Evening star., 1934-01-22
ADVERTISING HELD
GAS WAR FACTOR
Expenditures Must Be In
Cluded in Sale Cost of
Product.
BY DAVID LAWRENCE,

BY DAVID LAWRENCE.
When does advertising become a for
hidden item in the cost Of marketing q
product?
The answer, in the case of the oil in
dustry. is whenever any oil company
goes below cost in the sale OF its ad-
vertised products.
This principle, by far the most inter-
esting that has yet come out Of the re-
adjustment of industry under the code
system, may have far-reaching appli-
cation to all businesses if the underly-
ing idea now being experimental with
in the oil industry should be sanctioned
by the Roosevelt administration.
There's an interesting price war go
ing on in the District of Columbia
which Is a sort of laboratory for the
trying out of new ideas, at least for the
petroleum code. and the outcome may
be a determination of just what part
advertising does play in marketing
costs
Thus last week price of 14.6 cents
was fixed for the sale Of gasoline by
major companies. The independent
companies insisted that they be per-
Il
their costs were lower, due to no ex-
pense for advertising The major COM
panies promptly refused to hold, the
price at 146 and declared they would
not only meet competition at l4.l, but
would. of course. absorb their advertis-
ing costs. too The independents have
now cut the price to 1876.
Concerned With Cost.
There is some dispute as to grades
and a claim that there are differences
in price based on grade, but the
Petroleum Administrative Board, pre-
sided over by Nathan Margold, solicitor
for the Department of Interior under
Secretary Ickes, declares the only crl-
terion is whether or not the seller goes
below cost
advertising. said Mr.. Margold, sis
lust an item of cost among other
items. We are concerned under the
code with the question Of whether sales
are made below cost. If the total cost
including advertising. is in excess oi
the sales price. then violation of the
code has occurred"
Mr. Margold was asked whether the
new regulations Just issued nationally
which provide an opportunity for low
cost producers to get diferential
against high cost producers would al
feet the local price war and he said
only incidentally" Under the new
rules any group of operators can come
in and claim the right to underSell their
competitors by showing that their costs
are less. This was adopted to enable
certain marketers who do not deliver
their product to make concessions be-
cause of their location at or near rail-
road terminals, but the general power
of making concessions where costs are
lower than competition would doubtless
be applied to instances in which adver-
tiSing cost was involved.
Advertising Plays Part.
In nutshell. however. every operator
who wants such a differential. must pre-
sent evidence at public hearing anc
there will be opportunity to oppose
such concessions. No such concession
has been made as yet in any case. The
subject of advertising as a factor II
cost has not arisen therefore in the ma
tional situation but in the District oil
Columbia gasoline war it plays a vita
part.
The independents here claim they are
entitled to sell at a lower price thar
their competitors. The latter, who ad-
vertise. are vehemently opposed to any
concession and want to absorb all ad-
vertising costs. If one or the other OF
these two groups should get below cost
in the price war. the matter Will be pre-
sented to grand jury, as there Is
iail sentence for code violations.
Meanwhile the companies that adver'
tise and frankly concede that 1t gets
them a larger volume of business are
wondering how far their opponents car
90 in forcing the Government to Pc
nalize the companies that do advertise
1t can readily be seen that when on ac-
count of cut-throat competition profits
get closer and closer to the zero mark
the companies that advertise would bt
compelled to give up that weapon under
penalty of going to Jail, for they woulc
be in the position of going below cost
if they maintained their advertising anc
still tried to meet their competitors.
The opportunity would be denied
them to advertise even more extensively
to get volume. Some companies otter
take a loss for a while. but consider ii
a capital investment. in order to get
larger number of sales at small prom
rather than to try to operate under the
previously existing volume with it
higher sales price.
The attitude of the Petroleum Admin
istrative Board is that the consumer
should get the benefit Of competition
but that there should be no selling be-
low cost.