L4M5 Commercial Negotiation Questions and Answers

Contribution = Price - Variable cost

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

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

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.

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.

The Myers–Briggs Type Indicator (MBTI) is an introspective self-report questionnaire indicating differing psychological preferences in how people perceive the world and make decisions. MBTI indicates personality preferences in four dimensions.

The Thomas–Kilmann Conflict Mode Instrument (TKI) is a conflict style inventory, which is a tool developed to measure an individual's response to conflict situations.

Mill's RESPECT mnemonic is set out by Harry A. Mills which describes seven steps to agreements

An intelligence quotient (IQ) is a total score derived from a set of standardized tests designed to assess human intelligence.

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

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

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

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

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.

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

Materials and services bought-in: In steel manufacturer, raw materials are iron ores, scrap metal, coals, etc

Labour or wages: money paid to staff for the work involved in producing the product.

Other expenses: other charges incurred that can be specifically attributed to a particular product, batch or service

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

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

LO 1, AC 1.1

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

The zone of proximal development refers to the difference between what a learner can do without help and what he or she can achieve with guidance and encouragement from a skilled partner.

There is no Walk away area. Walk away point is a position from which you cannot concede any more ground and must walk away/decline a deal.

Best alternative to a negotiated agreement is a fallback or backstop position if the negotiation fails to result in an agreement/no deal is agreed.

LO 1, AC 1.2

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.

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.

Supplier conditioning is the process of influencing a supplier or suppliers to behave in a certain way, or to accept certain circumstances. Within a negotiation, the buyer needs to make sure that the supplier has a number of messages in mind, about the outcomes that the buyer needs to achieve and about the shared sense of purpose that buying organisation has in achieving these outcomes.

Supplier appraisal is a process of evaluating a supplier's ability to carry out a contract in term of quality, delivery, price and other contributing factors.

Supplier positioning is the process of classifying spend with a supplier in terms of the profit potential and supply risk and assists in prioritising categories of spend and developing the right strategy.

Supplier selection is the process of selecting a supplier to acquire the necessary materials to support the outputs of organisations. Selection of the best and/or the most suitable suppliers is based on assessing supplier capabilities (Shih et al., 2004).

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

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

LO 2, AC 2.2

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

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.

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.

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

Using logic involves applying numerical data and factual evidence to support arguments in a negotiation. Logical reasoning appeals to objective analysis rather than emotional or coercive tactics and is effective in convincing the other party through structured, fact-based arguments, aligning with CIPS's guidance on logical negotiation techniques.

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.

Negotiating at the supplier's site can give the supplier a psychological advantage due to their familiarity with the setting. To ensure a neutral and balanced negotiation environment, it’s preferable to conduct negotiations in a neutral location or through structured channels, as recommended in CIPS's guidance on negotiation settings.

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 Mendelow's Stakeholder Matrix, stakeholders with high interest but low power should be managed by keeping them informed. These stakeholders are invested in the outcome but lack the influence to change it, so keeping them updated helps in maintaining their support and managing expectations without intensive resources or prioritization. This approach aligns with CIPS guidance on stakeholder management in negotiation planning.

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 condition that would otherwise have them competing for resources, or confronting and trying to find a creative solution to an interpersonal problem.

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.

Monopolistic competition exists in market where there are many competing producers but they will try to use product differentiation. Although their products may be very similar, their ability to differentiate means that they can act as monopolies in short run, irrespective of the actions of their competitors.

In perfect competition, there are no barriers to entry to the market or exit from the market. In monopolistic competition, there tend to be fewer barriers to entry or exit in these markets than in oligopolistic markets, but it doesn't mean that there are absolutely no barriers to entry in monopolistic competition.

In perfect competition, the demand curve is perfectly elastic, which means that it will be horizontal. Otherwise, in monopolistic competition market, the demand curve will have normal downward slope.

LO 2, AC 2.2

In order to answer this question, you should better consider each option:

'Exchange rate' is the value of one nation's currency versus the currency of another nation or economic zone. This is a macroeconomic factor.

'Elasticity' refers to the degree to which individuals, consumers or producers change their demand or the amount supplied in response to price or income changes. This is a microeconomic factor

Consumer tastes refer to the products and services that consumers consciously choose over others. Consumer tastes are so powerful that they can change how businesses conduct their activity. Like elasticity, this is also a microeconomic factor.

Among 4 options, only risk management is the internal factor. Risk pricing is a strategy applied by many companies in the world. To learn how to price the risk, you can read an article from McKinsey: https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/how-to-price-risk-to-win-and-profit

This is a question that a student met in her actual exam. The knowledge section is unknown.

LO: Unknown, AC: Unknown

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).

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

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

- The income of buyers

- The tastes and preferences of buyers

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

- Expectations of buyer about the future

In this question:

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

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

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

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

LO 2, AC 2.2

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

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

LO 2, AC 2.3

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

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

Do’s

Be punctual and well presented (welcome their arrival)

Break the ice with small talks

Start the conditioning process

Check authority

Check agenda

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

Don’ts

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

Put down marker at this stage

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

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

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. That approach 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.

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.

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

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

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

There are 5 options in this question:

'Threat of punishment, costs and damage': The influencer tries to 'push' the other party to act as he/she wants by using force. This method is effective but short-lived. The influencer also risks to developing reputation for being heavy handed and dictatorial.

'Argument based on information, logic and reason': The influencer uses logic and reasons to persuade the other party. This is also known as 'Persuasive Reasoning' (Push)

'Using language and imagery to ‘paint a picture others can see’': The influencer seeks to influence another by understanding the other's emotions, and stimulating that party's imagination to visualise the desired future goal of the influencer. This is also known as 'visionary (pull)'

'Working together to define the problem, the goals and the best solution': In this technique, the person seeking to influence another involves the other party in the decision making process. This is known as 'collaborative (pull)'

'Listening to, involving and supporting others': In this technique, the person seeking to influence another tries to discover the other party's emotion and aims at mutual understanding. This is also a collaborative approach.

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.

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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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

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

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

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

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

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

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

LO 2, AC 2.2

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

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

Micro level: Porter's five forces:

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One-to-one buyer-supplier dynamics.

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

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

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

Other answers cannot be correct because:

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

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

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

Legitimate power comes from the belief that a person has the formal right to make demands, and to expect others to be compliant and obedient. Legitimate power comes from rules, formal authority, organisation rank, staff grade or official position held. In commercial negotiation, legitimate power can be demonstrated by job title and rank.

LO 1, AC 1.3

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

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'.

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.

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.

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

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

- Vendor base reduction

- Volume pooling

- Volume redistribution

- Volume consolidation across categories

- Standardisation and harmonisation of specifications

- Forming purchasing consortia

LO 1, AC 1.3

Effective listening is crucial in integrative negotiations because it promotes understanding and collaboration. By actively listening, parties can identify shared interests and address concerns, which supports the goal of reaching mutually beneficial solutions. This is a key component in CIPS guidelines on successful integrative negotiation practices.

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

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

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

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.

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

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

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.

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 the form 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

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

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