CIPS L4M5 - Commercial Negotiation

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

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.

Commercial negotiation objectives should be driven by the business needs of the organisation. Organisations are made up of different stakeholder groups, some of whom may have different, even conflicting objectives. From a negotiation perspective, stakeholders can be defined as persons or groups that have interest (or stake) in the outcome of the negotiation you are leading or participating in.

CIPS distinguishes between 3 sets of stakeholders:

- Internal stakeholders

- Connected stakeholders

- External stakeholders

End-users are examples of internal stakeholders. They are the people who will benefit from the purchase of a product or service. However, their interest may conflict with other groups, i.e. thebudget controllers whose objective is minimising the expense. In negotiation perspective, procurement should involve different groups of stakeholder.

LO 1, AC 1.1

The formal negotiation process includes planning and preparation (objectives, BATNA, MIL) and testing/proposing (exchanging offers). Hospitality is not a stage—it may support relationships but is not part of structured negotiation. Arguing/persuasion occurs within bargaining but is not defined as a stage in itself. Understanding the stages ensures structured progress and prevents disorganised discussions, which often result in suboptimal agreements.

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.

When facing a monopoly supplier, buyers must find creative ways to introduce leverage. Publicly exploring alternative solutions can create the perception of competition or a fallback plan, thus shifting bargaining power slightly toward the buyer.

The agreement and closing phase is the phase when it is either clear through explicit language, or strongly suggested through non-verbal signals, that TOP is ready to move to agreement. Judging when to close can be difficult and as with phases of the negotiation, experience, observation, practice and reflection will be the best ways to learn here.

In the closing phase, procurement should:

- Watch for closing/buying signals

- Check to ensure all issues have been resolved

- Consider using visual aids to summarise

- Use 'summary close'

- Make a decision to conclude/close

- Seek agreement in principle if TOP does not have the final authority

- Make your own private notes on the final agreement

- Shake hands on the agreement

- Leave the meeting as soon as possible thereafter.

LO 3, AC 3.1

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

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

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

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

LO 2, AC 2.1

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

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