L4M5 Sample Questions Answers

There are many macro economic factors that could influence procurement in general and commercial negotiation in particular. Below are six factors that are agreed to be fairly significant:

• Economy growth rate

• Inflation rates

• Interest rates

• Currency exchange rate

• Unemployment rate

• Protectionism

LO 2, AC 2.2

A partnership is characterised by trust, mutual respect, and joint sharing of risks and rewards. Both sides collaborate on innovation and improvement. In contrast, transactional or arm’s-length relationships are short-term and price-driven, while outsourcing simply transfers responsibility without guaranteeing collaboration. CIPS emphasises partnerships as enablers of integrative negotiations, where joint value and long-term benefits can be achieved.

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: Using SRM technology may help to simplify the process

Simple contracting processes

Clear and concise documentation: Reduced paperwork helps both supplier and buyer save their time and resources.

Absence of onerous supplier terms and conditions

On-time payment

Transparent processes: Unclear tender award criteria can be seen as opaque. Suppliers who attended the tendering processes cannot know the reasons why their bids are rejected and hesitate to attend other tendering.

Ethical behaviour: Suppliers may prefer a buyer who adopts CSR policy because they can predict potential customer's behaviour. Demands for kickback are unethical behaviours.

To answer this question, you should know The seller's perspective as in 'How to Negotiate Professionally':

In the scenario, the buyer's spend is low, while they seem unattractive to seller (as they tend to pay late). So the buyer is classified as Nuisance in seller's perspective.

Emotional intelligence involves the ability to recognize and manage one’s emotions and empathize with others. This skill allows negotiators to respond appropriately to both their own feelings and the emotional cues of the other party, fostering a more constructive and adaptive negotiation environment. CIPS highlights emotional intelligence as a valuable asset in understanding and influencing negotiation dynamics.

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.

Elasticity refers to the responsiveness of quantity demanded or quantity supplied to a change in price or another factor:

The price of a product can be described as being elastic if a small change in price leads to a big change in demand.

The price of a product can be described as being inelastic if a big change in price leads to a small change in demand.

The formulae of elasticity of demand is known as the following:

Text Description automatically generated with low confidence

Essentially, for trained negotiators under most circumstances, the physical locations of negotiations and the room layout should not make much difference to the outcomes of the meeting. It is reasonable to assume that most commercial negotiations are based at least initially on a principled- or pragmatic-type approach. It is arguable also 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.

Giving positive group and individual feedback is easy, as is self-congratulation and, in many cases, it is hoped, this will be an accurate reflection on actual performance. When it comes to developmental or difficult feedback, it is only natural to want to move on and not reflect on the negative or developmental points, or why a negotiation did not achieve its objectives. But this is a mistake. The best learning opportunities come from reflection on what could be done better, and this can be achieved without blame, threat or condemnation. Everyone and every team will make mistakes and/or have areas where they could have improved. Clearly, if every reflection session concludes that an individual or team keeps making the same mistake, then there is a case to change roles or consider alternative approaches.

About Dos and Don'ts of reflection, you can refer here: https://offices.depaul.edu/human-resources/employee-relations/Documents/Self%20Assesement.pdf

The question requires more detailed answer, it is an example of probing question.

Probing questions are typically follow-up questions, and aim to elicit more detailed information on the back of the answer elicited from the open questions. Probing question are also useful to check that the supplier fully understand their offering, as well as your needs, can also be used to communicate to the suppliers that you know this category well.

LO 3, AC 3.3

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.

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.

Tradeables—alternative offers or concessions—are typically introduced during thebargainingstage of the negotiation. This is when both parties discuss and exchange proposals to reach a mutually acceptable agreement.

Late paymentsdamage trust and strain supplier cash flow, becoming a direct source of conflict. Similarly, when gains, risks, or costs arenot equitably shared, perceptions of unfairness can destabilize the relationship.

“Persistent late payments not only threaten supplier cash flows but can significantly erode trust. Additionally, disproportionate sharing of risks or benefits can create resentment and hinder collaboration.”

(L4M5 Commercial Negotiation, 2nd edition, Section 1.3 - Causes and Management of Conflict in Procurement)

Coercive powerstems from the ability to apply pressure or sanctions, whilereferent powercomes from reputation, charisma, or respect. These are both recognised power sources in negotiations. “Intruded” and “tactical” power are not classified within the standard power framework used in CIPS materials.

“Sources of power include coercive (based on threats or penalties), referent (based on personal appeal or influence), and others such as reward, expert, and legitimate power.”

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

At the proposing phase either side may start making tentative proposals regarding their offering. In the case of negotiation where TOP has already submitted a tender or proposal, this stage may provide an opportunity for them to make proposals to improve on their initial offers in general or in areas highlighted by the buying side in advance.

The word 'if' is very useful at this stage and allows you to test tentative proposals without committing yourself. Skilled negotiators use language very carefully. The questions with 'if' are hypothetical ones.

LO 3, AC 3.1

Trust is built through consistent communication (e.g., regular meetings) and fulfilling commitments (keeping promises). Coercion erodes trust, while mediation is reactive and not a foundational element of trust-building.

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.

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.

Commercial negotiations involve a wider set of stakeholders than procurement, budget holders, and users. Depending on context, directors, IT specialists, legal teams, regulators, or external partners may all be impacted. Ignoring them risks resistance or missed requirements. CIPS stresses stakeholder mapping tools (such as Mendelow’s Matrix) to identify influence and interest levels, ensuring all relevant parties are managed appropriately in negotiation preparation and execution. Narrow stakeholder identification can undermine outcomes.

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.

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.

It has been said that most negotiations are won (or lost) at the preparation stage. Success in a negotiation cannot be claimed unless you can refer back to your objectives and show how you have achieve them. In broad terms, negotiation plans/strategies involve 4 key activities:

1. Developing and prioritising your objectives and limits

2. Seeking to understand TOP's objectives

3. Developing concession plans

4. Planning the resources and logistics required and agreeing team roles.

Questions to gain an understanding of why a negotiation failed

Did we collect and make effective use of all information available when preparing for the negotiation?

Did we set objectives for the negotiation that were stretching and achievable and established MIL objectives?

Did we determine a strategy for the negotiation?

Did the other party understand our needs correctly?

Were we aware of the underlying interests of the other party?

Were our proposals convincing enough for acceptance by the other party?

Did we explore different variables in the negotiation?

Did we fully understand all proposals?

Did we give any unplanned concessions and did we check the importance of these?

Did we focus on common interests?

Did we ask a range of questions?

Did we get answers to all our questions?

Could we answer all the questions addressed to us in a proper and positive way?

Did we summarise effectively?

Did we use different methods of persuasion in the negotiations?

Which tactics did we use and what effect did they have?

Did our negotiating team work well as a team?

Did we help to create a co-operative atmosphere

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.

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 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

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.

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.

Risk management (3) and the stage in the product life cycle (4) are internal factors within the supplier's control and directly influence pricing decisions. These internal factors guide strategicpricing policies. In contrast, price elasticity of demand and environmental legislation are external factors, as per CIPS’s guidelines on pricing influences.

The mark-up percentage is calculated as the profit divided by the cost of production, then multiplied by 100 to convert it into a percentage.

Calculation:

(

80

/

160

)

×

100

=

50

%

(80/160)×100=50%

Thus, the supplier’s mark-up percentage is 50%, as per standard pricing calculations used in procurement.

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.

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.

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.

Distributive negotiation carries several risks beyond justlosing out on value. These includedamaging supplier relationships,eroding trust, andreaching an impasse, where neither party can agree. This could result in delayed projects, increased costs, or supplier withdrawal.

“Distributive negotiation can lead to a breakdown in communication, impasses, and long-term relationship damage. The win-lose mindset can prevent collaborative problem-solving.”

(L4M5 Commercial Negotiation, 2nd edition, Section 3.5 - Risks of Distributive Approaches)

Direct costs are those costs that can be directly attributed to the production of specific goods or services. They typically include raw materials and labor directly involved in production. Metal used in the product is a raw material that becomes part of the final product, making it a direct cost.

A perfectly competitive market is one with the following features:

- There are many firms producing identical or very similar (homogeneous) goods or services

- There are no barriers to entry to the market or exit from the market - anyone can enter or leave easily

- Both producers and customers have perfect knowledge of the market place, prices, costs of production and influences on demand and supply

Under these conditions, the price and quantity will always tend toward equilibrium as any producer that sets a price above equilibrium will not sell anything at all, and any producer that sets a price below a equilibrium will obtain 100% market share in theory. The demand curve is perfectly elastic, which means that it will be horizontal. In a perfectly competitive market, it is difficult to increase profits through pricing, and suppliers instead must focus on their cost structure. As these conditions imply, there are few if any examples of perfectly competitive market.

LO 2, AC 2.2

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

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.

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

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

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.

Negotiation variables such as price or contract length, etc are that can be traded with TOP in a negotiation. The more variables you can identify, the better. The more variables you can identify and articulate, the lower the chances of the negotiation reaching deadlock as more possibilities are facilitated regarding more creative solutions.

Below are examples of negotiation tradeables in buying professional services:

LO 2, AC 2.3

Trust may create value as following:

LO 1, AC 1.4

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)

A push approach typically involves exerting authority or power (1) with the party being influenced generally aware of the influence process (3). This method involves overtly directing or persuading the other party, often through explicit information or directives, as per CIPS’s understanding of push influence techniques.

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.

Timeline Description automatically generated

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.

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:

Diagram Description automatically generated

- One-to-one buyer-supplier dynamics.

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

- JCB's switching costs are low: Buyer may easily switch its suppliers anytime

- These components are highly standardised: The products are not different any more, buyer may choose to buy from any supplier available.

Other answers cannot be correct because:

- Suppliers are more concentrated than buyer: Suppliers are forming oligopoly market, their bargaining power tend to be greater.

- Eruption of epidemic in supply market: this is a macro factor. Eruption of epidemic may cause factories closed and disruptions on supply chain.

- Buyers purchase in small volumes: Buyer will be seen as less potential to suppliers. Buying organisation may have difficulties to deal better price with suppliers.

LO 1, AC 1.3

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).

Variable costs change in proportion to production volume, such as packaging, raw materials, and delivery. Fixed costs (rent, insurance, loan repayments) remain constant regardless of output. Recognising the difference is crucial when negotiating supplier pricing, as variable costs are often more open to tradeable adjustments (e.g., bulk discounts). Buyers who understand cost structures can challenge inflated fixed allocations or negotiate on genuine variable elements. This knowledge is vital in price breakdown discussions and in cost-modelling negotiations.

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.

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.

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. In the scenario, XYZ has combined different categories but closely related to office services into a larger contract so that they can increase their leverage.

- 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.

LO 1, AC 1.3

Direct costs are those directly attributable to the production of a unit — such as raw materials, components, and direct labour. Here, the metal used is a clear direct cost, as it varies with production output. Rent, insurance, and sales wages are indirect (overhead) costs, which must be allocated across products. Understanding this distinction is vital in negotiations, since direct costs are easier to challenge for efficiency gains, while indirect allocations may be arbitrary. Buyers with clear knowledge of cost breakdowns can negotiate more effectively, avoiding inflated pricing.

There are multiple sources of divergent positions that can arise in situations where money is exchange for goods and services. There are 2 different types of sources. Those that arise from the content or subject matter of the negotiation (what is being negotiated) and those that arise from the process of negotiation (how it is being negotiated).

Sources of divergent position - the content of negotiation:

Table Description automatically generated

Cultural differences are the source of conflict in the process of negotiation.

Requisition is an internal document raised by user or store to communicate to procurement the need to buy the product or service specified. This is merely a internal document.

Framework arrangement is a rather loose set-up, without any legal standing. It usually occurs when an organisation has decided for itself to limit the number of suppliers it is willing to work with and, through a purely internal process, sets up an approved list of such suppliers.

LO 1, AC 1.1

While face-to-face meetings are beneficial, declining all other forms of interaction can hinder progress. Telephone calls can be effective in early negotiation stages to build rapport and set expectations. Conditioning the client through initial calls is a common and productive practice.

Lina is asking a probing question to gather more detailed information on the actions GBG is taking to address quality issues. Probing questions are intended to delve deeper into a topic and elicit specific details, making them suitable for understanding underlying issues, as per CIPS’s negotiation question types.

The agency (buyer) has made a concession about the price. Possibly the supplier will request another concession (the salami tactics). To avoid this to be happened, the agency should only allow a concession as an exception, make sure that the concession is documented and only permitted against some exceptional circumstances, and seek agreement to this from the supplier.

LO 3, AC 3.2

Professor Gavin Kennedy highlights that we need to distinguish negotiation from other forms of decision-making by focusing on what is unique about it (the voluntary exchange) and not shared by other

techniques such as persuasion, gambling (e.g., coin tossing), command decision, instruction, litigation and coercion.

Integrative negotiation emphasises maximising joint outcomes and pursuing shared goals, moving beyond narrow self-interest. Unlike distributive negotiations, it does not focus on short-term wins or zero-sum positions. Instead, integrative strategies build sustainable value and strengthen partnerships. Maximising the other party’s outcome alone is more accommodative than integrative. Therefore, true integrative practice balances both parties’ interests for long-term gain.

A monopoly exists when only one company can supply an essential product or service in a given region because of significant barriers to entry for any competitor. The barriers can be legal, regulatory, economic, or geographic. Ma Bell case is an example of monopoly. The company was broken up in 1982.

A monopsony is a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers.

Pure or perfect competition is a theoretical market structure in which the following criteria are met:

- All firms sell an identical product (the product is a "commodity" or "homogeneous").

- All firms are price takers (they cannot influence the market price of their product).

- Market share has no influence on prices.

- Buyers have complete or "perfect" information—in the past, present and future—about the product being sold and the prices charged by each firm.

- Resources for such a labor are perfectly mobile.

- Firms can enter or exit the market without cost.

Monopolistic competition characterizes an industry in which many firms offer products or services that are similar, but not perfect substitutes. Barriers to entry and exit in a monopolistic competitive industry are low, and the decisions of any one firm do not directly affect those of its competitors. Monopolistic competition is closely related to the business strategy of brand differentiation

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

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.

The bargaining power of buyers increases when the buyer is large relative to the supplier. A large buyer can leverage its size to negotiate more favorable terms due to its significant impact on the supplier's business. CIPS notes that a buyer’s size and purchasing volume are key factors that enhance its negotiating power in buyer-supplier relationships.

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.

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.

LO 2, AC 2.1

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.

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

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)

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.

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

Non-verbal communicationsignificantly affects the dynamics of negotiation.Hand gestures,eye contact, andfacial expressionscan reinforce spoken words or contradict them. These elements can influence perception, trust, and the tone of the negotiation.

“Non-verbal communication includes gestures, posture, eye contact, and facial expressions. These play a critical role in how messages are received and interpreted.”

(L4M5 Commercial Negotiation, 2nd edition, Section 3.3 - Verbal and Non-Verbal Communication Techniques)

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.

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

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

A shift in demand occurs when an influencing factor other than price changes. Those factors are:

- The income of buyers

- The tastes and preferences of buyers

- The prices of other goods and services, especially substitutes and complements

- Expectations of buyer about the future

In this question:

- 'Prices of complementary goods decrease' will lead to quantity demanded for that complements rising, then demand for consumer good will increase accordingly.

- 'Price of the consumer good decreases' will increase the quantity demanded for that good, but it will not shift the demand curve

- 'Customers' expectation of higher prices in the future': in this scenario, customers tend to buy more to store in present, which leads to demand curve shifting to the right

- 'Consumer tastes shift toward substitute products': Demand for substitutes will rise, so demand for that consumer good will decrease and the demand curve shifts to the left.

LO 2, AC 2.2

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

Fixed costs (constant regardless of output).

Variable costs fluctuate with production volume — e.g., raw materials and delivery costs. Fixed costs such as rent and insurance remain constant regardless of output. In negotiations, suppliers may inflate fixed cost allocations to justify pricing; buyers should differentiate between fixed and variable costs to challenge pricing more effectively. Recognising true variable costs also allows negotiating for volume-related discounts.

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.

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.

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.

Internal stakeholder support will be important not just at the initial negotiation of the contract, but potentially throughout the life of the contract right through to exit.

As a general rule, connected stakeholders (with the exception of suppliers) have a low level of influence on procurement negotiations.

Suppliers are connected stakeholders who have contractual relationships with the organisation.

Commercial negotiation objective should be driven by the business needs of the organisation, and not just the instinct of procurement.

Connected stakeholders are those who, by contractual or commercial relationships, have a significant stake in organisation activity. As a general rule, connected stakeholder (with the exception of suppliers) have a low level of influence on procurement negotiations.

Examples of connected stakeholders are: suppliers, customers, bank where the organisation opens its account, shareholders.

Procurement can negotiate various aspects of a purchase requisition even without a formal value analysis. While value analysis can enhance cost-effectiveness, procurement professionals often negotiate on pricing, terms, and conditions to add value independently of value analysis, as per CIPS’s guidelines on procurement flexibility in negotiations.

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.

An adversarial negotiation style is more suitable in a market with many alternative sources and substitutes (B). When there are multiple suppliers, buyers have the upper hand and can adopt a competitive stance without risking supply continuity. This aligns with CIPS guidance on the use of adversarial styles in competitive markets with numerous alternatives.

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

Mark-up and margin allow supplier to make gross profit. Remember that every supplier operates under different cost structures and some are set up to be most profitable at a particular level of volume, so it is dangerous to assume all suppliers can survive on a lower margin if their volume increases. Intelligent buyers understand that mark-up and margin may define gross profits, but they tell you very little about a supplier's net profits.

LO 2, AC 2.1

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.

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

Adversarial relationships typically lead to distributive (win–lose) negotiations, where each party seeks maximum gain at the other’s expense. Trust is low, information is withheld, and concessions are hard-fought. While it can deliver short-term wins, it risks damaging long-term relationships and may reduce overall value. Collaborative, integrative approaches are more sustainable, but adversarial conditions often prevent them. CIPS highlights the importance of recognising relationship dynamics before selecting negotiation style, as forcing integrative approaches in adversarial contexts may be unrealistic.

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.

Published market indices are a source of macroeconomic data, as they reflect broader economic trends and provide insights into the overall market environment, which is essential for globalexpansion planning. Macroeconomic analysis focuses on high-level economic indicators, as recommended in CIPS’s guidelines on sourcing macroeconomic data.

Negotiation doesn't end after the contract is awarded. The needs for negotiation can arise in any post-award stages. For example, at supplier development and relationship management stage,improvement in supplier capability, capacity, and product/service range can be negotiated. Negotiations with long-term strategic critical suppliers should be carried out in a partnering style, with a win-win starting point assumed.

In some sectors such as transport, utilities and infrastructure, tenderers may 'bid low' or even make a loss to win major contracts with a view to negotiating lucrative changes, variations and 'add-ons' over the life of the contract when the supplier is bedded in and the buyer is in the weaker position to push back or challenge. Even in less complex contract, it is very likely that there will be a need to negotiate with that supplier again after the awarding of the contract.

LO 1, AC 1.1