Sales Negotiation, Pricing and Commercial Agreements

Introduction and context

Sales negotiation is the process through which a buyer and seller jointly determine the terms under which value will be exchanged. It includes more than price. Scope, service levels, delivery, payment, implementation, risk allocation, warranties, data rights, renewal, termination and performance remedies may all be negotiated. Pricing is therefore not an isolated finance decision; it is part of a commercial system that must create value for the customer while protecting the supplier’s economics and strategic position.

In business-to-business markets, negotiations frequently involve multiple stakeholders, long sales cycles, derived demand, procurement procedures and contractual obligations. A salesperson who discounts too quickly may win an order but destroy contribution margin, establish an unprofitable precedent or create delivery obligations that the organisation cannot fulfil. Conversely, excessive rigidity can cause a valuable customer to select a competitor. Professional negotiation requires preparation, disciplined judgment, ethical influence and accurate translation of agreed terms into a contract.

This chapter integrates negotiation theory, value-based pricing, concession planning, influence, conflict management and commercial-contract fundamentals. Its central premise is that sustainable agreements are not those in which one party simply “wins”; they are agreements that are economically viable, operationally feasible, legally clear and sufficiently valuable to both parties that they are implemented and renewed.

Learning objectives

By the end of this chapter, the learner should be able to:

1. Distinguish distributive, integrative and principled negotiation.
2. Prepare a negotiation using objectives, BATNA, reservation point, ZOPA and stakeholder analysis.
3. Explain value-based, cost-plus, competition-based and dynamic pricing approaches.
4. Calculate price, margin, contribution and the economic effect of concessions.
5. Construct a concession plan and use conditional trades rather than unilateral discounts.
6. Apply influence principles responsibly and manage conflict without damaging relationships.
7. Identify essential provisions and risks in commercial agreements.
8. Evaluate a negotiated outcome using financial, customer, relationship, legal and ethical criteria.

1. The architecture of a sales negotiation

A negotiation has at least two levels. The first is the substantive level, concerning what is exchanged: price, quantity, specifications, timing and risk. The second is the relational and procedural level, concerning how parties communicate, make decisions, build trust and govern the process. A commercially attractive offer can fail if the decision process is misunderstood or if the parties lack confidence in one another.

Distributive and integrative negotiation

A distributive negotiation concerns the allocation of a relatively fixed amount of value. If two parties negotiate only the price of a standard product, every unit of price transferred to the seller is, in the short term, a cost to the buyer. This is often described as a fixed-pie or win–lose situation.

An integrative negotiation seeks to enlarge the total value available before allocating it. Parties may discover differences in priorities: the buyer may value rapid implementation, while the seller may value a longer contract term; the buyer may need cash-flow flexibility, while the seller may prefer predictable payment. Trading across these differences can improve the joint outcome without treating price as the only variable.

Most complex sales negotiations contain both dimensions. A software provider and a customer may negotiate a fixed subscription price distributively, while integrating value through implementation timing, training, support tiers, reference rights and contract duration.

Principled negotiation

Principled negotiation, associated with the Harvard Negotiation Project, emphasises four ideas:

• Separate people from the problem.
• Focus on interests rather than stated positions.
• Generate options for mutual gain.
• Insist on objective criteria.

A position is what a party says it wants, such as “We require a 15% discount.” An interest is the underlying concern, such as budget approval, internal price comparability or a target payback period. Asking what makes the discount necessary can reveal alternatives, including phased implementation, reduced scope, a longer term or payment scheduling.

Objective criteria may include published indices, industry benchmarks, service-level standards, total-cost-of-ownership analysis or an agreed cost model. Criteria do not eliminate disagreement, but they reduce the risk that the negotiation becomes a contest of assertion.

Negotiation zones and alternatives

Three concepts are central to preparation:

• BATNA: best alternative to a negotiated agreement. It is the best realistic course of action if no agreement is reached.
• Reservation point: the least favourable outcome a party will accept, given its BATNA and risk assessment.
• ZOPA: zone of possible agreement, the range in which the parties’ acceptable outcomes overlap.

A party with a credible and attractive BATNA has greater bargaining power. However, BATNA should not be confused with a threat. A professional negotiator uses it to make rational decisions, not to intimidate the other party.

Suppose a supplier’s reservation price is £92,000 and a buyer’s maximum approved price is £105,000. The price ZOPA is £92,000 to £105,000, before considering non-price terms. If the supplier can reduce implementation cost through a revised scope, the effective ZOPA may expand. If the buyer’s approval limit is firm and the supplier’s cost increases, it may contract.

The economic value of an alternative can be expressed as a net outcome rather than merely a quoted price. A supplier should consider incremental cost, opportunity cost, implementation risk, collection risk and strategic value. A buyer should consider switching cost, disruption, expected performance and the cost of delay.

2. Preparing for negotiation

Preparation is often the strongest predictor of negotiation quality. A useful preparation document should answer the following questions.

Objectives and issues

List all negotiable issues, not just price. Typical issues include:

Objectives should be stated as measurable outcomes. “Obtain a good price” is weak; “achieve at least 38% gross margin while including implementation within a defined scope” is more useful. Objectives should distinguish an ideal outcome, a target outcome and a reservation point.

Stakeholder and authority analysis

The apparent negotiator may not be the actual decision maker. A buying group may include a user, economic buyer, procurement manager, legal adviser, information-security officer and executive sponsor. Each stakeholder may use different decision criteria. A technically persuasive presentation may not address procurement’s payment requirements or legal’s data-protection concerns.

The sales team should identify:

• who experiences the problem;
• who controls budget;
• who evaluates technical fit;
• who can veto the purchase;
• who signs the agreement; and
• who will judge implementation success.

The same analysis should be made internally. Sales, finance, operations, legal, service and senior management must understand approval limits and escalation routes before the negotiation begins.

Information and question strategy

Information asymmetry affects bargaining power, but ethical information gathering is preferable to speculation. Useful questions explore current performance, consequences of inaction, buying criteria, implementation constraints, approval procedures, alternatives and timing. High-quality questions are open enough to reveal interests but specific enough to produce decision-relevant information.

Active listening involves summarising, testing assumptions and distinguishing facts from interpretations. For example: “If I understand correctly, the budget is fixed this year, but the main concern is implementation risk rather than the subscription amount—is that accurate?” This both improves accuracy and demonstrates respect.

3. Pricing logic for sales decisions

Pricing should reflect the value delivered, the cost of serving the customer, competitive conditions, capacity and strategic objectives. No single pricing method is universally correct.

Cost-plus pricing

Cost-plus pricing sets price by adding a markup to cost. If unit cost is C and the markup rate on cost is m, then:

Here, P is price per unit, C is unit cost and m is expressed as a decimal. If C = £80 and m = 25%, P = £80 × 1.25 = £100.

This method is simple and may be appropriate where costs are stable, value is relatively uniform and contractual cost recovery is important. Its limitations are that it may ignore customer value, willingness to pay, competitive response and the difference between fixed and variable cost.

Margin and markup are not the same

Gross margin is profit as a proportion of selling price, whereas markup is profit as a proportion of cost. If price is P and cost is C:

A price of £100 with cost of £80 produces a £20 profit. The markup is 25%, but the gross margin is 20%. Confusing these measures causes serious quotation errors.

To achieve a target gross margin g, the required price is:

The formula assumes that C and P are measured on the same cost and price basis and that g is expressed as a decimal. With C = £80 and g = 20%, P = £80 ÷ 0.80 = £100.

Contribution and discount decisions

Contribution is the amount remaining after variable cost to cover fixed costs and profit. For a transaction:

If price per unit is P, quantity is Q and variable cost per unit is v:

This formula assumes that variable cost changes proportionally with units and excludes fixed costs from the transaction calculation. It is useful for incremental decisions, but contribution is not the same as profit when fixed costs, implementation costs or overhead allocations matter.

A discount can reduce contribution disproportionately. If the original price is £100, variable cost is £60 and the discount is 10%, the original contribution is £40 per unit and the discounted contribution is £30. The price falls by 10%, but contribution falls by 25%. The quantity required to maintain the original total contribution is:

Thus, £40 ÷ £30 = 1.3333. The supplier would need approximately 33.3% more volume merely to preserve contribution, assuming no additional costs or capacity constraints.

Value-based pricing

Value-based pricing begins with the customer’s economic and strategic gains. Relevant value may include additional revenue, lower operating cost, reduced risk, faster time to market, improved compliance or employee productivity. The supplier cannot automatically claim all customer value; the price must leave the customer with a credible economic benefit and reflect competitive alternatives.

A simple value model is:

The model is a decision aid, not a guarantee. Benefits should be separated into measurable, probable and speculative components. For example, a logistics solution may produce £200,000 of expected annual savings but require £50,000 of implementation cost and £90,000 of first-year price. The estimated first-year net value is £60,000, before considering uncertainty and financing effects.

Where outcomes are uncertain, parties may use a pilot, phased commitment, performance review, gain-sharing arrangement or service credit. Such devices allocate risk more explicitly than an unsupported promise of value.

Competitive and dynamic pricing

Competition-based pricing is useful when offerings are comparable and buyers have credible alternatives. It becomes dangerous when sales teams use competitor price as the sole reference, because differences in scope, service, reliability and risk may be ignored.

Dynamic pricing adjusts prices in response to time, capacity, demand, customer segment or usage. It requires transparent rules and careful governance. In many business markets, discriminatory pricing may be legitimate when based on cost-to-serve, volume, service level or contractual commitment, but deceptive or unlawful conduct must be avoided. Prices should not be altered in ways that violate competition law, contractual commitments or stated customer expectations.

4. Concession planning

A concession is a movement from a party’s initial position. Effective concession management is deliberate, reciprocal and conditional.

Principles of a sound concession plan

1. Know the economic limit. Establish the reservation point after considering total cost, risk and alternatives.
2. Do not concede first on the most valuable issue. Retain room to exchange lower-cost items for high-value customer commitments.
3. Make concessions conditional. “If you can commit to a three-year term, we can discuss the implementation fee.”
4. Reduce the size of concessions over time. This signals that the boundary is approaching.
5. Label the concession. Explain its value and the reason it is exceptional.
6. Record every movement. Informal concessions can become contractual expectations.

A concession matrix can support discipline:

The “approximate cost” should include opportunity cost and operational impact, not merely list price. A concession with low internal cost but high customer value may be an efficient trade; one with high cost and low perceived value should be avoided.

Anchoring and first offers

The first credible number can influence the range within which later discussion occurs. An anchor is not a substitute for justification. A responsible opening offer should be supported by scope, outcomes, benchmarks or objective criteria and should leave room for legitimate uncertainty. An unrealistic anchor may damage trust and provoke resistance.

A seller may present a good–better–best architecture rather than one unexplained price. Each option should differ in genuine scope or risk allocation, not merely create artificial confusion. Choice architecture can help the buyer compare value, but it becomes unethical when important limitations are hidden.

5. Influence, communication and conflict management

Influence is the ability to affect decisions through reasons, relationships and perceived legitimacy. Cialdini’s commonly discussed principles—reciprocity, commitment and consistency, social proof, liking, authority and scarcity—can explain why messages persuade. In professional selling they should be applied transparently.

For example, a limited implementation window may be a legitimate capacity constraint, but falsely claiming scarcity is deceptive. A customer reference may provide social proof, but results must not be presented as guaranteed or universally transferable. Authority should derive from relevant expertise, not status alone.

Managing difficult behaviour

Negotiators may encounter anger, silence, extreme demands, personal attacks or repeated escalation. Effective responses include:

• pause rather than react defensively;
• acknowledge the concern without accepting an unsupported claim;
• ask for the evidence or underlying interest;
• return to objective criteria;
• separate relationship tension from substantive issues;
• use a break or escalation route when necessary; and
• document decisions and unresolved points.

A useful distinction is between task conflict, which concerns alternatives and can improve decisions, and relationship conflict, which consumes trust and reduces information sharing. The goal is not to eliminate all disagreement but to keep disagreement focused on resolvable issues.

Deadlock and mediation

Deadlock may result from incompatible reservation points, missing information, internal politics or a poorly designed package. Possible interventions include changing the negotiating team, introducing an independent benchmark, separating issues, using a pilot, revising timing or involving a mediator. Mediation assists communication and option generation; it does not necessarily impose a decision. Escalation should be governed by agreed authority rather than used as a pressure tactic.

6. Commercial agreements and contract fundamentals

A commercial agreement converts negotiated intentions into enforceable or operationally actionable commitments. The precise legal requirements vary by jurisdiction and transaction type, so legal counsel should review material agreements. Sales professionals nevertheless need to recognise the commercial meaning of core provisions.

Important elements commonly include:

• Parties and authority: legal names, addresses and signatory authority.
• Definitions: meanings of technical and commercial terms.
• Scope and specifications: what is included, excluded and subject to change control.
• Price and taxes: currency, pricing basis, adjustment mechanisms and tax treatment.
• Payment: invoicing events, credit period, late-payment consequences and disputed invoices.
• Delivery and acceptance: milestones, testing, acceptance criteria and transfer of risk.
• Service levels: measurable performance standards, exclusions, service credits and reporting.
• Change control: who may change scope, how changes are priced and how timing is revised.
• Warranties and remedies: promised quality or performance and the remedy for failure.
• Intellectual property: ownership of pre-existing materials, newly created work and licences.
• Confidentiality and data protection: permitted use, security, retention, breach response and applicable law.
• Limitation of liability: caps, exclusions and exceptions for matters such as fraud or deliberate misconduct, subject to applicable law.
• Term, renewal and termination: duration, notice, termination for breach, convenience or insolvency, and consequences of termination.
• Dispute resolution: negotiation, mediation, arbitration or courts, with governing law and jurisdiction.
• Order of precedence: which document controls when a proposal, purchase order and master agreement conflict.

Scope is the commercial centre of the contract

Many disputes that appear to be price disputes are actually scope disputes. Vague terms such as “custom reporting,” “reasonable support” or “integration included” invite conflicting expectations. A robust statement of work identifies deliverables, assumptions, dependencies, customer responsibilities, milestones, acceptance tests and exclusions.

Change control is equally important. If the customer changes requirements, the agreement should specify how the supplier will assess effects on price, resources, delivery dates and risk. Work should not begin on material changes merely because they were discussed in a meeting.

Contract risk and negotiation

Risk allocation should reflect control. A party is better placed to accept a risk when it can prevent, insure or price that risk. Transferring every conceivable risk to the supplier may produce a nominally attractive buyer position but increase price, reduce supplier participation or create unenforceable provisions. Balanced contracts align accountability with capability.

Salespeople should never promise terms that operations or legal cannot deliver. Contract deviations should be approved according to a delegation matrix, especially for unlimited liability, uncapped service credits, broad intellectual-property transfer, unusual data obligations, exclusivity and non-standard termination rights.

7. An integrated negotiation process

A practical process contains six stages:

1. Diagnose. Understand the customer’s problem, interests, alternatives, decision process and constraints.
2. Design value. Build an offer whose scope, outcomes and evidence are clear.
3. Prepare economics. Calculate price floors, target margin, cost-to-serve, concession limits and approval requirements.
4. Exchange and explore. Ask questions, test assumptions, present options and identify tradeable issues.
5. Bargain and document. Exchange conditional concessions, verify authority and record the agreed commercial package.
6. Implement and learn. Monitor performance, manage changes, review outcomes and capture lessons for future negotiations.

The sixth stage is frequently neglected. A signed agreement is not the end of selling. Implementation failures can eliminate expected customer value, produce disputes and reduce renewal probability. Account teams should therefore connect negotiation promises to onboarding plans, success metrics and governance meetings.

Worked application: contribution-aware discounting

A supplier quotes 1,000 units at £120 each. Variable cost is £72 per unit. The buyer requests a 12% discount in exchange for a purchase commitment.

Original contribution per unit:

£120 − £72 = £48

Original total contribution:

1,000 × £48 = £48,000

Discounted price:

£120 × (1 − 0.12) = £105.60

Discounted contribution per unit:

£105.60 − £72 = £33.60

Discounted contribution at 1,000 units:

1,000 × £33.60 = £33,600

The contribution reduction is £14,400, or 30% of the original contribution. The additional quantity required to restore £48,000 contribution is:

£48,000 ÷ £33.60 = 1,428.57 units

Because units are discrete, at least 1,429 units are required, assuming the same variable cost and no capacity, service or working-capital effects. The seller should therefore not accept the discount merely because the buyer says “volume will increase.” It should seek a binding minimum quantity, payment protection and a defined order schedule. If 1,500 units are contractually committed, discounted contribution is 1,500 × £33.60 = £50,400, which exceeds the original £48,000 contribution. The trade may then be commercially rational, subject to capacity and risk review.

Illustrative case: Northbridge Analytics and Meridian Foods

Background

Northbridge Analytics, a fictional data-platform provider, is negotiating with Meridian Foods, a national manufacturer. Meridian wants predictive maintenance across six plants. Northbridge’s initial proposal is £420,000 for a twelve-month programme, including platform access, implementation and standard support. Meridian’s procurement team demands a 20% reduction and a two-year price freeze. Operations wants rapid deployment, while legal requests broad liability protection and ownership of all analytical models.

Problem

Northbridge’s delivery team estimates variable implementation and support cost at £250,000 in year one. A 20% discount would reduce revenue to £336,000 before any additional legal or service risk. Meridian’s stated position is price reduction, but interviews reveal three interests: predictable budget, low disruption during implementation and confidence that plant managers will use the system.

Analysis

Northbridge identifies its BATNA as allocating capacity to two smaller customers with combined expected first-year contribution of £130,000, compared with £170,000 contribution at the proposed Meridian price before risk adjustments. Its reservation point is therefore not simply a percentage discount; it is the minimum risk-adjusted contribution and acceptable contract protection.

The teams identify tradeable issues:

Approach and solution

Northbridge rejects an unconditional 20% discount. It offers two packages. Package A is £420,000 for full scope, standard support and a twelve-month term. Package B is £390,000 for a three-year commitment, a one-plant pilot followed by agreed rollout gates, remote standard training and a defined service tier. Additional custom models are priced through change control.

The proposal explains that the lower price is conditional on forecastable capacity and reduced acquisition risk. It includes acceptance criteria, data responsibilities, service reporting and a liability cap linked to fees, with legal review of exceptions required by applicable law. Rather than claiming that predictive maintenance will produce guaranteed savings, Northbridge proposes baseline measurement and a quarterly value review.

Outcome

Meridian selects Package B. The contract includes a minimum three-year term, a pilot acceptance test, a documented rollout plan, payment milestones, a change-control procedure and a licence distinguishing customer data from Northbridge’s pre-existing platform and generic improvements. Meridian receives budget predictability and adoption support; Northbridge protects contribution and limits uncontrolled customisation.

Learning points

The case demonstrates that price pressure often contains several underlying interests. A conditional package can create value without treating discount as the only response. Scope clarity, reciprocal commitments and measurable governance are as important as the headline price. The agreement is sustainable because it connects commercial promises to operational responsibilities and risk allocation.

Challenges, limitations and ethical governance

Negotiation models simplify reality. Reservation points may be uncertain, value estimates may be biased and the ZOPA may change as new information emerges. Cost-based calculations can encourage underpricing when value is high; value-based claims can become speculative when evidence is weak. Forecasts should therefore include sensitivity analysis, documented assumptions and appropriate approval.

Ethical sales negotiation requires truthful representations, respect for confidentiality, avoidance of coercion and accurate disclosure of material limitations. Customer data must be handled according to applicable data-protection and security requirements. Competition law may restrict collusion, market allocation, resale-price practices and certain forms of discriminatory conduct. Public-sector, healthcare, financial and other regulated buyers may impose additional procurement and anti-bribery rules.

Artificial intelligence can assist with price analysis, scenario modelling, contract-clause comparison and call summarisation. However, AI-generated recommendations may reproduce biased historical pricing, expose confidential information or omit legally significant context. Human review is required for material pricing, promises, personal data, legal interpretation and approval decisions. Organisations should maintain audit trails for significant automated recommendations and ensure that customers are not misled about the basis of an offer.

Best-practice checklist

Before negotiation, confirm objectives, BATNA, reservation point, authority, stakeholder interests, cost-to-serve and approval limits. During negotiation, ask diagnostic questions, separate positions from interests, use objective criteria, present options and make only conditional concessions. Before signature, verify scope, acceptance, payment, change control, service levels, liability, intellectual property, data obligations, termination and document precedence. After signature, transfer commitments to delivery teams, monitor value, manage changes formally and review the commercial outcome.

Chapter Summary

Sales negotiation combines economic exchange, relationship management and risk governance. Distributive issues allocate value, whereas integrative negotiation seeks to create additional value through differences in priorities. Principled negotiation focuses on interests, options and objective criteria. BATNA, reservation point and ZOPA help negotiators make disciplined decisions.

Pricing should consider cost, customer value, competition, capacity and risk. Cost-plus pricing is simple but can ignore willingness to pay; value-based pricing connects price to customer outcomes but requires credible evidence. Markup, margin and contribution are distinct measures. A discount should be assessed through its effect on contribution and exchanged for binding customer commitments where appropriate.

Influence is most sustainable when it is evidence-based and ethical. Conflict should be directed toward issues rather than personalities, and deadlock can be addressed through better information, pilots, objective criteria or mediation. Commercial agreements must convert promises into precise obligations, especially concerning scope, acceptance, payment, service levels, change control, intellectual property, data, liability, termination and dispute resolution.

The professional standard is not simply to close a deal. It is to create an agreement that the customer values, the supplier can deliver, the contract can govern and both parties have reason to sustain.

Key Terms

BATNA: Best alternative to a negotiated agreement if no settlement is reached.

Reservation point: The least favourable outcome a party is prepared to accept.

ZOPA: Zone of possible agreement where parties’ acceptable outcomes overlap.

Distributive negotiation: Negotiation concerned mainly with allocating a limited amount of value.

Integrative negotiation: Negotiation that seeks to create additional value before allocating it.

Principled negotiation: An approach based on separating people from problems, focusing on interests, generating options and using objective criteria.

Position: A stated demand or preferred outcome.

Interest: The underlying need, concern or motive behind a position.

Value-based pricing: Pricing based substantially on the customer’s perceived and evidenced economic value.

Cost-plus pricing: Pricing that adds a markup to a measured cost base.

Markup: Profit expressed as a proportion of cost.

Gross margin: Profit expressed as a proportion of selling price.

Contribution: Revenue remaining after variable cost to cover fixed cost and profit.

Concession: A movement from an initial negotiating position.

Anchor: An initial reference point that can influence subsequent judgments of value or range.

Scope of work: The documented description of deliverables, responsibilities, assumptions and exclusions.

Change control: The agreed process for evaluating and approving changes to scope, price, resources or timing.

Service-level agreement: A contract or schedule specifying measurable service performance standards.

Liability cap: A contractual limit on the amount or categories of liability recoverable by a party.

Review Questions

Short Answer Questions

1. What is the difference between a position and an interest in negotiation?
2. Define BATNA, reservation point and ZOPA.
3. Why can a discount reduce contribution more sharply than revenue?
4. Identify four provisions commonly found in a commercial agreement.
5. What is the purpose of a change-control procedure?

Long Answer Questions

1. Compare distributive, integrative and principled negotiation, using a complex B2B sale to illustrate their relationship.
2. Explain how a salesperson should prepare for negotiation before making a first offer.
3. Compare cost-plus, competition-based and value-based pricing, including the limitations of each.
4. Discuss how influence principles can be applied ethically in professional selling.
5. Explain why scope, acceptance, liability and termination provisions are central to sustainable commercial agreements.

Analytical / Application Questions

1. A product sells for £150, has a variable cost of £90 and is discounted by 10%. Calculate original and discounted contribution per unit, then determine the percentage increase in volume required to maintain original total contribution.
2. A buyer requests a price reduction but offers a longer contract, faster payment and a binding minimum volume. Design a concession matrix and explain which concessions should be conditional.
3. Using the Northbridge Analytics case, evaluate whether Package B is sustainable. Identify at least three financial, operational, legal or relationship risks and propose controls for each.

Multiple Choice Questions with Answers

Question 1

Which concept describes the best realistic course of action if no negotiated agreement is reached?

A. ZOPA

B. BATNA

C. Anchor

D. Service level

Correct Answer: B. BATNA

Question 2

A product has a cost of £80 and a target gross margin of 20%. What price is required, using P = C ÷ (1 − g)?

A. £96

B. £100

C. £104

D. £120

Correct Answer: B. £100

Question 3

A price of £100 and cost of £80 produce which combination?

A. 25% margin and 20% markup

B. 20% margin and 25% markup

C. 20% margin and 20% markup

D. 25% margin and 25% markup

Correct Answer: B. 20% margin and 25% markup

Question 4

Which concession is most consistent with disciplined negotiation?

A. Giving an immediate unconditional discount

B. Conceding the most valuable issue first

C. Offering a price reduction conditional on a longer commitment

D. Agreeing to undocumented requests

Correct Answer: C. Offering a price reduction conditional on a longer commitment

Question 5

Which approach primarily seeks to enlarge the total value available before it is allocated?

A. Distributive negotiation

B. Integrative negotiation

C. Positional bargaining

D. unilateral concession

Correct Answer: B. Integrative negotiation

Question 6

A unit sells for £120 and has a variable cost of £72. What is contribution per unit?

A. £36

B. £ forty-eight

C. £60

D. £192

Correct Answer: B. £ forty-eight

Question 7

Which contract provision defines how changes to scope, price or timing are assessed and approved?

A. Change control

B. Confidentiality

C. Governing law

D. Order of precedence

Correct Answer: A. Change control

Question 8

Which statement best describes value-based pricing?

A. It always equals cost plus a fixed markup

B. It is based substantially on customer value and outcomes

C. It copies the lowest competitor price

D. It eliminates the need to estimate customer benefits

Correct Answer: B. It is based substantially on customer value and outcomes

Question 9

What is the main purpose of acceptance criteria in a commercial agreement?

A. To define when a deliverable is considered complete and acceptable

B. To guarantee unlimited supplier liability

C. To replace the pricing schedule

D. To prevent all future changes

Correct Answer: A. To define when a deliverable is considered complete and acceptable

Question 10

A discount reduces contribution per unit from £40 to £30. What volume ratio is required to preserve total contribution?

A. 0.75

B. 1.10

C. 1.3333

D. 1.50

Correct Answer: C. 1.3333