Legitimate power comes from formal authority and organisational backing, making it a credible and sustainable leverage source in negotiations. Personality power or reliance on colleagues and friends lacks long-term weight and may not influence suppliers strategically. Buyers who use legitimate power, backed by governance and authority, negotiate from a position of credibility and professionalism, reinforcing stronger outcomes.

Fixed costs (FC) are costs that do not vary with volume. To an airline once aircraft are purchased, flight crews trained and departures scheduled, costs are disproportionately fixed.

Variable costs (VC) are those which vary with the amount produced. Fuel, catering services and marketing are examples of variable.

LO 2, AC 2.1

Variable costs fluctuate with production volume — e.g., raw materials and delivery costs. Fixed costs such as rent and insurance remain constant regardless of output. In negotiations, suppliers may inflate fixed cost allocations to justify pricing; buyers should differentiate between fixed and variable costs to challenge pricing more effectively. Recognising true variable costs also allows negotiating for volume-related discounts.

Variable costs change in proportion to production volume, such as packaging, raw materials, and delivery. Fixed costs (rent, insurance, loan repayments) remain constant regardless of output. Recognising the difference is crucial when negotiating supplier pricing, as variable costs are often more open to tradeable adjustments (e.g., bulk discounts). Buyers who understand cost structures can challenge inflated fixed allocations or negotiate on genuine variable elements. This knowledge is vital in price breakdown discussions and in cost-modelling negotiations.

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.

CIPS recognises that agreement can be reached without formal negotiation by using alternative influence-based approaches. Accommodating involves one party yielding to preserve relationships or progress. Persuasion uses communication, reasoning, and influence to shape the other party’s views and decisions. Problem solving focuses on jointly identifying solutions that address both parties’ needs. These approaches are particularly useful where relationships are important or power is balanced. Team management, psychodynamic management, and validation of reporting are not recognised CIPS agreement-reaching approaches within commercial negotiation theory. The ability to choose the correct approach enhances negotiation effectiveness and relationship outcomes.

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.