Free CIPS L4M5 Practice Exam with Questions & Answers | Set: 5

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

Ways of dealing with monopoly suppliers include the following:

Making yourself an attractive buyer

Seeking out alternatives / substitutes in a private or public manner

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

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

In a win-lose outcome, tactics often involve lowering the other party’s resistance point (1) and convincing them that the offer is the best possible (2). These strategies are designed to maximize advantage for one party at the expense of the other, fitting with CIPS’s win-lose negotiation techniques.

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

A collaborative relationship is characterized by mutual commitment, which enhances risk management and strategic planning between buyer and supplier. High levels of trust and commitment enable both parties to work closely to achieve shared objectives, creating a beneficial negotiation environment. This approach aligns with CIPS’s principles of collaborative procurement relationships.

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.

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.

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

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.

Using webcams in a web conference means you are able to communicate both verbally and non verbally.

Over the phone, you cannot see TOP, the only cue/signal you have regarding their mood, interest and attitude is person's voice, intonation and any delay.

A teleconference is a telephone meeting among two or more participants involving technology more sophisticated than a simple two-way phone connection.

In-person meeting requires you team and TOP to be in the same place at the same time.

LO 2, AC 2.4

According toMendelow’s Matrix, stakeholders withhigh interest but low powershould be keptinformed. Their interest means they care about the negotiation's outcome, but their low power means they can't significantly influence it. Keeping them informed avoids alienation and ensures smoother implementation of negotiated agreements.

“Stakeholders with high interest but low power should be managed by keeping them informed. They may become powerful advocates or opponents in the future, so engaging them is a strategic approach.”

(L4M5 Commercial Negotiation, 2nd edition, Section 1.5 - Stakeholder Management in Commercial Negotiations)