January/February 1988
Are
you running a small steel service firm and feeling frustrated by pricing
methods? Well, you may be in a much better position to bargain than you
think. Joseph Epstein, the main force behind Sierra Pacific Steel, makes a
case for the oft-thought distasteful--but actually acceptable--task of
negotiating.
By
Joseph Epstein
Joseph
Epstein is president and founder of Sierra Pacific Steel Inc., Hayward and
Los Angeles, California.
Many
people don't like to negotiate; they either are uncomfortable negotiating
or simply don't believe in it. Some consider bargaining downright
distasteful. If you are among those with a negative view of negotiating,
you need a better appreciation of the art of the process. An artful
negotiation process is tantamount to survival in our business arena, where
large companies dominate the market.
Under
normal market conditions, domestic steel mills and foreign mills, through
trading companies, compete vigorously for large multibranch service
centers. The cost advantage available to the large steel service centers
must be offset by the smaller competing companies, and artful negotiations
are part of the solution.
Negotiating
not only is acceptable and necessary, it's in our nation's roots. A
September 1987 San Francisco Examiner article offers historical
insight into the negotiation process. The authors, Jay Kaplan, former CEO
of Consolidated Capital Equities Company, and his former partner, Marvin
Levin, write about the agrarian roots of our economy, when well over 80
percent of the U.S. population lived on farms. For people who grew up on
farms, negotiations were a way of life. Buying and selling land,
livestock, and supplies, and most importantly, selling crops after
harvest, all involved a great deal of bargaining and trading. The authors
point out that successful bargaining was as important to survival as were
the technical aspects of farming such as planting and plowing. But as our
nation became more urbanized, negotiation and trading gave way to an
economy based on fixed-price retailing. Many families not only stopped
bargaining, but began considering it an uncivilized act. Thus, the change
in our economy from agrarian to industrial and commercial created a
collective psyche that placed a stigma on a legitimate business tool.
The
time has come for business managers to learn, and to teach their
employees, the value of a modern-day approach to negotiating.
A
main principle of the approach is that negotiating is as essential to
selling as it is to purchasing.
Another
principle is that there is a difference between shopping for the best
price and negotiating for a lower price. Our capitalistic system has
provided opportunities, particularly to people living in urban centers, to
choose from a large selection of products and services varying greatly in
price and quality. However, in the steel distribution business, the wide
range of quality doesn't exist as it does in some other industries. The
steel market is almost exclusively a price-driven market. Even though part
of the steel service industry uses fixed-price selling, it seems as though
most of the larger volume orders are obtained as a result of bidding or
quoting in a competitive environment. The goal for the seller is not to
quote the lowest price, but rather to quote a competitive price that
allows a fair return on investment to the company and provides a workable
and acceptable price to the customer.
There
also is a difference between selling, which is an active art, and order
taking, which is a passive process. For example, if the cost of inventory
is too high under current market conditions, the task is to sell the
inventory and still achieve a profit. This is the sales department's job.
Conversely, if the cost of the goods in stock is well below that of the
competition, it still should be the task of the sales personnel to obtain
the fair market value of the product and thus maintain or even enhance the
gross sales margin. Selling, as opposed to mere order taking, involves the
art of negotiation.
Are you running a small steel service firm and feeling frustrated by pricing methods? Well, you may be in a much better position to bargain than you think. Joseph Epstein, the main force behind Sierra Pacific Steel, makes a case for the oft-thought distasteful--but actually acceptable--task of negotiating.