Practice Free L4M5 Commercial Negotiation Exam Questions Answers With Explanation

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.

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.

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

Finding a middle ground, also known ascompromise or convergence, is a hallmark of collaborative or integrative negotiation. It allows both parties to secure partial wins, supports longer-term relationships, and promotes ongoing goodwill for future dealings.

“Negotiators must balance assertiveness with cooperation. Meeting halfway can lead to agreements that meet minimum needs of both parties while preserving the relationship.”

(L4M5 Commercial Negotiation, 2nd edition, Section 1.1 - Collaborative Approaches to Negotiation)

Closed questions are useful for verifying facts, as they prompt specific, concise responses. These questions allow the negotiator to confirm details without ambiguity, which is crucial for clarity in negotiation settings, as highlighted in CIPS’s guidelines on questioning techniques.

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.

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.

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.

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.

Emotional Quotient is the set of skills that enables us to make our way in a complex world - the personal, social and survival aspects of overall intelligence, the elusive common sense and sensitivity that are essential to effective daily functioning. It has to do with the ability to read the political and social environment, and landscape them; to intuitively grasp what others want and need; what strengths and weaknesses are; to remain unruffled by stress; and to be engaging. The kind of person others want to be around and follow.

EQ seeks to measure emotional intelligence and is centred on abilities such as the following:

- Identifying emotions

- Evaluating how others feel

- Controlling one's own emotions

- Perceiving how others feel

- Using emotions to facilitate social communication

- Relating to others

On the other hand, cognitive ability is defined as a general mental capability involving reasoning, problem solving, planning, abstract thinking, complex idea comprehension, and learning from experience (Gottfredson, 1997).

LO 3, AC 3.3

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.

Hammad’s approach of presenting facts, figures, and justifications aligns with the Push persuasion method. The Push strategy involves directly presenting information, data, and logical arguments to convince the other party of a certain outcome. In this scenario, Hammad is using objective evidence to influence the supplier towards agreeing to a discount, which is characteristic of the Push method, as per CIPS guidance on negotiation tactics.

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

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

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

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.

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.

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

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

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)

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)

While compromise seems fair, it often erodes credibility and weakens long-term negotiation outcomes. Skilled negotiators avoid “splitting the difference” automatically, since it signals weak preparation and can encourage exploitation in future talks. Instead, agreements should be built on objective value, data, and tradeables. Compromise has a place, but reliance on it damages strategic positioning. CIPS stresses integrative or principled negotiation over simplistic middle-ground settlements.

All one-to-one commercial negotiations between a specific purchaser and a specific supplier take place within an industrial market and a larger business environment characterised by multiple forces which both parties typically have little control over. STEEPLE framework highlights the 6 main external influences on a business:

LO 1, AC 1.3

In the opening phase, parties should confirm understanding and get the issues on the table.

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

Opening questions (those that start with 'what', 'how', 'why') are used at the opening and testing stages to uncover needs and underlying motives, and to allow the buyer to get a feel of what is in store in the negotiation.

Probing questions are also useful to check that the supplier fully understand their offering, as well as your needs, and can also be used to communicate to the supplier that you know this category well. These questions are typically useful at the opening and testing stages.

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

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.

Negotiations do not end at the meeting; they continue through reflection, documentation, and post-negotiation review. Best practice involves assessing whether objectives were met, capturing lessons learned, and ensuring written confirmation of terms. Without this, misunderstandings or missed improvements can occur. Reflection allows organisations to continuously strengthen negotiation strategies and build learning cycles.

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.

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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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.

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)

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.

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

Integrative negotiation seeks joint value creation. Collaboration builds trust and open exchange, while problem solving identifies creative tradeables that satisfy both sides. Coercion and risk transfer belong to adversarial, distributive strategies, where one side gains at the expense of the other. Persuasion can play a role, but without collaboration, it leans toward manipulation rather than true win-win. In practice, integrative approaches require willingness to share data, listen actively, and seek long-term alignment.

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

LO 2, AC 2.2

Closed questions are effective for concluding negotiations, as they often elicit straightforward yes-or-no responses, helping to finalize terms and confirm agreement on specific points. This approach facilitates a clear and concise close to discussions, ensuring that both parties confirm their commitment to the agreed terms, as recommended by CIPS negotiation strategies.

Negotiating in the supplier's environment (their site) can unintentionally shift the power dynamic. The supplier may gain apsychological edgedue to the comfort and control of their surroundings. Best practice recommends holding negotiations in aneutral settingto ensure balance and reduce any influence based on physical context. While site visits are beneficial for supplier evaluation, they should beseparate from the negotiationto maintain objectivity.

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.

Integrative negotiation relies on openness and trust, aiming to identify underlying interests, not just positions. Withholding information is typical of distributive (win-lose) bargaining, where each side protects its bottom line. In an integrative context, hiding key details prevents mutual understanding, reduces creative option-building, and damages relationship trust. Instead, transparency enables value creation—such as joint cost reduction or innovation. CIPS emphasises that power must be balanced with openness when integrative outcomes are desired.

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.

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.

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.

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.

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

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

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.

Otherwise, trust also has legal meaning. A trust is a legal document that can be created during a person's lifetime and survive the person's death. A trust can also be created by a will and formed after death. Charitable trusts are trusts which benefit a particular charity or the public in general.

All one-to-one commercial negotiations between a specific purchaser and a specific supplier take place within an industrial market and a larger business environment characterised by multiple forces which both parties typically have little control over. STEEPLE framework highlights the 6 main external influences on a business:

Particularly, pharmaceutical industry is a heavily regulated sector, therefore, legal and regulatory matters in the industry is highly important. Otherwise, technological trends also permeate into pharmaceutical companies, technologies like digitalisation may transform the balance of power in such negotiation.

LO 1, AC 1.3

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

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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.

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

The 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.

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

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

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

- Material costs

- Process and labour costs

- Employment costs

- Overhead costs

- Distribution costs

- Depreciation on equipment

- Profit

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

LO 2, AC 2.1

Many commercial negotiations could be considered routine or just not worth the investment for buyers, and using the phone can make more sense and can be more immediate.

LO 2, AC 2.4

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

In microeconomic graphs, elasticity and inelasticity can be shown by the slope of the demand curve. If a demand curve is almost horizontal, then the product pricing can be described as very elastic. If a demand curve is almost vertical, then the product pricing can be described as very inelastic.

The formulae of elasticity:

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LO 2, AC 2.2

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

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

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

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

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

Fixed costs (constant regardless of output).

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.

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

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.

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

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

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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

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

The 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.

Listening is a hugely important skill in the world of work. It’s a key part of effective communication [...].

Regarding active listening, there is a model called 'The SIER Hierarchy of Active Listening'. It details four key stages required for effective listening. As with all models associated with active listening, its purpose is to help the listener be a better, more effective listener who really hears what is being said, connects with the individual with whom they are communicating and builds effective relationships.

The model is a hierarchical model meaning that each stage builds on the stage before it. While the model is sometimes used for training in the sales arena, it is helpful in all walks of life. The stages of the model are: Sensing (including hearing and watching body language), Interpreting, Evaluating and Responding.

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

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 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 positions - the process of negotiation:

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Line of best fits is the line that goes approximately through the middle of the data points with an equal number of data points above and below it. Line of best fits is a method of calculating medium value in statistics.

Standard terms and conditions are basic terms and conditions of business governing transactions that do not have a definitive contract, usually designed to be included in form documents such as orders. While there may be conflicts regarding standard terms and conditions, they are about the content of negotiation, not the process.

Type of purchase: when buying organisation makes an decision to purchase an item, a buyer is faced with three possible scenarios. The item to be bought could be a straight re-buy, a modified re-buy or a new purchase. Decision on type of purchase is purely an internal decision.

Effective listening is crucial in integrative negotiations as it fosters mutual understanding and helps identify shared interests, leading to collaborative solutions. It enables negotiators to comprehend the other party's needs and concerns fully.

In a globalised commercial world characterised by dynamic market and multiple companies competing for business, a positive corporate reputation can be an enormous asset. Reputational strength in one organisation might be based on some or all of the following characteristics:

- Quality of products or services

- Low cost/high value for money

- High ethical standards

- Reliability

- Cutting-edge technology

- Strong customer focus

- Engineering excellence

LO 1, AC 1.4

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.

Zone of Potential Agreement (1) and Walk-away point (3) are key elements in negotiation planning. Establishing a Zone of Potential Agreement helps identify where interests align, whilethe Walk-away point sets the limit of acceptable terms. Both are essential to preparing a negotiation framework that benefits both parties, as per CIPS best practices.

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

Framing and re-framing (C) and Anchoring (E) are powerful influencing techniques:

Framing and re-framing (C): This technique shapes how information is presented to make specific aspects more compelling or relevant.

Anchoring (E): Anchoring sets an initial reference point, which influences how subsequent information is perceived.

These techniques help negotiators control the flow and focus of discussions, aligning with CIPS recommendations for strategic influence in negotiations.

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

Closed questions (requiring yes/no or factual answers) are best for verifying facts, ensuring clarity and accuracy. Open questions are useful for exploration, while hypothetical test possibilities, and leading steer responses. In negotiation, closed questions confirm details such as prices, quantities, or deadlines, preventing ambiguity in agreements. CIPS stresses using the full range of question types strategically, with closed questions essential in finalising commitments.

Rebuilding trust requires acknowledgement of the issue and supplier commitment to improvement. Cosmetic gestures such as hospitality or price reductions do not address the core problem. Nor should KPIs be artificially lowered, as this masks underperformance. Trust is restored when accountability is accepted and corrective actions are implemented transparently. This aligns with CIPS’ emphasis on trust-building behaviours: honesty, responsibility, and consistent performance.

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

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

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

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

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

Activity-based costing is an alternative approach to traditional absorption costing. The characteristics of these two methods are illustrated in the graph below:

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

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

LO 1, AC 1.3

Tradeables—variables such as price, delivery, quality, and payment terms—are introduced in the bargaining stage of negotiations. This is the phase where both parties test positions, make concessions, and trade issues to create acceptable packages. Proposing and opening are earlier stages focused on setting out agendas and clarifying needs, while closure comes after tradeables are resolved. Introducing tradeables too early can weaken leverage, and leaving them too late risks deadlock. Bargaining ensures the structured exchange of concessions while protecting the overall bargaining mix.

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

- Interdependence

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

- Importance of advertising and selling costs

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

- Group behaviour

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

- Indeterminateness of demand curve facing an oligopolist

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

LO 2, AC 2.2

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

Closed Questions: How and when to use them?

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

The pull approach relies on persuasion, interpersonal influence, and aligning proposals with others’ goals to secure commitment. It is not about forcing compliance (that is push). By engaging influencers and presenting a vision they can adopt, pull fosters buy-in and voluntary agreement. This method is particularly effective in collaborative negotiations where relationships and long-term trust are important.

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

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

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.

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

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.

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

There are nine commonly used influence tactic:

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

2. Legitimating

3. Personal appeals

4. Exchange

5. Ingratiation

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

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

8. Inspirational appeals

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

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

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 1959, French and Raven described five bases of power:

1. Legitimate – This comes from the belief that a person has the formal right to make demands, and to expect others to be compliant and obedient.

2. Reward – This results from one person's ability to compensate another for compliance.

3. Expert – This is based on a person's high levels of skill and knowledge.

4. Referent – This is the result of a person's perceived attractiveness, worthiness and right to others' respect.

5. Coercive – This comes from the belief that a person can punish others for noncompliance.

Six years later, Raven added an extra power base:

6. Informational – This results from a person's ability to control the information that others need to accomplish something.

In the scenario, Neville attracts and keeps good relationship with his colleagues not because of neither position nor reward nor coercion. He has good skills and kindness, which increase his charisma. His source of power is referent power.

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.

Consultation involves actively involving stakeholders or counterparties in decision-making. By seeking input, it fosters a sense of ownership, increasing commitment to negotiated outcomes. It is particularly effective when the negotiator has low positional power, as it shifts dynamics from authority to collaboration. Unlike coercion or compliance tactics, consultation builds engagement and long-term trust, which is critical in complex procurement where buy-in is essential for contract success. CIPS stresses its role in building influence where direct authority is limited.

Expert power is based on a person's high levels of skill and knowledge, formal training, qualifications and experience in a particular procurement category would give someone expert status and mean that in negotiation their voice is listened to as a more objective, informed knowledge leader. Expert power is based on facts, knowledge, research, insight and study.

Legitimate power comes from rules, formal authority, organisation rank, staff rate or official position held.

Reward power comes from one person's ability to compensate or reward another for compliance.

Referent power stems from their personality, way of engaging with others and habit of acting in a way that is in line with a strong set of values and principles.

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

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