam, 1972], 98–100). As the data are cross-sectional, we cannot use the typical approach to resolving this—i.e., instrumental variable methods with time lags and other exogenous variables—as there are no candidates for instruments. However, we do not consider this to be problematic in our case. We examine the relative impact of promotional and selling expenses, so if higher profits lead to higher expenditures, it would seem likely they would do so for both promotion and selling. Furthermore, as our findings show large and very well-determined differentials between the two forms of sales promotion, the extent of bias would need to be extremely large. Previous studies suggest a relatively modest bias, in the context of well-determined results: Scott, Peter and Walker, James T., “Advertising, Promotion, and the Competitive Advantage of Interwar U.K. Department Stores,” Economic History Review 63, no. 4 (2010): 1105–28Google Scholar; Scott, Peter and Walker, James T., “Sales and Advertising Expenditure for Interwar American Department Stores,” Journal of Economic History 71, no. 1 (2011): 33–59 Google Scholar; Greuger, Matthias, Kamerschen, David, and Klein, Paul, “The Competitive Effects of Advertising in the U.S. Automobile Industry, 1970–94,” International Journal of the Economics of Business 7, no. 3 (2000): 245–61Google Scholar; Kwoka, John E. Jr., “The Sales and Competitive Effects of Styling and Advertising Practices in the U.S. Auto Industry,” Review of Economics and Statistics 75, no. 4 (1993): 649–56CrossRefGoogle Scholar.

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96 Chandy and Tellis, “Radical Product Innovation.”

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98 Maclaurin, Invention and Innovation, 137–48.

99 Ibid., 148–49.

100 Emerson Radio and Phonograph Co., Small Radio: Yesterday and in the World of Tomorrow (New York, 1943), 28–30.

101 “Midgets Hit the East,” Radio Retailing, Aug. 1930, 56–57, 65.

102 Peter L. Jensen, “A New Major Development in Radio,” Radio Industries, July–Aug. 1933, 56.

103 Emerson Radio and Phonograph Co., Small Radio, 34–36.

104 Maclaurin, Invention and Innovation, 148. Crosley survived the Depression, but on a much reduced scale.

105 “Midgets Hit the East.”

106 See Scott, “When Innovation Becomes Inefficient.”

107 See Jonathan Rees, Refrigeration Nation: A History of Ice, Appliances, and Enterprise in America (Baltimore, Md., 2013), 141–61; and Robert Hoover and John Hoover, An American Quality Legend: How Maytag Saved Our Moms, Vexed the Competition, and Presaged America's Quality Revolution (New York, 1993), 105–72.

108 See Klepper, Steven, “Industry Life Cycles,” Industrial and Corporate Change 6, no. 1 (1997): 145–81Google Scholar.

109 Tushman and Anderson, “Technological Discontinuities.”

110 These were available to all firms, with a short lag, owing to the industry's patent pool agreements. Sobel, RCA, 84–108; Maclaurin, Invention and Innovation, 132–36.

111 Giachetti and Marchi, “Evolution of Firms' Product Strategy”; Klepper, Steven and Thompson, Peter, “Submarkets and the Evolution of Market Share,” Rand Journal of Economics 37, no. 4 (2006): 861–86Google Scholar.

112 See Tushman and Anderson, “Technological Discontinuities.”