L4M5 CIPS Commercial Negotiation Free Practice Exam Questions (2025 Updated)

Lina’s question seeksdetailed informationabout the supplier’s actions and is aimed at uncovering the root cause or assurance measures. This makes it aprobing question, designed to delve deeper into specifics. Probing is a key technique in negotiations for uncovering critical insights, particularly duringissue resolution or when seeking complianceon performance terms.

Inbreak-even analysis,contributionrefers to the amount from sales revenue that exceedsvariable costs, which then contributes to coveringfixed costsand ultimately generating profit. Understanding this concept enables buyers to better analyze supplier pricing and negotiate more effectively. For example, if a product is priced significantly above its variable cost, there may be room fordiscounts or added value, as the supplier is still contributing toward fixed costs.

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.

The relationship spectrum categorizes supplier relationships based on factors like strategic importance, allowing organizations to tailor their approach to each supplier relationship. CIPS emphasizes the relationship spectrum as a valuable tool for assessing and managing supplier interactions based on strategic relevance.

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.

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.

Contribution = Price - Variable cost

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

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 multiple variables to consider when choosing between 'push' and 'pull'. Professor Fiona Dent of Ashridge Business School proposes situations when each style might be most appropriate, breaking down push into 'directive' and 'reasoning' and 'pull' into 'collaborative' and 'visionary':

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In the scenario, Rose intends to let both parties exchange their views and ideas so that solutions to current problems can be found. This is the typical characteristic of collaborative (pull) method.

Ray Carter coined the mnemonic STOPS WASTE to remind buyers of 10 cost-reduction ideas they can ask for themselves and their suppliers in any situation when considering a key purchase input. Stop Waste by:

Standardisation - is there a standard specification?

Transportation - is the inbound transport classification appropriate

Over-engineered - is the specification too tight?

Packaging - can packaging be reduced or eliminated?

Substitutes - is there a cheaper substitute material

Weight - is there opportunity to reduce weight of the product?

Any unnecessary processing - is there any unnecessary design or feature?

Supplier’s input - are suppliers able to assist with the cost reduction

To make - is it more economical to make or buy?

Eliminate - if no one uses the feature, can it be eliminated?

SAMOA is a useful acronym for checking and testing the information gathered from the Internet:

Source

Audience

Methodology

Objectivity

Accuracy

OWN-IT is acronym for 5 steps in the process of collecting and analysing the data and information needed in any field:

Outline

Wide search

Narrow search

Increase your stockpile of information

Transform your stockpile into new knowledge

A SMART goal is used to help guide goal setting. SMART is an acronym that stands for Specific, Measurable, Achievable, Realistic, and Time-bound.

Building rapport sets apositive tonefor the negotiation and encourages openness. It is particularly vital during theopening phase, where first impressions are formed, and trust begins to build. Trust facilitates moreconstructive dialogue, enhances collaboration, and helps parties exploremutual interests.

“Developing rapport at the start of negotiations helps to foster trust and cooperation. This enhances the likelihood of reaching agreements that are mutually beneficial.”

(L4M5 Commercial Negotiation, 2nd edition, Section 3.4 - The Opening Phase and Relationship Building)

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.

Integrative negotiation is a negotiation strategy in which the involved parties work together to find a solution that satisfies the needs and concerns of each. This process often involves group brainstorming and creative thinking for individuals to suggest different ideas that benefit both parties.

Compromising is often common in integrative negotiation, and both sides may need to give up certain needs to reach a solution. Honesty can also promote successful integrative negotiation because it can lead to a comprehensive understanding of the issue and what each party needs to be satisfied with the result.

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.

Listening involves both hearing (1) and interpreting (2) the information shared by the other party. Effective listening is an active process that goes beyond simply hearing words; it involvesinterpreting meaning, understanding the speaker’s intent, and responding accordingly. CIPS emphasizes these steps as part of effective communication in negotiations.

Open questions begin with “how,” “what,” “why,” etc., and are designed to encourage detailed responses. The supplier’s questions are open-ended and aim to gather comprehensive feedback, which can inform better mutual understanding and potential deal improvements.

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