L4M5 Commercial Negotiation Questions and Answers

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

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

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.

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.

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

LO 1, AC 1.1

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

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.

The correct answer is Bargaining mix. The bargaining mix refers to the full range of variables that can be negotiated, such as price, delivery schedules, payment terms, volumes, warranties, contract length, or service levels. According to CIPS guidance, effective negotiators identify elements that are of low value to themselves but high value to the other party, as these can be traded to gain concessions on priority issues like price. This approach supports value creation rather than positional bargaining and is central to both distributive and integrative negotiation preparation. The PM’s focus is therefore not on objections, opening statements, or closing techniques, but on structuring tradeables in advance to enable flexible and constructive bargaining.

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

Ways of dealing with monopoly suppliers include the following:

Making yourself an attractive buyer

Seeking out alternatives / substitutes in a private or public manner

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

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

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)

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

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

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

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

LO 2, AC 2.1

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.

Margin is defined as profit expressed as a percentage of the selling price, not the cost. This is a critical distinction from mark-up, which expresses profit as a percentage of cost. For example, a 20% margin means that 20% of the price charged to the buyer represents profit, while 80% represents cost. CIPS emphasises that buyers must clearly understand this difference to avoid being misled during pricing discussions. Confusing margin with mark-up can significantly weaken negotiation effectiveness.

Contribution = Price - Variable cost

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

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.

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.

The effect of a change of relative exchange rates will be determined by which currency you pay your supplier in.

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LO 2, AC 2.2

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.

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

where and when they can offer price concessions.

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

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

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

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

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

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.

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 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:

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LO 2, AC 2.1

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.

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.

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.

There are 3 major costing methods:

Marginal costing

• Uses marginal cost of producing addition units

• Uses variable cost to derived a unit cost (does not include fixed cost)

• Fixed cost treated as a ‘period cost’ and deducted, as a total amount, from total contribution to profit for the period, in the firm’s profit and loss account

Absorption costing

• Calculates total cost of producing product

• In addition to variable cost, a fair proportion of fixed cost is allocated to (absorbed) each unit of output, as a fixed cost per unit

Activity based costing

• Similar to absorption costing but with fixed cost allocated to products on the basis of the cost of activities used in producing them

LO 2, AC 2.1

The objective of the buyer here is to improve supplier cost structures over time, which requires them to have insight into supplier's current cost information. Purchase price cost analysis (PPCA) can help here. PPCA is a method for gathering, analysing and using price and cost information in a systematic way. The process allows the identification of future savings and opportunities to improve current costs.

STEEPLE analysis is used to analyse the macro environment that may have impact on an organisation.

Competitive rivalry is a part of Porter's Five Forces which is a tool for strategy making.

Volume concentration is a way to increase the purchasing quantities in order for a buying organisation to improve its leverage in negotiation.

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.”

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

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

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

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

As negotiations near closure, skilled negotiators carefully observe for buying signals—verbal cues (“That sounds reasonable…”) and non-verbal cues (nodding, smiling, leaning forward). These indicate readiness to agree and confirm whether it is the right time to close. At this stage, both sides usually stop gathering data or building rapport, as the focus is on confirming alignment and avoiding last-minute derailments. Closing too early may risk missing concessions, but delaying risks cooling momentum. Recognising buying signals ensures closure occurs at the optimal point, aligning with preparation and tactical awareness.

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:

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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

A win-win (integrative) negotiation focuses on shared interests and joint value creation. The first step is identifying where both parties’ interests align, followed by designing creative options that allow both sides to gain more of what they need. Limiting resources and imposing subjective standards are characteristics of distributive or adversarial approaches and restrict value creation. CIPS clearly distinguishes integrative negotiation as collaborative, interest-based, and solution-focused, particularly suitable for long-term and strategic supplier relationships.

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.

Ground rules are the basic rules for doing something (Cambridge Dictionary). A negotiation goes more smoothly if ground rules are adopted. Then if something goes awry at a later time, you can point out the ground rule that has been violated. Procurement professional should seek to minimise conflict over process through agreeing 'ground rules' and approach as far as possible with the other party in advance of any negotiation meetings.

There should be two sets of ground rules: 1) ground rules for the negotiations between the two parties and 2) ground rules for the negotiating team itself. This article is about the negotiating team ground rules.

The rule of law is the condition in which all members of society, including its political leaders, accept the authority of the law.

Ground zero describes the point on the Earth's surface closest to a nuclear detonation. In the case of an explosion above the ground, ground zero refers to the point on the ground directly below the nuclear detonation.

The Ground Beam is the beam which is provided usually at the foundation level to support building walls, joists, etc.

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:

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

The question mentions 4 types of relationship:

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

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

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

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

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

Bargaining is the negotiation stage where tradeables are typically introduced and discussed. During this phase, both parties exchange offers and concessions, using tradeables such as lead times and order quantities to find a mutually acceptable agreement. This aligns with CIPS's guidance on the stages of negotiation.

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.

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

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 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.

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

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

At the first stage of CIPS Procurement and Supply Cycle (Understand need and develop a high-level specification), procurement professional mainly negotiate with internal stakeholders. They have a duty to proportionately and constructively challenge specification if there's genuine doubt over the need or how the need is expressed. This is called demand management. Their first duty is to the organisation's treasury, not to functional managers.

Demand management including: negotiation/challenge between procurement and internal stakeholders over the need/requirement/specification. Remember that in any process or product, the greatest opportunity for cost reduction is at the design stage.

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.

A collaborative negotiation approach is explicitly designed to achieve win–win outcomes, where both parties work together to maximise joint value. This approach is closely associated with integrative negotiation, emphasising trust, information sharing, and joint problem-solving. Distributive and adversarial approaches are win–lose, focusing on dividing value rather than creating it. “Collective” is not a recognised CIPS negotiation approach. Collaborative negotiation is particularly suitable where long-term relationships, shared objectives, or strategic partnerships are important.

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.

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

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)

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.

While understanding the supply market and preparing aBATNA (Best Alternative to a Negotiated Agreement)are essential, theydo not cover all risks. Comprehensive preparation includes defining thenegotiation team, setting clearobjectives, planningtradeables, and anticipatingcommunication tactics. Skipping these steps can lead to poor coordination, misunderstandings, and missed opportunities. Effective negotiation is amultifaceted process, not a single strategy.

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,...

Whenmany supplierscompete forfew buyers, buyers gain leverage. This competition can drive prices down and increase the buyer’s ability to negotiate favorable terms. Conversely, if the buyer is dependent on a supplier (as in A), the buyer’s power diminishes.

“Buyer power increases when there are many suppliers and few buyers. The buyer has multiple options and can negotiate from a position of strength.”

(L4M5 Commercial Negotiation, 2nd edition, Section 2.3 - Relative Bargaining Power and Market Dynamics)

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.

An adversarial relationship is characterized by a competitive, often zero-sum approach where:

Minimal sharing of information (A): In adversarial settings, there is limited transparency as each party prioritizes its interests.

Use of power to seek the best possible deal (D): Power dynamics are leveraged to gain favorable terms, often at the expense of the other party.

This style typically lacks collaboration and mutual commitment, focusing instead on short-term gains rather than building a partnership, as described in CIPS resources on adversarial relationships.

Delivering on commitments is fundamental to building high-trust relationships. When an organization reliably fulfills its promises, it reinforces the supplier’s confidence in the partnership, fostering long-term collaboration. While contract management and audits are supportive processes, delivering on commitments directly strengthens trust, as emphasized in CIPS best practices for relationship management.

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

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

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

Integrative negotiationfocuses onmutual gainand long-term collaboration. It seeks tomaximize joint outcomesand encourages parties to align interests andpursue shared goals. This contrasts with distributive tactics that prioritize individual wins and short-term gains.

“Integrative negotiations aim to create outcomes where both parties benefit. Shared problem-solving, information exchange, and joint goal pursuit are central features of this approach.”

(L4M5 Commercial Negotiation, 2nd edition, Section 1.1 - Principles of Integrative Negotiation)

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.

An adversarial negotiation style is appropriate when one party has high bargaining power and is focused on maximizing its benefit rather than maintaining a long-term relationship. This approach often involves competitive tactics that leverage power disparities, aligning with CIPS guidance on when adversarial tactics may be strategically used in negotiations.

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.

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.

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 four types of questions that can be used in a commercial negotiation:

Hypothetical questions, where you ask about a possible situation or abstract concept, are very useful at the testing and proposal phases. Hypothetical question does not state any commitment as it is only about 'if something happens, then ...'. This type of question can be useful at giving suggestion.

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LO 3, AC 3.3

In 1983, Peter Kraljic devised a means to segment the supplier base in the article in HBR. In this, he argued that supply items should be mapped against two key dimensions: risk and profitability.

Risk relates to the likelihood for an unexpected event in the supply chains to disrupt operations. For instance, in important areas of spend, such as tire suppliers for an automotive are business critical, and should a disruption occur, the auto company is likely itself to face substantial problems.

Profitability describes the impact of a supply item upon the bottom line. For certain areas of spend, such as stationery, supplies have only a negligible effect on profits. In other categories, a single source of supply can make or break a business.

Putting these two dimensions together yields a classic two-by-two matrix.

Source: Peter Kraljic, HBR

Packaging is considered a variable cost because it fluctuates with the level of production or sales activity. Variable costs change directly in relation to the volume of output or service. In contrast:

Rent (A), Loan repayments (B), and Insurance (C) are fixed costs, as they generally do not vary with production levels within a certain range. These are recurring costs that remain constant over time, aligning with CIPS's cost classification in procurement.

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.

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

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

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

Fixed costs (constant regardless of output).

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.

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

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

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

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.

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

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

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

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

Essential goods and services such as electricity, fuel, basic food stuffs, commuter transport and habitual products such as tobacco, alcohol and sugar-based drinks are often sited as facing a relatively inelastic demand curve. This means when the price goes up, the quantity demanded does not decrease very much and so they are often the target of government taxation.

LO2, AC 2.2

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

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)

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.

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

Distributive negotiation is often described as a "win-lose" approach, where each party aims to maximize their own gain, often at the expense of the other. The focus is onachieving personal success, not collaboration.

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.

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

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

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

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

In a Win/Win or integrative negotiation approach, the goal is to achieve mutual benefit, which is characterized by a collaborative environment. According to CIPS principles on integrative negotiation:

Collaboration (A): Actively working together enables both parties to find solutions that maximize joint gains and address the needs of both sides.

Problem solving (B): Focusing on problem-solving allows both parties to address the issues at hand rather than competing over positions, facilitating a solution that satisfies both parties' needs.

By emphasizing collaboration and problem-solving, the organization increases the likelihood of a successful, sustainable agreement that respects both parties' interests.

Collaborating is both assertive and cooperative. When collaborating, an individual attempts to work with the other person to find a solution that fully satisfies the concerns of both. It involves digging into an issue to identify the underlying concerns of the two individuals and to find an alternative that meets both sets of concerns. Collaborating between two persons might take the form of exploring a disagreement to learn from each other’s insights, resolving some conditionthat would otherwise have them competing for resources, or confronting and trying to find a creative solution to an interpersonal problem.

In integrative (win–win) negotiations, power is not used to dominate or coerce but to enable progress and overcome barriers. Power can help move negotiations forward when discussions stall on specific issues and can help address behavioural or attitudinal barriers that prevent collaboration. Maximising one side’s share of gains and coercion are characteristics of distributive or adversarial negotiations, not integrative ones. CIPS clearly differentiates the constructive use of power in integrative negotiations as a means to facilitate dialogue, encourage engagement, and unlock joint value, rather than to force submission or extract disproportionate gains.

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

In this scenario, although SBL's spend claims large portion in suppliers' revenues, their draconian treatment will reduce SBL's attractiveness in supplier's perspective. SBL falls into Exploit quadrant. With exploitable customers, suppliers tend to 'milk' the customer and charge a high price to compensate for all the pain customer put on them.

For a private healthcare IT project, Senior Management (strategic decision-makers) and Software support developers (technical implementers) are the primary stakeholders. The general public and pharmaceutical suppliers are external parties not directly affected by the IT project outcomes. Identifying true stakeholders ensures effective engagement, reduces resistance, and aligns negotiation priorities with those who influence or are impacted by the decision. Misidentifying stakeholders risks ignoring critical voices, undermining project success and negotiation alignment.

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.

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

A negotiating team can be as few as two people, and one person can play one or more of these roles:

As from the scenario, Jasmine will act as an observer and a scribe (or secretary).

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 5 key phases of negotiation:

The opening phase: confirm understanding and get the issue on the table

The testing phase: check assumption and confirm understanding

The proposing phase: asking 'if'

The bargaining phase: using tradeables

The agreement and closing phase

The testing could take the form of questions following a presentation by either side or questions on a tender or proposal document received by the buyer from the potential supplier. The testing phase is necessary to confirm that your approach and objectives are appropriate for the negotiation situation you now find yourself in. Careful listening, observation and interpretation of TOP's responses may give indication of the following:

Areas where TOP is willing and unwilling to make concessions

What factors or issues TOP places a high value on

If there are any non-commercial or emotional factors that may be pertinent

TOP's underlying interests - why they are taking the position they are.

Setting the contract currency to the buyer’s currency transfers FX exposure to the supplier. The buyer gains price certainty in GBP, although the supplier may price in a risk premium—a common application decision when negotiating internationally.

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.

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.

In the study guide, CIPS lists 5 stages of an negotiation:

The opening phase: confirm understanding and get the issues on the table. At this stage, both parties should check agenda, authority and create atmosphere conducive to agreement

The testing phase is an information gathering stage where the hypothesis and assumptions you have made in the planning stage can be tested and confirmed or disconfirmed

The proposing phase: Both sides may start making tentative proposals regarding their offering.

The bargaining phase: Both parties trade concessions; the preliminary stages are over and proposals move from being tentative and general to being more definite and specific.

The agreement and closing phase: both parties should seek agreement or if TOP does not have the final authority, some sort of acknowledgement of what key terms are should be sought.

Fixed costs are regular, predictable charges that do not vary directly with usage or demand. Monthly cleaning services are typically charged at a fixed, recurring rate, making them a clear example of a fixed cost that can be renegotiated to achieve savings. Fuel costs and reactive maintenance vary with activity levels, while inflation indexation is a pricing mechanism rather than a cost itself. CIPS advises buyers to focus on fixed-cost elements when seeking sustainable cost reductions, as changes deliver predictable and ongoing savings.

The broken record tactic involves repeating the same point to reinforce a position, making it difficult for the other party to ignore. Here, the buyer keeps citing budget constraints to avoid moving away from their position, hoping repetition will wear down the supplier’s resistance. This tactic is common in distributive bargaining and aims to anchor discussions around a fixed limitation. While effective, overuse risks damaging relationships, so skilled negotiators balance it with genuine reasoning and integrative approaches when appropriate.