L4M5 Commercial Negotiation Questions and Answers

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.

Hypothetical questions are used to explore options or scenarios without making commitments. This technique allows negotiators to understand the other party’s preferences and limitations by presenting hypothetical situations, as recommended in CIPS guidelines for negotiation questioning techniques.

To achieve a win-win (integrative) negotiation, Sally should accept the 5% discount on the aftercare package (B), as it meets her objective for a total discount while respecting the supplier'slimitations. This approach demonstrates flexibility and is in line with CIPS principles on integrative negotiations, where both parties achieve value in different forms.

Mendelow’s Matrix categorises stakeholders by power and interest. High-interest, low-power stakeholders must be kept informed, as they care about outcomes but lack direct influence. Keeping them informed builds trust and reduces resistance. By contrast, high power/interest stakeholders are key players, while low power/low interest require minimal effort. This tool ensures negotiation strategies align with stakeholder dynamics, preventing overlooked risks or conflicts.

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.

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.

Integrative, interest-based negotiation can facilitate constructive, positive relationship and establish contracts between parties on a foundation of goodwill. It is important to note it can only facilitate these positive outcomes, it does not guarantee that the other party will not seek to be opportunistic at a later time during the life of the contract. Previous knowledge of the behaviours of the other party regarding honouring contractual and other commitments will be useful here in predicting long-term outcomes, not ensuring that they will not leverage their advantages.

The typical stages of commercial negotiation are Preparing, opening, bargaining, agreement, and closure. This sequence facilitates a structured approach where negotiators prepare strategies, initiate discussions, engage in bargaining, reach agreements, and formally close the negotiation. This structure is emphasized in CIPS materials as essential for achieving a balanced negotiation process.

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).

Buying organisation may increase its leverage with suppliers by concentrating spend. Supplier spend consolidation can take many forms as outlined below:

Vendor base reduction: straightforward reduction of number of suppliers in any category

Volume pooling: pooling cross organisational requirement until your order volume is high enough to attract new bidders/additional discounts

Volume redistribution: making recommendations following spend analysis to move from one supplier to another

Volume consolidation across categories: certain purchase requirements may be common across a number of categories

Standardisation and harmonisation of specifications: analysis of specifications and standards for a high spend purchased input, may show that there is a little difference between them and that the specification can be standardised or at least harmonised across the group or across national, regional or global operations.

Forming purchasing consortia: buyers may decide to come together and combine their purchase volumes to attract better deals.

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.

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.

BATNA (Best Alternative to a Negotiated Agreement) gives negotiators a fallback plan if discussions fail. It ensures they never accept worse terms than their minimum acceptable alternative. For Maria, developing a BATNA mitigates rejection risk, strengthens her bargaining power, and provides confidence. Without a BATNA, negotiators risk over-conceding or being locked into unfavourable deals. CIPS emphasises that BATNAs must be realistic, actionable, and aligned to organisational objectives—not merely theoretical alternatives.

During the proposing stage, parties move toward agreement by narrowing down a wide range of potential options. This helps focus the negotiation and aligns both parties toward practical, mutual outcomes. It's an essential step to keep the process structured and productive.

Summarising what has been said is a key component of active listening, as it demonstrates understanding and engagement in the conversation. Active listening involves confirming and clarifying information, which helps build rapport and ensures accurate communication, as outlined in CIPS’s guidelines for effective negotiation communication.

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

Nonverbal communication is important because it gives us valuable information about a situation including how a person might be feeling, how someone receives information and how to approach a person or group of people.

There are several types of nonverbal communications you should be aware of, including:

1. Body language

Body language is the way someone situates their body naturally depending on the situation, the environment and how they are feeling.

Example: Someone might cross their arms if they are feeling angry or nervous.

2. Movement

The way you move your arms and legs such as walking quickly or slowly, standing, sitting or fidgeting, can all convey different messages to onlookers.

Example: Sitting still and paying attention in a meeting conveys respect and attention.

3. Posture

The way you sit or stand can also communicate your comfort level, professionalism and general disposition towards a person or conversation.

Example: Someone might slouch their shoulders if they feel tired, frustrated or disappointed.

4. Gestures

While gestures vary widely across communities, they are generally used both intentionally and unintentionally to convey information to others.

Example: Someone in the United States might display a “thumbs up” to communicate confirmation or that they feel positively about something.

5. Space

Creating or closing distance between yourself and the people around you can also convey messages about your comfort level, the importance of the conversation, your desire to support or connect with others and more.

Example: You might stand two to three feet away from a new contact to respect their boundaries.

6. Paralanguage:

Paralanguage includes the non-language elements of speech, such as your talking speed, pitch, intonation, volume and more.

Example: You might speak quickly if you are excited about something.

7. Facial expressions

One of the most common forms of nonverbal communication is facial expressions. Using the eyebrows, mouth, eyes and facial muscles to convey can be very effective when communicating both emotion and information.

Example: Someone might raise their eyebrows and open their eyes widely if they feel surprised.

8. Eye contact

Strategically using eye content (or lack of eye contact) is an extremely effective way to communicate your attention and interest.

Example: Looking away from someone and at the ground or your phone may convey disinterest or disrespect.

9. Touch

Some people also use touch as a form of communication. Most commonly, it is used to communicate support or comfort. This form of communication should be used sparingly and only when you know the receiving party is okay with it. It should never be used to convey anger, frustration or any other negative emotions.

Example: Placing your hand on a friend’s shoulder may convey support or empathy.

Integrative negotiation requires shared motivation to collaborate and focus on joint benefits. When parties are motivated to work together, they can share data, explore tradeables, and align on long-term value creation. Conversely, lack of trust, unwillingness to share, or absence of joint goals make integrative approaches unworkable, forcing adversarial or distributive methods instead. CIPS highlights that motivation and willingness to cooperate are preconditions for collaboration.

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.

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

Suppliers’ pricing decisions are influenced by both internal and external factors. Internal include cost of production, overheads, and lifecycle stage. External include competition (market dynamics, alternatives available) and customer perception of value (willingness to pay, brand image). These external elements are beyond supplier control but crucial in determining market price levels. Recognising these allows buyers to assess supplier pricing flexibility and to negotiate based on market realities rather than supplier cost claims.

A distributive approach is appropriate when multiple suppliers offer similar products, as this competitive environment allows the buyer to focus on maximizing their position rather than building long-term partnerships. CIPS suggests that a distributive or competitive approach is best used in non-critical purchases or when supplier dependency is low, as is the case here.

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 probing question seeks deeper information, clarifying specifics beyond surface-level responses. Lina’s question is factual, detailed, and investigative — designed to uncover processes and commitments. Hypothetical questions test options (“what if…”), reflective restate or summarise to confirm understanding, and leading steer the respondent toward a desired answer. Probing is essential in negotiations to validate claims, identify risks, and build persuasive arguments.

The coercive power comes from the belief that a person can punish others for non-compliance. It can be considered as opposite to reward power, which results from one person's ability to compensate or reward another for compliance.

LO 1, AC 1.3

Distributive bargainingfocuses onmaximizing one's own gainat the expense of the other party. Common tactics includewithholding informationandcoercion. It is typically used in zero-sum negotiations where parties compete over a fixed value.

“Tactics in distributive bargaining include withholding key information, making extreme opening offers, and using pressure to achieve concessions. These are aimed at maximizing individual outcomes.”

(L4M5 Commercial Negotiation, 2nd edition, Section 3.5 - Tactics of Distributive Bargaining)

In the recovery phase, economies move out of recession: consumer spending rises, demand grows, and prices begin to stabilise or increase. Confidence improves, investment starts picking up, and spare capacity is gradually absorbed. Low confidence and falling investment are features of recession, while full capacity is linked to boom phases. For negotiators, recovery phases may mean suppliers regain confidence to raise prices, requiring careful market analysis.

In order to identify opportunities where you can increase your leverage with supplier, you need to understand your spend. Undertaking spend analysis of your accounts payable (AP) data is an essential first step here.

Macroeconomic indicators are statistics or data readings that reflect the economic circumstances of a particular country, region or sector. They are used by analysts and governments to assess the current and future health of the economy and financial markets.

Macroeconomic indicators will vary in their meaning and the impact that they have on the economy, but broadly speaking there are two main types of indicator.

- Leading indicators, which forecast where an economy might be heading. They are often used by governments to implement policies because they represent the first phase of a new economic cycle. These include the yield curve, interest rates and share prices.

- Lagging indicators, which reflect an economy’s historical performance and only change after a trend has been established. They are used to confirm a trend is underway. These include gross domestic product (GDP), inflation and employment figures.

There is also the category of coincident indicators, but these are generally grouped in with lagging indicators as they either happen at the same time or after an economic shift.

The best macroeconomic indicator to watch will heavily depend on your personal preferences, what positions you are taking and which country your portfolio is focused on. However, there are some very common indicators that most traders and investors will keep an eye on.

For simplicity’s sake, we have split these out into leading and lagging indicators.

Top leading indicators:

1. The stock market

2. House prices

3. Bond yields

4. Production and manufacturing statistics

5. Retail sales

6. Interest rates

Top lagging indicators:

1. GDP growth rates

2. The Consumer Price Index (CPI) and inflation

3. Currency strength and stability

4. Labour market statistics

5. Commodity prices

A procurement professional may find stock market data from the security exchange, while most lagging indicators (such as GDP, CPI, unemployment rate, currency and inflation rate, etc) can be found from government statistics data.

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

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':

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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.

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.

The analysis of cost into fixed and variable enables organisations to determine their break-even point (BE) - the point where total revenue from sales and total cost exactly balance. All costs need to be covered by sale revenue in order for a company to make a profit. If you know your fixed costs and your variable costs then you can work out the minimum quantity of goods or services you need to sell to break even. Break even point is measured in volume and can be worked out graphically or via formulae:

Price - Variable costs = Contribution

Break even point (volume) = Fixed expenses/Contribution margin per unit

In this scenario, the break even point (Q) is: 270,000/(180-126) = 5,000

To make a profit, the supplier needs to sell more than 5,000 units per month.

The BE point is thus an important determinant of flexibility of pricing for suppliers. Before BE is achieved there will be much greater reluctance to offer price concessions to customers than after BE is achieved.

LO 2, AC 2.1

In some markets, suppliers experience peaks and troughs in demand and so buyers can increase their leverage through developing an understanding of how busy their vendor are at particular time during the year or business cycle and targetting at quieter period. Similarly, if a buyer can develop an understanding of supplier capacity and to what extent have they covered their fixed cost, they may be able to target suppliers when their average costs are likely to be lowest. Vendor's average costs will be higher at low and high capacity utilisation.

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Becoming a preferred customer to supplier's perspective can increase the purchaser's leverage in negotiation. Beside the size of buying organisation or its spend, the following may be sufficient to differentiate the buyer from other buying organisations:

- Simple procurement processes

- Simple contracting processes

- Clear and concise documentation

- Absence of onerous supplier terms and conditions (onerous supplier terms and conditions mean that obligations imposed on suppliers are greater than their gains)

- On-time payment: The reduction in hassle for both supplier and the buyer, if bills are paid on time, is significant. From the customer’s perspective it could also be the opener to agreeing preferential payment terms. A supplier may weigh up that payment on time at 60 days is worth taking, over the current 30-day terms that slip to 90 days and beyond.

- Transparent processes

- Ethical behavior

LO 1, AC 1.3

The question asks about the point in time when Jane should make concessions with the supplier. These concessions should be traded after preliminary stages such as opening, testing and proposing are over and proposals move from being tentative and general to being more definite and specific. This stage is called bargaining phase. The bargaining phase is the 'meat' of the negotiation meeting.

LO 3, AC 3.1

Competing is assertive and uncooperative, a power-oriented mode. When competing, an individual pursues his or her own concerns at the other person’s expense, using whatever power seems appropriate to win his or her position. Competing might mean standing up for your rights, defending a position you believe is correct, or simply trying to win. Competing will not allow long-term relationship to flourish.

Compromising is intermediate in both assertiveness and cooperativeness. When compromising, the objective is to find an expedient, mutually acceptable solution that partially satisfies both parties. Compromising falls on a middle ground between competing and accommodating, giving up more than competing but less than accommodating. Likewise, it addresses an issue more directly than avoiding but doesn’t explore it in as much depth as collaborating. Compromising might mean splitting the difference, exchanging concessions, or seeking a quick middle-ground position. It is a valid approach when long-term relationships are at stake and it is important to find some common ground on which to base an agreement. Both sides get something but not everything. Therefore, this is the most appropriate for this scenario.

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. In the scenario, both parties want to take the opportunity, then avoiding is not an appropriate solution.

Accommodating is unassertive and cooperative—the opposite of competing. When accommodating, an individual neglects his or her own concerns to satisfy the concerns of the other person; there is an element of self-sacrifice in this mode. Accommodating might take theform of selfless generosity or charity, obeying another person’s order when you would prefer not to, or yielding to another’s point of view. In the scenario, neither party shall concede all of their requirements, it is unnecessary to adopt this approach.

LO 1, AC 1.1

A useful and simple shorthand for preferred negotiation styles is summarised by four simple descriptor: 'warm', 'tough', 'logical' and 'dealer', which can be applied to describe individuals' dominant preferred style in most circumstances.

Warm - a people person

Tough - a hard-nosed negotiator

Logic - a numbers person

Dealer - a trader who loves bargaining

Strengths, weaknesses of dealer style are described below:

LO 2, AC 2.4

Sally's objective is to achieve a 5% saving. If the supplier offers this saving in a different form (aftercare package), and the total value meets her goal, then accepting this alternative shows flexibility and supports a collaborative,win-winoutcome.

Other stakeholders, including directors, IT, and finance departments, often have an interest in procurement negotiations, particularly when the contract impacts strategic objectives, IT infrastructure, or organizational operations. This broader stakeholder involvement aligns with CIPS’s emphasis on inclusive stakeholder management in procurement to ensure well-rounded decision-making.

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)

Conflict can arise in procurement negotiations due to a power imbalance, which occurs when one party has more influence than the other, leading to potential exploitation or dissatisfaction. Differences in goals between parties—such as cost minimization for buyers and profit maximization for suppliers—also contribute to tension. Surprisingly, similar motives can lead to conflict as well, particularly when both parties are competing for limited benefits or market share.

In the MIL framework, “Must have” refers to non-negotiable elements. For Colin’s organisation,ethical and sustainable procurementis a core, uncompromisable value, making it a “Must have” in negotiations.

The supplier is using Rational persuasion by providing logical reasons, such as economic conditions and increased costs, to justify the price increase. This approach uses factual information to influence the buyer's decision, aiming to present the price hike as a reasonable adjustment, which aligns with CIPS strategies on influencing tactics in negotiations.

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.

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)

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.

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

A useful and simple shorthand for preferred negotiation styles is summarised by four simple descriptor: 'warm', 'tough', 'logical' and 'dealer', which can be applied to describe individuals' dominant preferred style in most circumstances.

Warm - a people person

Tough - a hard-nosed negotiator

Logic - a numbers person

Dealer - a trader who loves bargaining

Strengths, weaknesses of logical style are described below:

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According to Paul Steele's 'The Seller's Perspective', customer can be classified into 4 categories as below:

To increase the leverage in negotiation, buyer may increase its attractiveness and/or increase spend value. In this scenario, the buyer is already attractive to supplier as it always pays on-time, but the spend is still low. So to have greater leverage, the buyer has to increase its spend volume by spend concentration. Spend concentration may take many forms as following:

- Vendor base reduction

- Volume pooling

- Volume redistribution

- Volume consolidation across categories

- Standardisation and harmonisation of specifications

- Forming purchasing consortia

LO 1, AC 1.3

In the scenario, the value of contract as well as the importance of purchased item justify the procurement's travel. Visiting a supplier at their HQ or operational facility may facilitate the procurement team in assessing, albeit briefly, the culture of the organisation, how busy they seem and how staff engage with each other. A visit is a good opportunity to assess supplier's capacity.

LO 2, AC 2.2

This statement reflects shared goals and mutual benefit, hallmarks of integrative negotiation. Unlike adversarial or distributive (win-lose) strategies, integrative approaches seek joint value and collaboration. The language of partnership (“we are in this together”) signals alignment and cooperative intent. Lose-lose outcomes, by contrast, occur when both sides compromise excessively or fail to reach creative solutions. Integrative strategies foster long-term partnerships where value is maximised for both.

A key consideration when seeking to negotiate prices is to establish what proportion of the spend is addressable by procurement action such as negotiation. Addressability of spend is influenceable through negotiations or application of other saving effort or leverage with suppliers.

LO 2, AC 2.1

There are many factors that can influence the balance of power in a negotiation. These factors are classified into 3 levels:

Macro level: STEEPLE framework: social, technological, economic, environment, political, legal and ethical

Micro level: Porter's five forces:

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One-to-one buyer-supplier dynamics.

The question asks about the micro factors that increases supplier's bargaining power. Among 5 answers, only 2 are likely to increase buyer's power:

There are no close substitutes for rubber: the buyer has to buy rubber, not any other material.

Costs of changing suppliers are high: buyer entails a large barrier if they want to switch supplier.

Other answers cannot be correct because:

SRI sets up its own rubber plantation: Buyer secures its own supply

SRI's purchase amount makes significant proportion of supplier revenue: Suppliers are reliant on buyer. If the buyer stops buying from them, they can face serious cash flow problems

Rubber from different suppliers is virtually similar: undifferentiated product would shift the power balance towards buyer.

Single-sourced relationships often involve exclusivity for a specific product (1) and a high level of trust and collaboration (3) between buyer and supplier. This type of relationship is selected forstrategic procurement purposes, often involving long-term partnerships, which align with CIPS’s relationship spectrum guidelines.

Monopolies exist in many markets in real life for very different reasons:

Ownership of a Key Resource: When one company exerts sole control over a resource that is necessary for the production of a specific product, the market may become a monopoly. For example, the only medication deemed acceptable to treat a disease comes from a particular ingredient X, and knowledge of this ingredient X is owned by a single family owned company. The company can, therefore, be said to have a monopoly over ingredient X that is needed to cure the disease because it is the only company that can produce a product deemed acceptable.

Government Franchise: In certain instances, a monopoly may be explicitly created by the government if it grants a single company, whether private or government-owned, the right to conduct business in a particular market. For example, when a national railways transportation service is created by the government, in most cases they are granted a monopoly on the operation of passenger trains in the country. As a result, other firms are only able to offer passenger train services with the cooperation and/or permission of the government-owned provider.

Intellectual Property Protection: Extending intellectual property protection to a company in the form of patents and copyrights is yet another way in which monopolies are created. When a government does this, it is in fact giving a single company an exclusive right to provide a particular product / service to the market. Patents and copyrights work in providing owners of intellectual property with the right to act as an exclusive provider of a new product for a specific length of time. This creates a temporary monopoly in the market with regards to new products and services.

Natural Monopoly: A market may also become a monopoly simply because it may be more cost-effective for one company to serve the whole market than to have several smaller firms in competition with one another. A company with virtually unlimited economies of scale is referred to as a natural monopoly. Such firms become monopolies due to their position and size, which makes it impossible for new entrants in the market to compete price-wise. Natural monopolies are common in industries with high fixed costs and low marginal costs of operation such as providers of television, telephone, and internet services.

In this question, 'A single firm is very large' is not enough to tell whether this market is monopolistic.

Trust may create value as following:

LO 1, AC 1.4

Good negotiators are attuned to all stimuli and not just the verbal and written information exchanged. Tone of voice, body language, facial expressions and other clues from TOP are noticed, and with experience and knowledge, interpreted correctly. This interpretation may also involve knowledge of culture norms and values. A smile, a 'yes' and the type of hospitality received, (in the business context), can mean very different things in different international business cultures.

Trained negotiators will consider non-verbal communication (such as nodding and smiling) and body language as one source of signal from TOP, but will rarely rely wholly on this as a guide towhat TOP is thinking or feeling. Furthermore, international and regional cultural considerations must be included here to avoid errors in interpretation. Emotional intelligence also has an important role in forming a more holistic perspective of what TOP may be thinking or feeling.

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.

Trust is the expectation that the other party will behave in a predictable and mutually acceptable way. In inter-firm relationships, the presence and absence of trust can affect the level of cost in a relationship. The existence of trust is taught to lower the transaction cost in a relationship. Dr. Mari Sako identified taxonomy of 3 types of trust in commercial relationship, which is very useful from the perspective of procurement.

Contractual trust: Trust based on the contract with TOP. This is potentially the weakest source of trust if there is nothing else to base the trust on, but it is the quickest to establish.

Competence trust: Trust based on TOP's professional qualifications or proven or certified technical capability or experience.

Goodwill trust: Trust based on knowing TOP has your interest at heart and will not behave opportunistically. This is potentially the strongest type of trust, but it takes the longest time to build.

'Macroeconomic factors always directly influence the negotiations': This statement is false. For any given negotiation it is not the macroeconomic factor itself that necessarily influences the negotiation but the change or rate of change that factor.

'Changes in macroeconomic factors may affect businesses and individuals differently': This statement is true. Macroeconomic factors are factors that have general effects on the economy and many businesses may be completely unaffected or affected more or less than others in the same industry by a change in a factor.

'Macroeconomic factors cannot be influenced by anyone's expectation or sentiment': This statement is false. When it comes to macroeconomic factors another key consideration is expectation regarding what might happen to these factors, or specifically the measures, metrics or percentage rates associated with these factors in the future.

'Expectations on macroeconomic prospect are always correct': This statement is false. Expectations are not always correct.

LO 2, AC 2.2

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

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.

Commercial negotiations commonly take place during Contract Management and Improvement (1) and Contract Award and Implementation (4) stages. During these stages:

Contract Management and Improvement (1): Ongoing negotiations may be required to adjust terms and conditions as part of managing the contract lifecycle.

Contract Award and Implementation (4): Initial negotiations finalize terms, setting the foundation for successful contract execution.

These stages are pivotal in ensuring both initial and ongoing alignment, as outlined in the CIPS Procurement Cycle.

In order to break vicious cycle of blame, procurement will need to use their negotiation and conflict management skills, adopting a collaborative and integrative approach. Your first action should be to establish the facts that led to the situation where the relationship broke down. Most day-to-day relationship between buying organisations and suppliers do not of course involve procurement staff, so you will need to consult with your business partners internally to establish their point of view of where the issue and sources of conflict are. You should also contact the supplier and get their side of the story - this is particularly to when you have previously identified the supplier as critical or otherwise important to your operations. Ideally you will be able to apply principled negotiation here, separating the people from the issue, focusing on interests and not positions, and then looking for options of mutual benefits.

A business negotiation agenda is a formal agreed upon list of goals to be achieved or items to be discussed in a particular order during a meeting or negotiation. Agendas can be formal and obvious, or informal and subtle in negotiations.

The agenda is one of the main structural elements of negotiation, in addition to such questions as site, identification of participants, and elements of timing. Together, they answer the who, what, when, and where questions. As with other aspects of negotiation, the agenda can be used either manipulatively to enhance leverage or to improve the prospects for agreement and the possibilities for mutual gain. In most cases, it will be used both ways, reflecting the nature of negotiation as a “mixed-motive” situation.

Although it can be instrumental to [research] volunteer as a sole source to write the agenda, in most cases it becomes a joint activity to construct a consensual basis for subsequent negotiation. In these situations, agenda-building becomes one of the pre-negotiation activities that set the tone for the relationship (Saunders, 1985). In other situations, the parties may engage in actual negotiation without a formal or written agenda. When this occurs, the risks and uncertainties may be high but the party who appreciates the importance of the informal agenda has a tremendous advantage.

Whether one plans it or not, during the course of negotiation the parties will discuss a finite set of issues in some sequence and from a particular perceptual framework. Consciousness of the universality and centrality of the agenda is prerequisite to guiding negotiation to a successful conclusion.

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.

For low-value, routine purchases, the involvement of The procurement manager (C) and An internal business user (E) is appropriate. The procurement manager brings expertise in supplier engagement, while the internal business user provides insights on specific needs for the productor service. Involving high-level roles, like the CEO or a legal advisor, is unnecessary for routine purchases, as per CIPS guidance on resource alignment in procurement.

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.

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

Acollaborative win-win approachfocuses on mutual benefit and long-term value creation. This strategy is especially effective in strategic partnerships where trust, information sharing, and problem-solving are emphasized over competition.

“The collaborative win-win approach aims to create outcomes where both parties gain. This strengthens the relationship and leads to sustainable agreements built on trust and transparency.”

(L4M5 Commercial Negotiation, 2nd edition, Section 1.1 - Win-Win Negotiation Strategy)

The question requires student to detect factors of cultural differences. Problems may occur on the international scene with such things as the importance of extending courtesy between cultures, the importance of timescales, the use of negotiating ploys, the sense of ‘fair play', the use and interpretation of body language, the role of women in negotiations (or indeed, in business in general), the importance of status, the role of conflict, standards of dress and deportment and the readiness to ignore or uphold contract terms and conditions.

LO 3, AC 3.3

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.

With non-critical commodity products, the relationship will be transactional. Buyer should not spend too much time and effort into the negotiation.

LO 1, AC 1.4

CIPS describes a relationship spectrum from arm’s-length/transactional through collaborative/partnership, matched to spend criticality, risk, and strategic importance; analysis helps select the appropriate relationship style before and during negotiation.

Trust-destroying behaviours:

- Rumours of partnership or relationship breaking down

- Emotion-based assessment of performance

- Avoiding accountability, passing the blame to others

- General mood – resentment, distrust, frustration, etc

LO 1, AC 1.4

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.

The supplier's perspective model has two axes: Spend value and Attractiveness:

Chart, table Description automatically generated

Exploit is the quadrant where the buyer has high spend but low attractiveness. Overarching supplier objective would be: "Milk this customer and charge a high price to compensate for all the pain they put us through".

The buyer should increase its attractiveness to raise the position to Core customer. To do this, a buyer may:

- Simplify procurement processes

- Simplify contracting processes

- Use clear and concise documentation

- Eliminate onerous supplier terms and conditions

- Make the payment on time

- Use transparent processes

- Promote ethical behaviours

LO 1, AC 1.4

Planning and preparation involve analysing bargaining power, understanding the counterpart’s needs, and defining the constituents (parties involved). Questioning and concessions come later during bargaining. Narrowing solutions occurs during closure. Proper planning ensures negotiators enter with clear objectives, strategies, and knowledge, reducing surprises. CIPS highlights preparation as the most critical determinant of negotiation success, aligning with the saying: “Failing to prepare is preparing to fail.”

International negotiations often face conflicts due to cultural differences (language, communication style, decision-making norms) and timing/location (time zones, travel, scheduling). These factors can cause misunderstandings or perceived power imbalances. Team size and make-up matter but are manageable internally, while closure processes can be aligned. Recognising cultural and logistical divergences allows buyers to prepare strategies that reduce conflict and promote smoother negotiations.

In the planning and preparation stage of negotiation, it is essential to build a strong foundation by understanding various factors that influence the negotiation outcome. According to CIPS resources, critical aspects of preparation include:

Understanding the other party (A): This helps in anticipating their needs, objectives, and potential negotiation styles, leading to more strategic discussions.

Defining the constituents (B): This involves identifying all stakeholders or parties impacted by the negotiation, ensuring their interests are considered when planning the negotiation strategy.

Analyzing the bargaining power (F): Understanding the relative power each party brings to the negotiation helps in setting realistic goals and predicting possible negotiation dynamics.

These elements are foundational in ensuring a well-rounded approach and enabling both parties to enter negotiations with clarity and strategy, enhancing the potential for a positive outcome.

According to the book 'Influencing: Skills and techniques for business success' by Fiona Dent and Mike Brent, there are two major influencing styles. Push tends to be directive. It tells, and is clear and resolute, but needs to be employed in situations where firmness is required because of difficulties that exist or weakness is evident. Pull is more participatory and collaborative. It seeks to incorporate everyone’s perspective. It can appear wishy-washy if not skilfully employed. Thatapproach should be followed which is most likely to secure commitment and not mere compliance.

The two divisions can be further divided into four style categories: directive; persuasive reasoning; collaborative – team oriented, people oriented to inspire them with a vision. The directive style relies on your expertise and reputation being respected by others, and where there really does seem to be one answer. It is "I" driven whereas persuasive reasoning is more "we" and issue driven. Directive styles can make the user appear as "a bull in a china shop"; persuasive reasoning can be portrayed as tough guy.

Collaborative influencing takes the "we" element further and seeks to mobilise everyone’s ideas in a journey of discovery. It may have the flavour of "I’m your best friend", which may not go down too well. Visioning style is concerned to stir people’s emotions in support of achieving an objective. This last one has been used by demagogues to stir people’s hearts and minds for evil purposes as well as good.

A useful table offers the benefits, problems, words and body language associated with each style along with advice on when to use and when to avoid each. Cases and exercises illustrate these styles.

Empathy comes in for extended treatment with the definition of "standing in the other's shoes". This does not necessarily happen just intuitively, and therefore before a specific influencing effort there should be an intense effort to think about the other person or persons and to sense what it might feel like to be them – their hopes, fears, concerns, what turns them on, what turns them off, where are they coming from.

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,...

Dynamic pricing is the practice of dynamically calculating the price of a product or service in order to incorporate real-time market conditions, input costs, and/or competitive perspectives. Dynamic pricing which is based on marginal costing, is used by airlines and many other organisations.

Marginal cost is the cost of producing an additional unit of output. Marginal Costing is a costing technique wherein the marginal cost, i.e. variable cost is charged to units of cost, while the fixed cost for the period is completely written off against the contribution.

Mark-up % = Profit ÷ Cost × 100. Here, profit is $80, cost is $160. So, (80 ÷ 160) × 100 = 50%. This differs from margin, which is profit ÷ selling price. Mark-up analysis helps buyers understand supplier pricing structures, detect hidden margins, and strengthen negotiation. By knowing whether a supplier is working with high or low mark-up levels, buyers can challenge prices more effectively or justify alternative offers. This analytical preparation supports objective negotiation rather than reliance on supplier claims.

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 to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:

Accommodating is an unassertive and cooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party's point of view. Accommodating is best used when:

1. When others can resolve the conflict more effectively

2. When the issue is much more important to the other person than to yourself - to satisfy the needs of others and to show you are reasonable

3. To build up social credit for later issues which are important to you

4. When continued competition would only damage your cause

5. When preserving harmony and avoiding disruption are especially important

6. To aid in the managerial development of subordinates by allowing them to experiment and learn from their own mistakes

LO 1, AC 1.1

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.

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.

Direct costs are attributable to a specific project — in construction, this includes materials and on-site labour. Legal fees, insurance, and office space are indirect costs, as they support the business overall but are not tied to one project. For buyers, distinguishing direct from indirect costs ensures pricing transparency and helps challenge excessive overhead allocations. This knowledge strengthens cost breakdown negotiations in project contracts.

Integrative (win-win) negotiation looks for value-equivalent tradeables across the bargaining mix (price, service, warranty, aftercare, etc.). If the same total saving is achieved via aftercare—and the buyer needs it—accepting the tradeable meets objectives without forcing a distributive fight on unit price.

Asking questions the right way is both an art and a science. Ask the question the wrong way, and the other negotiator might act like a turtle, becoming defensive and withdrawing into their shell. Ask the question the right way, and the other negotiator might “spill the beans.”.

Closed Questions: How and when to use them?

Closed questions are those that require a short and focused answer, and are especially helpful in the beginning stages of the negotiation to encourage interaction. They can be used to clarify a point, or to reconfirm certain facts. For example, you can use a closed question to confirm the amount of units the company can produce in a week, or to clarify that what they are really saying is that they don’t feel comfortable outsourcing their accounts to India. Most closed questions only require a simple “yes” or “no” response, so there really isn’t much room for misinterpretation – great for finding out where both you and they stand.

A BATNA provides the buyer with the confidence to walk away if terms are not favorable, ensuring they don’t settle for a suboptimal agreement. Knowing the best alternative enables buyers to negotiate from a position of strength, as per CIPS’s guidance on negotiation strategies.

Contribution = Price - Variable cost

Break-even point (volume) = Fixed cost/Contribution