L4M5 Questions and Answers

Using threats is generally inappropriate in strategic supplier negotiations where a long-term, trust-based relationship is required (C). Threatening tactics can damage the relationship and may result in resistance from the supplier. CIPS advocates for collaborative approaches in strategic relationships to foster mutual trust and achieve sustainable agreements.

Distributive approach to negotiation used when the interested parties are attempting to divide something up or distribute something of value, also known as zero-sum approach or win-lose. Commercial situations often demand a distributive bargaining approach, if the 'pie' is inherently of a fixed size. In this case, any conflicts must be resolved by sharing it.

In win-lose approach, a negotiator wants to maximise the value obtained in a single deal, the relationship with the other party is not important. Therefore, a strong party may win more than 50% of the metaphorical 'pie'.

It should not be assumed that win-win can be applied to all commercial negotiations, or that win-lose approaches are inherently inferior.

There are several pricing strategies used by suppliers:

Cost-plus pricing – Total variable + Fixed cost + profit

Premium pricing – based on branding. Supplier determines to charge a very high price, not connected with cost structures, usually based on its reputation and/or the perception that the product/service is of

a superior quality. This strategy typically found in the early part of the product life cycle/when demand exceeds supply.

Penetration pricing - Supplier attempts to enter a new market or extend its share in an established one. It is characterised by price reductions to increase volume, followed by steady price increases; may

even be loss leading at start (no profit made)

Marginal cost pricing – covers only variable cost

Market pricing – suppliers prices in line with what the market is willing to pay

Legitimate power derives from formal authority or position, giving the buyer leverage in negotiations. This power type is more effective in establishing credibility and enforcing terms, as highlighted in CIPS's framework for negotiation power sources, unlike informal sources like personality or friendship.

The opening stage of the negotiation covers the very first few minutes when the parties meet and greet each other and are seated in the negotiation room in preparation for the main event.

Typical behaviours at the opening stage: 'dos' and 'don'ts'

Do’s

Be punctual and well presented (welcome their arrival)

Break the ice with small talks

Start the conditioning process

Check authority

Check agenda

Consider using visual aid to set out key objectives or make key points

Don’ts

Use strong, pushy, cold or tough style at the opening

Put down marker at this stage

Criticise other organisations/TOP's previous contacts/third parties.

In this scenario, Diana has made her proposal right at the opening stage. This is an example of 'don'ts'. Good negotiators are very careful about 'red lines'. If she puts such barrier up too early, the supplier may not try to look for more creative solutions later in the negotiation.

An oligopoly exists when there are small number of producers that exert a significant influence in the market. Oligopoly's main characteristics are discussed as follows:

- Interdependence

The most important feature of oligopoly is the interdependence in decision¬-making of the few firms which comprise the industry. This is because when the number of competi¬tors is few, any change in price, output, product etc. by a firm will have a direct effect on the fortune of its rivals, which will then retaliate in changing their own prices, output or products as the case may be.

- Importance of advertising and selling costs

A direct effect of interdependence of oligopolists is that the various firms have to employ various aggressive and defensive marketing weapons to gain a greater share in the market or to prevent a fall in their market share. For this various firms have to incur a good deal of costs on advertising and on other measures of sales promotion. Therefore, there is a great importance of advertising and selling costs under conditions of market situation characterised by oligopoly

- Group behaviour

Another important feature of oligopoly is that for the proper solution to the problem of determination of price and output under, it analysis of group behaviour is impor-tant.

- Indeterminateness of demand curve facing an oligopolist

In this question, 'Prices in oligopoly are predicted to fluctuate widely and frequently' is an incorrect statement as producers in oligopoly often try to set up price. Prices fluctuate more frequently in perfect competition.

LO 2, AC 2.2

Contextual (environmental) power includes home-ground advantage, control of the venue, access to colleagues and data, and comfort with logistics—all of which can tilt confidence and leverage toward the host (the buyer).

There are nine commonly used influence tactic:

1. Rational persuasion includes using facts, data, and logical arguments to try to convince others that your point of view is the best alternative. This is the most commonly applied influence tactic.

2. Legitimating

3. Personal appeals

4. Exchange

5. Ingratiation

6. Pressure refers to exerting undue influence on someone to do what you want or else something undesirable will occur.

7. Coalitions refer to a group of individuals working together toward a common goal to influence others.

8. Inspirational appeals

9. Consultation refers to the influence agent’s asking others for help in directly influencing or planning to influence another person or group.

In the scenario, there is a problem with demand forecasting and supply chain planning in Leitax. The new Supply chain director invites the stakeholders to a meeting to find the solution. She is using coalition tactics.

Break-even analysis identifies the sales volume required to cover fixed costs. It relies on:

Fixed costs (constant regardless of output).

In difficult negotiations and disputes, hardball tactics like punishment and threats often seem like the only way to win concessions. Some negotiators seem to believe that hardball tactics are the key to success in any negotiation. They resort to extreme demands and even unethical behaviour to try to get the upper hand in a negotiation.

The following are 8 typical hardball tactics:

1. Good cop / Bad cop

2. Low ball / High ball

3. Bogey

4. The Nibble

5. Chicken

6. Intimidation

7. Aggressive Behaviour

8. Snow Job

You can read the details of each tactic here.

In the contrary to hardball tactics, negotiators can adopt integrative approach to the negotiation. Some of integrative tactics are:

1. Expand the Pie

2. Bridging

3. Post Settlement –Settlement

Et cetera

An organisation's expense can be categorised into three groups:

Fixed Costs – costs that do not change with output.

Variable Costs – costs that vary in direct proportion to output.

Semi-variable costs – costs that are a combination of the above, with both a fixed and variable element.

Among the four options:

"Land rental paid in advance": This is fixed cost. The rental won't increase when the production increases.

"Additional pallet hires due to higher demand in year-end season": This can be identified as semi-variable cost (or step cost).

"Governments taxes": The taxes are often levied by a percentage of income or revenue. Therefore, it is variable

"Raw materials for next year production": This is obviously variable cost.

Understanding where and with whom your supplier spends their money, or understanding the 'cost breakdowns' or 'price build-up' of the goods and services you purchase from the supplier, will help you know

where and when they can offer price concessions.

Cost information can be expressed with more impact through graphs that can be created using Excel and PowerPoint or other softwares. There are two commonly used models known as 'spend waterfall'

and 'spend tree'. Spend waterfall shows the build-up of costs, while the spend tree shows all the spends that an organisation makes.

There is no graph known as 'spend candlesticks'. Candlestick chart is a style of financial chart used to describe price movements of a security, derivative, or currency.

The aggregate expenditure model is a method of calculating GDP. The aggregate expenditure model focuses on the relationships between production (GDP) and planned spending: GDP = planned

spending = consumption + investment + government purchases + net exports.

An adversarial relationship in purchasing and supply arises when identical or equivalent good or services are available from competing suppliers and buyers/sellers are trying to gain an advantage over each other. Low levels of trust are characteristic of adversarial relationships. The outcome when two organisations with adversarial negotiate is most likely to be win-lose.

Microeconomic factors concern the conditions specific to suppliers, buyers, and markets — such as supplier communications, annual reports, and industry-specific data. These provide insight into cost structures, capacity, and competitive positioning. Macroeconomic factors, by contrast, include inflation indices (RPI), financial market trends, or global commodity prices. Distinguishing between micro and macro sources allows negotiators to build more precise intelligence for supplier discussions.

According toMendelow’s Matrix, stakeholders withhigh interest but low powershould be keptinformed. Their interest means they care about the negotiation's outcome, but their low power means they can't significantly influence it. Keeping them informed avoids alienation and ensures smoother implementation of negotiated agreements.

“Stakeholders with high interest but low power should be managed by keeping them informed. They may become powerful advocates or opponents in the future, so engaging them is a strategic approach.”

(L4M5 Commercial Negotiation, 2nd edition, Section 1.5 - Stakeholder Management in Commercial Negotiations)

Direct costs are those costs of a product/service directly attributable/traceable to its production, for example, the costs of labour and materials directly used to produce the goods/services which the organisation sells.

Reflecting on performance should become a natural final step in the negotiation process.

'Celebrating publicly about the deal': Public gloating, even in success or failure, if it gets back to the supplier via the press or social media, will likely damage the relationship

'Tempting TOP to reopen the negotiation': whether TOP agrees to reopen the negotiation, procurement should reflect on their achievement and what can be improved.

'Asking TOP for another concession': TOP can agree or reject this concession. Eventually, reflecting should be the final step. Procurement can learn a lot from reflection on performance.

LO 3, AC 3.4

'Supplier may want to encourage buyer's demand': the buyer tends to prefer lower price, if supplier wants to encourage its customers to buy more, it needs to offer discount at bulk amount. So this option is not acceptable.

'Supplier may have high fixed cost - variable cost ratio': Supplier with high fixed cost needs high volumes to break even, but once achieved, it may be able to offer significant discounts for bulk orders

'The supplier may have reached economy of scale': when economy of scale is reached, cost per unit will be minimal which often leads to more favourable price.

'Supplier may need to open new facilities to meet increasing customer's demand': Increasing customer's demands may excess supplier's current capacity. Therefore, supplier may need to extend its capacity by investing more in facilities. To cover these fixed cost investment, supplier may charge higher price.

LO 2, AC 2.1

Best alternative to a negotiated agreement (BATNA) is the plan B or back-up plan in the event of a ‘walk away’. In case of no deal, buyer (or supplier) may switch to this option.

The zone of potential agreement (ZOPA) is considered an area where two or more negotiating parties may find common ground. It is this area where parties will often compromise and strike a deal. In order for negotiating parties to find a settlement or reach an agreement, they must work towards a common goal and seek an area that incorporates at least some of each party's ideas.

STEEPLE offers an overview of various external fields. It is an acronym for Social, Technological, Economic, Environmental, Political, Legal and Ethical.

PESTLE is a mnemonic which in its expanded form denotes P for Political, E for Economic, S for Social, T for Technological, L for Legal and E for Environmental. It gives a bird’s eye view of the whole environment from many different angles that one wants to check and keep a track of while contemplating on a certain idea/plan.

LO 1, AC 1.2

In most commercial negotiations with monopolistic organisations, one can expect that in general they will have far greater bargaining power - you will need them more than they need you. There BATNA is stronger in the short run, but over time their power can be challenged effectively.

Ways of dealing with monopoly suppliers include the following:

Making yourself an attractive buyer

Seeking out alternatives / substitutes in a private or public manner

Designing out the requirement that forces you to go to the monopoly suppliers, or seek to make the product, or threaten to make it yourself if feasible

Lobbying government or campaigning, as part of an industry or trade body, for a reduction in barriers to entry that support the monopoly

The relationship spectrum categorizes supplier relationships based on factors like strategic importance, allowing organizations to tailor their approach to each supplier relationship. CIPS emphasizes the relationship spectrum as a valuable tool for assessing and managing supplier interactions based on strategic relevance.

Legitimate poweris derived from theposition or authorityheld within the organisation. It supports the buyer’s ability to influence negotiation outcomes based on formal responsibility, legal rights, or contractual mandates.

“Legitimate power stems from formal roles, authority or responsibility. It enables negotiators to assert terms backed by organisational policy or legal mandate.”

(L4M5 Commercial Negotiation, 2nd edition, Section 3.1 - Organisational Power Structures in Negotiation)

Referent power is based on personal relationships and the respect or admiration one earns within an organization. Given Mike’s positive relationships and his rapport with team members and other departments, he is most likely to have referent power. This power type is influential in negotiation as people are more willing to work with someone they respect, as outlined in CIPS power dynamics in negotiation.

Afixed price agreementprovides stability and predictability. The supplier bears the risk of cost fluctuations, which is especially advantageous in volatile markets. Moreover, it simplifies administrative processes for the buyer over the contract duration.

“Fixed price agreements transfer cost risk to the supplier and enable simplified contract management. This can reduce overhead for buyers and support budgeting accuracy.”

(L4M5 Commercial Negotiation, 2nd edition, Section 2.1 - Pricing Models in Negotiation)

Coercive power comes from the belief that a person can punish other for non-compliance, and can be considered as the flip side of reward power. Coercive power rests in the individual's ability to change other people's behaviour through threat, intimidation, use of guilt, ability to embarrass or shame, or withdrawal of benefits,...

In the scenario, the manager propose to 'split the difference', which means each party will accept some of their demands and concede some. This is known as 'Compromise'.

Closed questions are designed to elicit specific, factual responses — typically “yes” or “no” or a brief piece of information. These are particularly useful when verifying details during negotiation. For example, asking “Did you receive the revised schedule on Monday?” ensures clarity and reduces ambiguity.

In the context of aninternal IT project, the relevant stakeholders would be thosedirectly involved in decision-making and implementation.Senior managementoversees funding and strategic fit, whilesoftware developersensure technical support. The general public and pharmaceutical suppliers are external and not primary stakeholders in this scenario.

“Stakeholder identification must focus on individuals or groups directly involved or affected by the procurement. This includes internal sponsors, end-users, and technical staff responsible for delivery.”

(L4M5 Commercial Negotiation, 2nd edition, Section 1.5 - Internal and External Stakeholders)

Competitive bidding is generally recommended for high-value or complex purchases where the cost and time required for the bidding process are justified. For low-value, routine items like pens, the time and resources required for competitive bidding may outweigh the potential cost savings, as noted in CIPS best practices. Hence, Option C is the best answer.

Knowing supplier's fixed and variable costs is beneficial for the buyer in a negotiation. With these insights, the buyer would know the volume at which the supplier reaches break-even points and then offers significant discount due to economies of scale.

Signs of trust in business relationships

• Mutually agreed and managed objectives

• Sharing information

• Managing conflict through joint problem solving

• On time delivery of products and services

• High-performance teams that feel empowered to get the job done

• Supplier welcomes opportunity to innovate

• Both parties share ideas and insight

• Clear criteria for decision making

LO 1, AC 1.4

Involving an appropriate cross-functional team is beneficial for effective commercial negotiation because it brings together diverse perspectives and expertise relevant to the negotiation context. According to CIPS, a cross-functional team ensures that all aspects, such as technical, financial, and operational inputs, are considered, leading to more balanced and informed decision-making. This approach also helps in addressing complex negotiation elements effectively.

Skilled negotiators seek to understand the needs of the other parties, as well as their own. In doing so, it allows them to determine a strategy that their own needs are met. Failing tounderstand the other party's needs is one of the most common reason for an unsuccessful negotiation. In the commercial negotiation, procurement team does not negotiate with organisation, they negotiate with individuals. It is therefore important to recognise that there are two levels of needs:

The organisation - What the organisation wants to achieve. This is generally well stated and understood

The individual - what is in it for the individual? This is generally not stated, rarely discussed, but very motivational. It is vitally important therefore that time is invested in understanding the needs of the individual

Skilled negotiators are aware of the needs that occur at both levels, and develop creative options and strategies that attempt to satisfy these needs.

There are many tactics and ploys that can be used to persuade others, particularly those not trained in negotiation. But in general these tactics should be used with care, as they can backfire; and in situations where a long-term relationship is desired, they can be, if detected, become an irritant to TOP.

Tactics are particularly effective if and when you are dealing with untrained negotiators, in consumer's buying situation and in once-off encounter.

The earlier procurement get involved in the procurement processes, the better. If procurement are involved in design at the specification stage they can feed in prices and costs to designer so they know the likely budget implication of choices made. Sending in a procurement team to negotiate at or close to the end of the procurement process effectively ties their hands and limits their negotiation leverage. This is illustrated in the graph below:

Chart Description automatically generated

LO 2, AC 2.1

A monopoly occurs when a single supplier dominates a market, giving them high bargaining power over buyers. By contrast, monopsony is where a single buyer dominates, oligopoly involves a few large suppliers, and monopolistic competition refers to many suppliers with differentiated products. Monopoly power in negotiations means buyers have reduced leverage and may need to rely on regulatory frameworks or collaborative strategies to balance outcomes.

Commercial negotiation objectives should be driven by the business needs of the organisation. Organisations are made up of different stakeholder groups, some of whom may have different, even conflicting objectives. From a negotiation perspective, stakeholders can be defined as persons or groups that have interest (or stake) in the outcome of the negotiation you are leading or participating in.

CIPS distinguishes between 3 sets of stakeholders:

- Internal stakeholders

- Connected stakeholders

- External stakeholders

End-users are examples of internal stakeholders. They are the people who will benefit from the purchase of a product or service. However, their interest may conflict with other groups, i.e. thebudget controllers whose objective is minimising the expense. In negotiation perspective, procurement should involve different groups of stakeholder.

LO 1, AC 1.1

Gross Domestic Product (GDP) is the monetary value of the goods and services manufactured or supplied in a financial period. In general terms, when the GDP rate falls or slows down, there will be a fall in demand for goods and services demanded in the economy, with a fall in firms' revenue and profit margins. When GDP is rising, there will be an increase in demand.

Consumer Price Index (CPI) is weighted measurement that evaluates the average cost of a basket of goods bought by a consumer.

Producer Price Index (PPI) is average changes in prices that a producer receives in return for its goods or services.

Small Business Lending Index (SBLI) is an indicator of small business lending trends.

From a principled point of view, the focus of negotiation is on resolving the issue and not on winning temporary advantage over TOP through exploiting home advantage. From the principled point of view, the location and room layout should not be viewed as a source of tactical advantage and should not be used to try to gain advantage over TOP or unfairly influence them in the meeting room.

From a pragmatic point of view, not all of these elements in the ideal negotiation environment may be feasible, so the host may have to make compromises and explain these to TOP.

From a distributive point of view, the host will seek to create an advantage for themselves either explicitly or more subtly. It is arguable that any advantage gained through intentionally creating an uncomfortable environment to put short-term pressure on TOP is likely to be short-lived as TOP will likely reflect on this later and seek means to get even.

LO 2, AC 2.4

Under the European Union public procurement directives, all public sector bodies must abide by certain rules when they procure goods and services over a threshold value. These rules are codified under 5 procurement procedures:

1. Open Procedure

2. Restricted Procedure

3. Competitive Dialogue

4. Competitive Procedure with Negotiation

5. Innovation Partnerships.

Under normal circumstances, there is no commercial negotiation allowed under the two most commonly used procedure, Open and Restricted. Under these procedures, the prices and terms and conditions of contract should be decided via reference only to the tenderers' responses to the buyer's requests for tenders, and not through 'post-tender negotiation'. Under the other procedure, negotiation within the rules is permitted. Interested learners can read more about these procedures here.

LO 1, AC 1.1

The agreement and closing phase is the phase when it is either clear through explicit language, or strongly suggested through non-verbal signals, that TOP is ready to move to agreement. Judging when to close can be difficult and as with phases of the negotiation, experience, observation, practice and reflection will be the best ways to learn here.

In the closing phase, procurement should:

- Watch for closing/buying signals

- Check to ensure all issues have been resolved

- Consider using visual aids to summarise

- Use 'summary close'

- Make a decision to conclude/close

- Seek agreement in principle if TOP does not have the final authority

- Make your own private notes on the final agreement

- Shake hands on the agreement

- Leave the meeting as soon as possible thereafter.

LO 3, AC 3.1

Foreign exchange ratesdirectly influence thecost of imported goods and services. Currency fluctuations can affect total expenditure, supplier margins, and ultimately the buyer’s profitability. Even if payment is in local currency, suppliers may adjust their pricing to mitigate foreign exchange risks.

“Foreign exchange volatility can significantly impact pricing in international procurement. Buyers must assess currency risks as part of their cost evaluation and strategic preparation.”

(L4M5 Commercial Negotiation, 2nd edition, Section 2.2 - Macroeconomic Considerations in Pricing)

The assumption is false, because when a procurement professional negotiates on behalf of his employer, he brings the power of his organisation (its brand, reputation and purchasing spend) as well his own personal power (that which is embedded within him) to the negotiation.

From a negotiation perspective, both organisational and personal power have the ability to influence the behaviours of other or the cause of event. This power is clearly core to negotiation, and of enormous important in seeking to achieve the objectives.

If interest rate are too low and credit is too, cheap rates can fund a spending boom with consumers and businesses buying (investment) more than they can afford to pay back.

Indirect costs are those cost that are not directly attributable to production. Examples of indirect costs including the following:

Indirect labour: This covers every person in the factory who does not directly perform a production operation such as managers, supervisors, engineers, store personnel, clerks, maintenance staff, porters, canteen staff, security and cleaners etc.

Expenses: Included in this element is every fixed and variable expenses incurred in operating the factory, such as rent, rates, utilities, insurance, depreciation, maintenance, air conditioning and the various types of energy generation required by a clothing factory.

Indirect materials: Also known as consumables, this element contains all the materials not directly connected to the makeup of a garment. Some of the typical items involved are office materials, spare parts, marker paper, maintenance materials, chalk & pins.

Direct costs are those costs of a product/service directly attributable/traceable to its production. Examples of direct costs including the following:

Direct Materials: Direct materials are all the materials and trimmings which go into the construction and finish of the garment. Typically, these materials would include cloth, lining, fusible, zips pads, tapes, labels, tickets, hangers and packaging materials.

Direct Labour: This cover the cost of all the labor directly involved in producing the garment and could include cutting, fusing, regular sewing, special machine operations, pressing, finishing, inspection and packing. Labor of all types and grade has a direct overhead which include holiday pay, sick pay, fringe benefits etc and the statutory payments made by the employer for each employee. This is usually expressed as a percentage of salary and when this percentage is added to the employee’s wage, it becomes the basis for calculating direct labor costs.

Market pricing sets prices according to consumer demand and willingness to pay, ensuring competitiveness. Skimming sets high prices at launch to maximise early profit, penetration uses low prices to enter markets, and premium pricing positions products as luxury with high margins. Market pricing balances supplier costs with customer value perception, making it a common approach in competitive industries.

Variable pricing can lead to budgeting challenges and financial uncertainty over a 12-month period. While variable pricing may allow flexibility, it complicates financial planning and forecasting. For predictable budgeting and reduced financial risk, fixed pricing is typicallypreferred in such contract durations, aligning with CIPS recommendations on pricing models in contract management.

Microeconomic factors refer to elements that affect individual businesses or sectors rather than the economy as a whole. In this case:

Availability of investors (B): Access to investors impacts capital availability for businesses.

Distribution channels (D): Distribution methods directly influence a business’s ability to get products to market.

Levels of competition (F): Competition affects pricing and strategic decisions within specific industries.

Taxation rates, unemployment levels, and inflation rates are considered macroeconomic factors, affecting the economy on a broader scale, as per CIPS's definitions of microeconomic vs. macroeconomic influences.

Below are some examples of cost input that can be analysed in PPCA process:

- Material costs

- Process and labour costs

- Employment costs

- Overhead costs

- Distribution costs

- Depreciation on equipment

- Profit

If you want to learn more on PPCA, you can study from OGC document here: https://webarchive.nationalarchives.gov.uk/20100609100650/www.ogc.gov.uk/documents/Cost_Price_analysis(1).pdf

LO 2, AC 2.1

A supply curve will slope upward from left to right showing more supply at higher prices, as illustrated in the graph below:

A movement along the supply curve will be brought about by a change in price, but a shift of the whole curve will be caused by a determinant other than price:

- The physical feasibility and time and energy required to produce the products

- Technology and innovation

- The objectives of the producers and their future expectations

- Prices of other goods and services

- Government's policies

LO 2, AC 2.2

When a buyer’s purchase represents asignificant portion of a supplier’s revenue, it increases the buyer’s leverage. The supplier has a vested interest in maintaining the relationship and is more likely to make concessions to preserve the account.

“Buyer power increases when the buyer represents a large portion of the supplier's total sales. This dependency increases the buyer’s ability to influence terms.”

(L4M5 Commercial Negotiation, 2nd edition, Section 2.3 - Bargaining Power Analysis)

Partnership relationshipsare strategic and long-term. They emphasizetrust, collaboration, and information sharing. Unlike transactional relationships, they go beyond price and delivery to focus on joint value creation.

“Collaborative partnerships involve open information sharing and mutual support. These relationships are built on joint objectives, trust, and commitment to long-term success.”

(L4M5 Commercial Negotiation, 2nd edition, Section 1.2 - Types of Supplier Relationships)

A useful model of personal power that has survived the test of time and provide a simple way to analyse negotiation in French and Raven's Power Base Model, which describes six bases of power:

A collaborative relationship is characterized by mutual commitment, which enhances risk management and strategic planning between buyer and supplier. High levels of trust and commitment enable both parties to work closely to achieve shared objectives, creating a beneficial negotiation environment. This approach aligns with CIPS’s principles of collaborative procurement relationships.

Power, or more precisely perceptions of power, are critically important in understanding the commercial negotiation process. From a commercial negotiation point of view (under any circumstances, either integrative or distributive approach), CIPS is interested in power from both a personal and organisational perspective. When you are negotiating on behalf of your employer, you bring the power of your organisation (its brand, reputation and purchasing spend) as well your own personal power (6 sources of personal power, based on French and Raven's power base model) to the negotiation.

In both integrative and distributive approaches, personal power plays an important role. It helps both parties push through negotiating barriers and secure commitment and final agreement

LO 1, AC 1.3

Both organisational and personal power have the ability to influence the outcomes of negotiation. Good negotiators recognises the different sources of relative personal power they possess in a negotiation. There is no one superior source of personal power; they will vary in their effectiveness based on the situation. The more personal sources available the better, even if some not used, these can be used as a fallback.

LO 1, AC 1.3

Currency exchange rates are determined by macroeconomic factors and demand and supply. In general, countries with stable political and economic systems, a growing economy and a strong rule of law will have stronger and more stable currency than those without these characteristics. In this question, the British Pound is stronger than other currency, which means that buyers who import goods from the UK have to pay higher in their own currencies.

LO 2, AC 2.2

Inbreak-even analysis,contributionrefers to the amount from sales revenue that exceedsvariable costs, which then contributes to coveringfixed costsand ultimately generating profit. Understanding this concept enables buyers to better analyze supplier pricing and negotiate more effectively. For example, if a product is priced significantly above its variable cost, there may be room fordiscounts or added value, as the supplier is still contributing toward fixed costs.

Foreign exchange rates impact import costs, profit margins, and overall turnover when transactions are conducted in foreign currencies. Understanding these fluctuations allows buyersto anticipate changes in purchasing costs, supporting informed decision-making, as highlighted in CIPS guidance on global procurement considerations.

Afixed price agreementprovides the buyer withcost predictability. Once the price is agreed upon, the buyer is insulated from any cost increases on the supplier's side. The supplier bears the risk of fluctuating input prices, which simplifies cost control and contract administration for the buyer.

“With a fixed price arrangement, the buyer is protected from future price increases and does not need to monitor the supplier’s ongoing costs. This is particularly useful for budgeting and forecasting.”

(L4M5 Commercial Negotiation, 2nd edition, Section 2.1 - Fixed Price Agreements)

Direct costs are expenses that can be clearly attributed to the production of specific goods. These typically include raw materials, direct labor, and other costs tied directly to the manufacturing process. They are variable with production volume and help procurement teams analyze pricing more effectively during negotiations.

In the scenario, the length of payment period is particularly important to the supplier as they are investing new facilities. Otherwise, the buyer's company has a positive cash flow position and budget is available for a shorter payment terms. So this tradeable (payment period) is important to supplier but it is not a significant problem with the buyer. This tradeable will fall within 'Easy concession to trade' quadrant in the following matrix:

Table Description automatically generated

If the tradeable fall within this quadrant, Sally should shorten the payment period in supplier's favour and try to win as many concessions as possible in return. Asking for a discount may be a reasonable trade-off.

LO 2, AC 2.3

Legitimate power comes from formal authority and organisational backing, making it a credible and sustainable leverage source in negotiations. Personality power or reliance on colleagues and friends lacks long-term weight and may not influence suppliers strategically. Buyers who use legitimate power, backed by governance and authority, negotiate from a position of credibility and professionalism, reinforcing stronger outcomes.

External factors in pricing decisions include Competition in the market (A) and Customer perception of value (D). These factors are outside the supplier's direct control but influence pricing strategies to remain competitive and meet customer expectations:

Competition in the market (A): Market competition dictates how much a supplier can charge without losing business to competitors.

Customer perception of value (D): How customers perceive the product’s worth affects its acceptable price range.

These factors are considered external as they relate to market dynamics rather than internal cost structures, according to CIPS's guidance on pricing influences.

There are two major persuasion methods: 'push' and 'pull'.

Persuasion can be defined as encouraging someone to do something that you want them to do for you. Persuasion is reasoning with someone so that they will believe or do something they might not otherwise do. Persuasion can be considered as 'pushing' on TOP so that they can accept the change in attitude or behaviour as a result of your actions.

Influence is the ability to affect the manner of thinking of another. Influence can be considered as pulling on TOP so that you achieve the same result, but TOP feels they have changed their attitude or behaviour as a result of their reflection and thinking, and not your direct actions.

There are multiple variables to consider when choosing between 'push' and 'pull'. Professor Fiona Dent of Ashridge Business School proposes situations when each style might be most appropriate, breaking down push into 'directive' and 'reasoning' and 'pull' into 'collaborative' and 'visionary':

Table Description automatically generated

In the scenario, Rose intends to let both parties exchange their views and ideas so that solutions to current problems can be found. This is the typical characteristic of collaborative (pull) method.

A junior team member can effectively contribute as a note taker (1) and observer (3), allowing them to support the meeting without taking on roles that require more experience, like chairing or serving as an expert. This aligns with CIPS’s recommendations for assigning junior roles in negotiations.

Lina’s question seeksdetailed informationabout the supplier’s actions and is aimed at uncovering the root cause or assurance measures. This makes it aprobing question, designed to delve deeper into specifics. Probing is a key technique in negotiations for uncovering critical insights, particularly duringissue resolution or when seeking complianceon performance terms.

To improve negotiation outcomes, seeking feedback from the supplier (1) and undertaking reflective practice (4) are recommended actions. Feedback from the supplier can provide insights into areas for improvement from the counterparty's perspective, while reflective practice allows the negotiator to evaluate their own approach, outcomes, and areas for growth. This approach aligns with CIPS's emphasis on continuous improvement in negotiation skills.

Professional buyers, when planning or engaging in negotiation with suppliers, should always be aware of where the intended and actual relationship with this supplier is positioned on the 'spectrum' or 'continuum' of commercial relationships. The relationship spectrum describes the range of commercial relationships between a buyer and supplier based on richness of communication, longevity and mutual dependence.

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In the question, the contract is simple one-off (or spot buy), which means the relationship will likely to be more transactional. In such relationship, price is the most important criteria and buyer may adopt arm's-length approach.

Thebargaining stageis where both parties begin tomake concessionsand test options. This phase involves the use of strategic tactics, including the presentation of tradeables and adjustments in position to reach mutual agreement.

“The bargaining stage is characterised by movement, trade-offs, and deal-shaping. Tactics such as anchoring, making concessions, and introducing tradeables are employed to bridge the gap between opening offers.”

(L4M5 Commercial Negotiation, 2nd edition, Section 3.2 - Stages of the Negotiation Process)

Accepting gifts during a negotiation can createconflict of interestconcerns and may violate ethical standards. Best practice requires rejecting such offers to maintain transparency and objectivity in decision-making.

Open questions (“how/why/what…”) encourage the other party to share information, interests, and constraints, supporting rapport, listening, and exploration—key to persuasive dialogue and integrative outcomes. Closed questions check facts; open ones surface interests.

The formal negotiation process includes planning and preparation (objectives, BATNA, MIL) and testing/proposing (exchanging offers). Hospitality is not a stage—it may support relationships but is not part of structured negotiation. Arguing/persuasion occurs within bargaining but is not defined as a stage in itself. Understanding the stages ensures structured progress and prevents disorganised discussions, which often result in suboptimal agreements.

Hypothetical (“What if…”) questions test possibilities and invite creative options without binding either side. They help probe interests and packages while keeping commitment provisional.

Integrative approach to negotiation used when the interested parties are attempting to create more of something of value to share, also known as collaborative approach or win-win. Integrative, interest-based negotiation can facilitate constructive, positive relationship and establishes contracts between parties on a foundation of goodwill. In integrative bargaining, both parties seek to 'expand the pie' by creating more value for both the buyer and the seller. Integrative negotiation ‘shares the pie’ and is interest rather than positional based.

In distributive bargaining, the focus is on claiming value and getting as much of the pie as parties can.

LO 1, AC 1.2

The case in the question is illustrated as below:

The equilibrium price initially at P0 with quantity Q0, when supply curve shifts to the left, it will converge with demand curve at new equilibrium point with price P1 and quantity Q1. As you can see from the graph, P1 is greater than P0 and Q1 is smaller than Q0.

Distributive approach to negotiation used when the interested parties are attempting to divide something up or distribute something of value, also known as zero-sum approach or win-lose. Win-lose approach is useful when the relationship with the other party (TOP) is short-term and once-off.

The question mentions 4 types of relationship:

Adversarial: Both seek to maximize position at the expense of the other. Almost no trust, communication and cooperation. These suppliers will probably provide non-core products or services with the buyer purchasing them on a one-off basis.

Outsourcing relationship: Use competent suppliers to manage non-core businesses previously done in-house. Require high level of trust and collaboration

Partnership: Both work closely on long term development by sharing information, technology and ideas.High level of trust with the aim to benefit both parties (win-win)

Strategic alliance: Both parties identify areas where they could collaborate to create mutual benefits

Among these 4 types of relationship, only adversarial is once-off. Then it is the correct answer.

The ZOPA defines the range of outcomes acceptable to both parties, while the walk-away point defines the minimum acceptable deal for the buyer. Together, these guide negotiation planning to avoid unfavourable agreements. Attendee lists and venues are logistical details, important but not central to negotiation value creation. Preparation of ZOPA and walk-away ensures structured, strategic decision-making and protects against poor deals.

When preparing for a negotiation, negotiator should establish a list of tradeables and a concession plan. Good negotiators never give anything away that has not already been planned as part of the bargaining mix in the concession planning stage.

In the above scenario, the procurement manager has planned his own concession, so he can trade with supplier. The answer should be "Yes, since procurement manager has his own cost savings target to achieve and he should make use of supplier's financial status"

LO 2, AC 2.3

Macroeconomic factors like inflation, interest rates, and currency fluctuations can significantly affect pricing and contractual terms. Buyers and suppliers must account for these factors during negotiations, particularly in long-term or high-value contracts.

While stakeholder feedback is crucial, meetings are not always the most effective review method. Reviews may be better conducted through reports, surveys, or individual debriefs, depending on context. The key is to capture lessons learned, successes, and areas for improvement, and to record them for future negotiations. Forcing all stakeholders into one meeting risks inefficiency or unproductive blame games. CIPS stresses structured reflection and documentation as best practice, ensuring organisational learning and preparation improvements.

In MIL planning, “Musts” are non-negotiable requirements (policy, law, mandatory standards). Ethical/sustainable procurement is typically a policy/legislative compliance requirement, so it belongs in Must; “Intend/Like” cover important and desirable aims respectively.

Junior team members can play supportive roles in negotiations, such as taking notes and observing the proceedings. These roles allow them to learn and contribute without leading the negotiation. Serving as an expert or chair would typically require more experience and authority.

CIPS stresses that clear verbal confirmation is required for agreements. Non-verbal signals (smiles, nods, handshakes) can indicate politeness or ambiguity but do not constitute binding agreement. Assuming agreement risks later disputes or misunderstandings. Skilled negotiators ensure closure by explicitly summarising agreed terms and documenting them. Non-verbal communication is supportive, not decisive, in contract negotiation contexts.

The following graph shows the factors that shift the supply curve to the left and to the right.

Having a BATNA:

Increases assertiveness (A): Knowing the fallback position empowers the buyer to negotiate more confidently.

Reduces the chance of a poor agreement (B): A BATNA ensures the buyer does not feel pressured to accept suboptimal terms.

Identifies walk-away points (F): It sets a clear boundary, allowing the buyer to exit negotiations if terms don’t meet minimum requirements.

These align with CIPS’s guidance on using BATNA to strengthen negotiation strategies.

In contracts which have major commodity input, the price is determined by market forces with no individual supplier or buyer able to influence it significantly. Prices are much more variable even within long term contracts and seeking a fixed price would create financial risks for both the buyers and the suppliers. It is often intelligent to agree a contract price adjustment mechanism to allow for market price changes so both sides share risk.

Legitimate power in negotiation can arise from different sources:

Position power (authority from role/position in the organisation).

Referent power (influence from respect, charisma, or relationships).

As a negotiation nears theclosure stage, experienced negotiators look forbuying signals— both verbal (e.g., positive affirmations) and non-verbal (e.g., nodding, leaning in). These cues indicate readiness to agree and allow the negotiator to move confidently into closing the deal.

“At the closing stage, negotiators should observe both verbal and non-verbal buying signals. These cues can indicate readiness to commit, helping to time the final proposal or acceptance effectively.”

(L4M5 Commercial Negotiation, 2nd edition, Section 3.2 - Closing the Negotiation)

Supplier bargaining power is stronger when there arefew suppliers,low volume requirementsfrom buyers, and when suppliers possessunique capabilities or technology(like specialized machinery). These conditions reduce buyer leverage and increase supplier influence.

The collaborative strategy (win-win, integrative) focuses on joint problem-solving, transparency, and trust. It is best when long-term relationships are critical, and both parties see value in mutual success. By contrast, competitive (win-lose) is adversarial, accommodative sacrifices one party’s interests, and avoidance seeks disengagement. Collaborative strategies are common in partnerships, innovation projects, and sustainable procurement. They require sharing information, identifying tradeables, and aligning objectives beyond price to long-term outcomes.

Trust-building behaviours are as following:

Joint-effort issue resolution

Open sharing of information

Open and honest discussion on root cause of failures

Joint planning focusing on value for money and risk sharing

Commercial transparency and co-proposition of cost reduction and service improvement programmes

Joint recognition and celebration of successes

Avoiding is unassertive and uncooperative. When avoiding, an individual does not immediately pursue his or her own concerns or those of the other person. He or she does not address the conflict. Avoiding might take the form of diplomatically sidestepping an issue, postponing an issue until a better time, or simply withdrawing from a threatening situation.

LO 1, AC 1.1

By removing the requirement for named personnel, CDL could allow the supplier flexibility in allocating equally competent but possibly less expensive staff. This tradeable does not compromise on quality but helps control costs.

In the scenario, the main cost driver is suppliers' mark-up. The priority should be limit the margin to be added. XYZ Ltd can agree “cost plus” contracts with their suppliers to ensure no IT product purchased exceeds an agreed maximum margin level. Procurement teams can use their benchmarking tools to police these contracts. Cost plus contracts are agreements where the contractor's pricing is based on itemising allowable costs and then adding an agreed margin.

Market penetration pricing - pricing low to win a large share of the market

Market skimming - pricing a new product high in order to make a large profit from the purchases by initial customers. This is an effective strategy only in the absence of competition.When competition appears, market skimmers usually drop their prices

Premium pricing - usually pricing high because the market is prepared to pay extra for the kudos associated with the product, thanks to, say, a reputation for quality, or a highly fashionable brand name, and so on

Using webcams in a web conference means you are able to communicate both verbally and non verbally.

Over the phone, you cannot see TOP, the only cue/signal you have regarding their mood, interest and attitude is person's voice, intonation and any delay.

A teleconference is a telephone meeting among two or more participants involving technology more sophisticated than a simple two-way phone connection.

In-person meeting requires you team and TOP to be in the same place at the same time.

LO 2, AC 2.4

Integrative negotiation focuses on collaboration, transparency, and the pursuit of shared benefits. It emphasizes mutual problem-solving and long-term value creation rather than short-term wins.

Jayden's use ofeye contact to demonstrate understandingis a core element ofactive and effective listening. This technique includes not only listening to spoken words but also using non-verbal cues (e.g., nodding, eye contact) to confirm comprehension and engagement. Effective listening is essential to ensure that both parties feel heard and respected, which can de-escalate tension and improve outcomes.

“Effective listening involves verbal and non-verbal behaviours that show attentiveness. Maintaining eye contact, nodding, and reflecting key points show engagement and help in building rapport and trust.”

(L4M5 Commercial Negotiation, 2nd edition, Section 3.3 - Communication Techniques in Negotiation)

Adversarial (win–lose) negotiation is viable when buyers can leverage abundant alternatives and substitutes, reducing supplier power. In such cases, buyers can adopt tough tactics, knowing they can switch suppliers if necessary. By contrast, limited supply, single sourcing, or monopolist suppliers constrain buyer power, making adversarial strategies risky and often ineffective. CIPS stresses that negotiation style must be matched to market conditions and the power balance.

The question asks about negotiation techniques which are not present in the book. In this question, there are only 3 recognised techniques:

- Framing and reframing: A frame is an assumption, or set of assumptions, that guides our attention and behavior. Reframing is the ability to identify and significantly change assumptions or perspectives. Framing has a significant impact on the effectiveness of negotiation outcomes and negotiator working relationships. You can read more on framing and reframing here.

- Anchoring: Anchoring bias is well-known cognitive bias in negotiation and in other contexts. The anchoring bias describes the common tendency to give too much weight to the first number put forth in a discussion and then inadequately adjust from that starting point, or the “anchor.” We even fixate on anchors when we know they are irrelevant to the discussion at hand. You can read more on anchoring here.

- Pacing and leading: Pacing and leading is a two-step lever of persuasion. First – You “match your pace” to the person you want to influence in as many ways as possible. You can do this by mimicking the way the person talks, stands, their appearance, etc. You can also mimic less tangible aspects like the way they act, or their emotional state. Second – Once you’ve set your pace with someone, lead them to whatever decision or behavior you want them to take! You can read more on pacing and leading here.