Ep. 012 – Framing and Anchoring

Hi everyone. It's Tanya and welcome to Procurement Zen. I'm sitting here with Phil.

Hi everyone.

Today we will talk about framing and anchoring under the context of influencing, but still an important point nevertheless. 

It can really be used in many different formats in all avenues of life. It can be used in stakeholder discussions, it can be used in change management. However, of course, today's focus will be on supplier relationships, negotiations, and on procurement.

So Phil, framing and anchoring. Initial thoughts.

Very important topic for every negotiator I think. Also very important for us in procurement, as negotiation I would say is our bread and butter business.

There are a lot of concepts in which we will dive in deeply today and ideas and hopefully you as the audience can get something out of it.

Shall we discuss what framing and anchoring is and why we should use it?

I think it's really critical in pushing what you want. So framing and anchoring is really about setting the scene.

It's really about getting your agenda across to the other party. It's making them understand all the way. And it is a way of manipulating the conversation in order to get what you want out of it (in a positive way).

There are many different ways to begin framing and anchoring. But in my opinion, an anchor is about giving for example the supplier a goal, whether it be price, whether it be expectation.

And so when they go away from this conversation, they will have that anchor that you've given in mind. So it's just another stronger mechanism basically to get what you want.

I think as procurement you can tell the suppliers as much or as little as you want. Due to that it makes framing and anchoring so important.

Absolutely. And I really like this ...

I mean there's a, would you say there's a slight difference between setting a frame and setting an anchor?

Or is it absolutely the same just different terms from your point of view?

No, I think it's slightly different because I think framing is more setting the scene. So you set the context around it.

Anchoring is actually giving direction or really explicitly naming what you want.

So one maybe is more implicit and then the other one is more explicit, if that makes sense.

Exactly and I see it absolutely the same.

From my point of view , it's...

• Framing = the boundaries in which we move which may not be exceeded
• Anchoring = a kind of reference point that sets the ground.

From my experience it's a very strong psychological tool because it really tends to speak to the so called Lizard brain and we're not psychologists and stuff like that.

But I think everyone also in our audience agrees that psychology is a huge factor when it comes to negotiating. Framing and anchoring slightly different but like brother and sister, siblings so to say of a similar concept.

I think what's also really important is that one frame might be different with each supplier. So you could be buying the same thing, but the way you set the scene and the way you tell the story to one supplier could be very different to another.

It depends on expectations, dependent on what the supplier actually wants. Dependent on the outcome of the tender or how far stage you're in. I think that's also pretty important to note.

 Absolutely. And I think there is no "one size fits all". I'm 100% with you here.

I also think it is dependent on the relationship that you have with your counterpart. This may be different from person to person and also from supplier to supplier. Maybe even within the same supplier.

You may use different frames depending on what person you're talking to.

I think that's also very exciting, right? Because you can set different stories and different messages, but at the same time get a similar outcome that you want in the way you deliver it or in the way you discuss it with others.

We talk first about framing and then we can go into a deeper discussion about anchoring later.

When we talk about setting the scene, there are of course many different ways to begin framing.

I would say the easiest one is through introductions. When you're...

• ... introducing yourself in the meeting
• ... introducing your counter part​
• ... introducing the context of why you're meeting

I also think you should always try and open it because you basically put your own stamp on the meeting straight away. You share your agenda and your expectation.

Exactly. I think also it is important because in the perfect world, procurement is early involved at the earliest possible point but looking at real life, oftentimes this isn't the case.

I think especially in introductions - as you said, Tanya - it is quite important that we introduce ourselves and the way we see things.

Just compare it to if someone else introduces you and saying things like

"... oh by the way, we also have procurement with us and they take care of the purchase order processing..."

That would be terrible, hence I think that it is quite important that we set our own frames.

Absolutely. And it also doesn't let the supplier go off topic because sometimes, you give them an inch, and they will take a mile.

So if you're here to discuss price and they wanted to talk about implementation. It's really important in your first introduction to say we are here to discuss price, because if they start they will start talking about implementation.

Potentially maybe someone in the business will happen and then you've talked for 25 minutes and you haven't gone anywhere near the topic that you want to discuss today.

Exactly. And one thing also quite important and that again refers back to the anchoring part is as you said in your example, if we talk about implementation 30 or 40 minutes - it does not only limit our opportunities, but it's also like they have multiple chances then to set their own anchor is to say, okay, we agree on this and this and this and this.

And for example, determine and agree on volumes which puts you as a commercial negotiator in a very bad position. So yeah, 100% with doing our own introductions and also stating our expectations.

I think another one is storytelling. I really think that storytelling is a good frame. It kind of sets the scene. You bring them all along on the journey and it's really important to win hearts and minds. 

You obviously have to sell as well. You have to sell opportunity, you have to sell what this could mean for both your businesses. You have to tell a story from beginning to end why you're doing things, your motivation for change.

You kind of need to build a bridge to seeing the supplier getting that win, getting your business and then trying to influence them on the points that you would like to make.

Exactly. I really like the idea of storytelling because it helps in so many cases, not only negotiations.

But it's very important in negotiations, especially because this is the part where you win the hearts of your supplier.

That makes it much easier afterwards also to discuss topics that if you haven't won their hearts could be very hard to discuss.

And it's not about all like we love ourselves so much ... But I think storytelling is oftentimes underestimated because it is such a great tool to convince people in a negotiation about your point of view.

And convince them that they want this business.

They will go internally to their own people and they will fight for this business and they will fight for this account. Not only because they will make a commission, but because they want to do business with you and because that is sexy.

Shall we do another one?

Yes please. So the next one is also quite important.

It's about using frames to anticipate potential objections. We can not only showcase in a partnership approach that it's not like us pushing all the way through, but having something like a joined goal in mind.

I also think that by anticipating the objection you also kind of take the steam out of an argument.

If you want, delivery to be the Dec 1st amd they in their RFP response said Feb 1st. You could say.

"... I know you've said first of February, however, it is critical that we get it from first of December because of X, Y, Z..."

So you anticipate that you know that they're going to say no, we can't do it. And then you counteract it with ways that why it's important to you.

This kind of takes the steam or takes the heat out of the argument, which kind of invalidates it.

And it avoids that things cook below the surface. You may achieve a lot of things and then this objection boils up. All of a sudden everything else you have achieved is in danger. 

I think it's also very clear that we say

" ... yes, I understand your point, but let me show you why I think mine is important..."

I guess another one that is probably a bit more powerful and a little bit more trying to take the steam out of the argument is this, or that.

So for example, you might say $100 per object is what we require to make this deal. Or we will go to eAuction and we will go out to the market.

So you give them kind of an ultimatum.

That they either take this now and this is the deal, or we do something else. And then that potentially could make them lose business or consequence.

Absolutely. And here is where it differs from internal discussions that I have all day long.

Internally I say,

"... let me show you what benefits strategic procurement brings you..."

Whereas when I'm dealing with a counterpart, e. g. negotiation with a supplier. I can utilize policies which I don't want to use so much internally. I can utilize policies and say

"... you know what, our standard payment terms is X, Y, Z, and you want 10 days net and that is not possible. And if you want to book the revenue like 1st of December, we surely do not have time to get that special approval for that very short payment term. You can decide which way you want it. Want early revenue or you want to stick to your payment terms for that..."

Exactly right and it's still setting a context and a boundary, although it is slightly more aggressive.

I like the next one that we have on our secret list,  This one is about open questions and leading the audience or maybe even more specific leading the supplier into our frame, right?

Yeah. Absolutely. So maybe an example Phil about an open question.

So a closed question is something that you usually can answer with yes or no. And the worst example that I always use for a closed question is ...

"... I assume there is no better price possible, right?..."

I mean, what else can you say then?

"... No, you're right. I even have to make it more expensive."

But an open question is...

" ... What do we have to do additionally that you can come down to the price of 100?"

You cannot answer this with yes or no, but you have to come up with ideas. It's an open question.

Absolutely. And open questions are really good when you're fishing for information where you don't know a 100%. You're trying to draw information out of the supplier.

You might ask an open question to get to know them a bit better. And then more closed questions when you were probably crunching them or getting closer to results.

Because you don't want to reopen one. And I think that's probably a point worth noting.

Once you've kind of shut down a point, so you've agreed on a point you never want to reopen that.

As Phil has said, once you've ticked off your payment terms, you don't want to open that, you don't want them to come back and say... 

"... oh well you know we can do better pricing if then you come down on payment terms."

Well payment terms five minutes ago and we just agreed upon. So we never want to try and reopen a point once it's agreed.

And I think one very easy way to carve this in stone, is to do exactly that.

Have a flip chart, have a whiteboard or anything on the wall and simply write down ok, payment terms are 90 days. Look at them, say "agreed".

And if they've just agreed, make a check mark on anything because if it's written it has more power. Then in return, if someone wants to reopen that and you want to fight it and say,

"... okay, so you mean I have to strike this through again?"

And that's like a little tool that may help you to gain leverage.

It's another way to anchor. I never thought of it like that. But yeah, I think that's true.

The other one is obviously closed questions. We've talked about signaling and counter signaling. I think it's really important that if you have a very intelligent sales person they will take a note of everything.

Everything you say, every cue, and they're very nuance and they will pick up on language that can mean two different things. They will kind of take the bait and ask anyway.

And I think it's really important to pick up, to send signals if you're satisfied in one area but not so satisfied in another area. If you're fishing, but at the same time listen to their signals and to what they are saying?

Is payment terms a hard nail for them? Do they open the door on payment terms if pricing is a bit cheaper? I think it's very important to understand their signals and also if they're trying to counter signal.

Something that is also to a certain extent related to storytelling is to use analogies. It helps suppliers get the overall picture better, which is always a good thing when it comes to negotiations.

So they see again the frame that we are walking in.

Absolutely. And analogy is a great way to bring the abstract into real life. Say everybody knows an analogy, everybody knows a good analogy and a bad analogy. And if you really want to make your point in a basic manner to make sure that it's really clear and concise, use an analogy.

Everybody knows what different analogies are like. Everybody can then get on the same point of view and the same point of mind.

The only other one I would say before we get to anchoring is reframing.

Sometimes no matter how hard you try to frame, no matter how hard you try to set the scene, you story tell, you anticipate objections, this or that. Whatever you do, sometimes the meeting doesn't go the way you plan and it goes into a different direction.

That could be for a multitude of reasons. But I think it's really important that you can always reframe. 

So if you are getting stuck in the detail, you can always reframe. Or if a technical person is carrying on and on and on about some technical scope of work, we have all been there. We all know exactly what you're talking about when the objection is to talk about high level things.

There is nothing wrong with interrupting or politely instigating yourself once someone has finished talking to say ...

"... listen guys, let's get back to the agenda. We're here to talk about X, Y, Z. Let's try and bring it up a level."

So you re-institute the frame if I'm making any sense.

And again, as we have said in other episodes as well, here's where another "anchor" helps very much, which is the agenda. 

Because if you send out an invitation, as a procurement person and set the anchor or the frame of the agenda the goal may be, what do you want to achieve?

You can always refer back to that and say...

"... okay, we now have 35 minutes left and we haven't even touched on commercial points. So I really want to ask for you for your acceptance dear supplier that we can now cover topics X, Y, Z whatever."

That's a great point. And really should have been at the front. But I think sometimes it's so obvious that we forget it.

That should be really the first. So before we do our introductions, of course we need to set the scene and we need to do that through the agenda.

So shall we maybe talk a little bit about a potential framework?

Yes and I really like this one. And it's from a book that you read, right?

Absolutely. It's from a book called Pitch Anything by Oren Klaff (non-affiliated Amazon.com link). It is more sales oriented, but whether you're in sales or you are in procurement and listening to this podcast, get this book. 

It is amazing. It is full of great stories. These stories help you to get what this framework is all about.

So what is this framework? Actually the author calls it the STRONG framework and it's actually S-T-R-O-N-G and each of those letters stands for a particular part of the framework.

Would you mind Tanya if we dive little bit deeper into that framework before we cover all the other topics in anchoring?

Let's do it.

So S in S-T-R-O-N-G stands for set the frame it is like try it to be the first to set the frame, to set the boundaries in which the discussion and the negotiation takes place.

Because this can help you being the reference for any future discussions. However it is quite important that you consider this frame or that you really think about what the frame will be.

Sometimes it's really a thin balance between simply being ridiculous because you asked for way too much and you showed that you obviously are not so much connected to what the market is like and asking for too less.

It's quite important to find a good balance. And I'm not saying that you should consider only to have your your suppliers benefits in mind, but if something gets ridiculous and you send a signal that says "I have no clue and just pump out numbers that are in no way realistic." that doesn't help as well.

Yeah, absolutely. I think you need to understand your expectations. What do you actually want to get out of the supplier or out of the discussion?

And then how can you best display your arguments and your research in order to get there?

And a very good example here that I use a lot is when I am involved in contract negotiations, is that a penalty is never an indemnification for any loss that we have. A penalty is more like financial motivation that people perform to the expected level.

If you have a penalty of X percent, it usually is never enough money to cover all your potential losses and you would need other clauses in there.

But that is like framing. What is the idea of the penalty all about? And this is more like an internal frame, maybe not something that you share with your supplier. It's just manage expectations with this kind of stuff..

That's so true. And the T?

The T is about tell the story and we already heard that in story telling also in analogies.

• How did we come up with the frame?
• What's the reasoning behind it?
• Is it a benchmark? Is it experience?
• Is it a market price?
• Is it a combination of all these things?

As we always say, strategic procurement is so much more than "10% off is always possible".There is no reasoning behind it and a good sales person could easily get you on this one.

But if you have a good reasoning behind it, why did you come up with 100 as a price? Let me show you the calculation. This is how I came up with this.

One thing you could also do here is you can also appeal to higher authorities and a potential way to approach this using higher authorities is

"... yes, but we have only a certain budget, dear Mr sales guy. And we simply cannot deny the fact that a more budget is still not possible..."

And you would be surprised how many times suppliers are willing to go the extra mile without de-scoping the service or product you you're buying.

Absolutely. And sometimes it makes me a bit nervous because it makes me think how much margin or how much fat do you actually have in this product?

But other times, some supplies are actually willing to buy the business because it's part of their growth strategy. Of course, they are financially viable.

We've already talked about that in a previous episode. 

Sometimes they really want this business and they're willing to do what it takes and even if they go to a lean margin to win this.

So the R in STRONG stands for Reveal the intrigue and this sounds spooky, doesn't it?

Sounds mysterious.

From my perception it's like showing that you exactly know what is going on their site. So. say things like...

"... I know that you and sales are often driven by revenue recognition and we will surely find a way that works for both of us. But..."

Sometimes and I think this is a little bit guesswork. You are not 100% sure what really drives and motivates them. But again, it's  always worth a try to testify your assumptions.

Absolutely. Sometimes you can just ask because I really think that if they're are a good salesperson or an interested salesperson, they will tell you enough for the deal to be made.

Maybe they care about... 

• ... price themselves
• ... a fixed volume 
• ... contract period.
• ... a five year contract rather than a two year contract

I definitely think that if they have certain expectations, we should also ask and it's still really important to reveal their intrigue as well.

Yeah. I repeat it over and over again but write this down.

If they give some information to you that is valuable and they say they care about the contract period, write it down and simply refer back to it.

Another anchor so to say that you can use in your favor.

The next one is O and it stands for Offer the Price.

That is a little bit of a visionary image of the desired outcome. It is especially important if you feel in negotiations that the other party may think they're losing their face.

It's quite important to paint an image of the desired outcome. So to say the price that you can offer if you come to an agreement.

It's time for you to build them up again. Writing their victory speech for them, so to say and give them back their face.

You have also as you said, Tanya, you have their buy in and they fight internally for the deal. If they feel totally destroyed, they might not be motivated to fight for a deal internally, especially if they have to get some approvals as well.

Absolutely and particularly with large companies. I mean, I think with large companies, the closer you get to the finish line, and the longer a project or a tender takes, the more skin they've got in the game.

Because they've probably promised their management that it's coming, it's probably on their CRM systems that it's coming.

And if it doesn't come or if things are tricky and they can feel it slipping away and they're kind of over it, absolutely I completely agree with you Phil. It's good to give them a small concession. Not a big concession though.

No. We never give big concessions.

No and you never give something without getting something, right?

Absolutely.

Let's go to N. So N stands for Nail the Hook Point.

Once again, it's quite important that you mentioned the cornerstones of the deal and you have maybe heard me saying that before. If you wrote it down, this one is really an easy win.

It is quite important that you avoid any potential misinterpretation afterwards. Usually I also try to write the summary. Not that only my perception "wins" but so that we as the procurement people stay in the driver's seat.

I mean the last thing that you want again, is that you've gone through your internal approval process.

If you have a long winded approval process, then you go through that process and then at the end they say...

"... oh well we forgot to price for X or Y because that wasn't our understanding..."

But from our side or the contract is signed. And then they come to you later in your initiation or your kick off and they say, hey you guys, you didn't ask for this and it's going to cost X and all your negotiating power is out the window.

So that's why it's really, really critical that when you close a deal, when you close a contract, there are no interpretations.

Sometimes I really stress that at the end and I know it sounds a bit harsh but of course it depends on your context.

Sometimes I say, listen, when we agree on this deal, it is fixed. We are not paying an additional amount of money. So please do not come to us with things that we've forgotten. The scope is what it is, and if you feel that there's room for misinterpretation, please come and speak now because when this contract is signed, that is it.

The final one is G which stands for Get the deal. For most people this seems obvious, that's why we're sitting here.

But to a certain extent it's still like in marketing they say call to action or tell the people what to do.

In procurement, it is quite similar. It would be something like...

"... so the license price is whatever, $72,000 and the 90 days payment term. I would say we have a deal now, right?"

And then I want the buy in from the people on the other side. I really ask them, do we have a deal now?

That's quite important because I think people want to stay consistent and this is quite important that you get a buy in on this consistency.

That's actually a very simple point, but something to be honest that I've never really thought about before. I think that's really interesting. And yeah, I like it.

Do we have a deal?

I like that actually.

Yeah and again this framework is not originated by us, but by Oren Klaff and his amazing book Pitch Anything. 

Again, if you're in procurement, you should definitely get a copy

So shall we dive deeper from framing into anchoring? We already covered some topics, but I think we want to cover anchoring a little bit more in detail, right?

Yeah, absolutely. The deal's done so - kaching -  but before we've gotten to that point.

We definitely need to discuss anchoring.

So the definition of anchoring, is that negotiation.com states that it is an attempt to establish a reference point around which a negotiation will evolve and it will often use this reference point to make adjustments.

It's often used when the first offer is presented in the beginning. So, it can be

"... Thank you very much. You are now short listed. However, from a pricing perspective, we're just not there yet. We would be expecting a price of $10,000 in order for an offer to be accepted."

So the $10,000 is the anchor because you have put a number on the table, then they are mentally going to refer to that number when they're making their calculations.

What I really like about this concept of anchoring is that the calculation always needs two parts.

It needs an upper level and the lower level.

If we are setting the lower level, everything in the calculation in-between has to also refer to this lower level, and that's quite important. 

We cannot just like shoot for number. So what would you say are important influencing factors to come up with a realistic anchor as we said initially?

It has to be believable, absolutely. So you have to look at

• What is the market?
• What is your current pricing?
• What was your past pricing?
• What is your budget?

I think they're the real key considerations. Then you need to make a believable and achievable anchor.

So the price expectations should be realistic and they should be explainable.

I'm not saying that you need to explain how you've calculated the price, but you can explain how this figure has came up.

One additional thing is round numbers, and I know previously I just talked about 10,000 euro, but maybe it should be 10,234 euro.

But if you come up with kind of a more complicated figure, it obviously shows that you've put more effort in, and I'm sorry to say, but 10% off is stupid and won't cut it.

So when you think about percentage price changes, please just don't say 10% off. I don't in my opinion think it's believable for anyone. It's just all procurement just want price reductions and it's better to do, I don't know, 12.4 or 15.2 or whatever it is.

Absolutely. And I think this also refers back to the point that it has to be explainable

I want to avoid that one just shoots these numbers, right? As you said, you have to be believable and it is quite important.

So if I were in sales, my first question after such an anchor would be...

"... okay, 10.2% wow, that's quite a lot. How did you come up with this number? And if I cannot explain this at least to a certain extent, my anchor is destroyed."

But also your personal credibility?

Absolutely. And it makes it very difficult in future to set new anchors because you work from below average point score, because you lost credibility.

You have to make it up at least to break even again to have the same sending.

So it's always good to have a certain reasoning, certain explanations why you need this. And it has to be believable.

In the beginning sometimes you don't have a target price and that could be because you've never bought the service before. Or it could be because it's a niche market, and there's not a lot of market research on it for a multitude of other reasons.

But at the same time that's why you go through your RFP / RFQ period to give you that kind of knowledge or that acceptable behavior.

The other thing that I guess you could also do is to basically look at their costs bottom up. So if we I guess take the example of temporary labor and a temp that you want to work with, you know that, some of the percentage will be

• ... on their own cost
• ... on their retirement funds
• ... on their actual wages
• ... on their overtime 

All of those statutory regulatory charges. You know that some of the costs will come from margin and markup. You know that some of the costs will come from overhead and from there as well you could create your own bottom up plan of what you feel it should cost.

And then you've got your anchor.

And if you're a demand owner listening to this podcast, Tanya gave you the perfect reason to early involve us.

Because not only is this type of calculation that she explained and this example a lot of work that we're very much willing to help you with, and to do for you demand owners, but it also takes time.

We couldn't do this in the coffee break between two meetings, so we have to research our suppliers, research situation, research the market, have our own experience be calculated in

So it's a good point why we should be early involved as early as possible. But that's a different topic which we covered already in another episode but of course it's very dear to our hearts.

It really is, and you know that emoji where you've got two hands lifted up in the air, like preach. That's the emoji that I would show now if we were on chat board

Is there anything else Phil from an anchoring perspective that you wanted to cover before we can talk about how we can start implementing them?

No, that's very good so far, and I mean there is no one recipe that fits it all (as always).

However, just to showcase some of the results:

I really achieved significant savings in the past in certain projects with these techniques which were at least way above the average that we usually had in this area.

Because we calculated them, we explained them very well and we even had situations where a supplier once said to me...

"... This all sounds very reasonable. I understand where you're coming from. What else can I say? I think we can agree."

I mean it was like, that's a little bit surprising for me, but fine.

That sounds great.

Okay. So definitely a vote for using these techniques.

How could a negotiator apply these techniques to their negotiations? What do you think?

1. You could storyboard them. So you think about your expectations, what you want to get out of it.
2. Think about what their expectations could be and then build a convincing enough story.
3. Always practice them with a colleague. So I think that that's something that particularly early on in my career, we did quite a bit. I'd say practice the conversation, let your colleague be devil's advocate. Let them play the supplier to some extent, anticipate what they're going to say, and then of course build different scenarios on how to deal with that.
4. Bring somebody with you into the negotiation so you can play off one another. If you've forgotten something they can jump in and if you've missed a point and it's going over your head because of the mood or however the compensation has gone, they can, pick that up and one of you can always take notes and refer to that as well.

I would never say bad cop, because I really hate that term. I just feel it is so old fashioned. I feel that there is no such thing as "good cop, bad cop" and I think that maybe we can talk about that in a different episode.

But in reality the days of procurement being bad cop or beating suppliers over the head really doesn't add as much value as other techniques.

Absolutely. And again, this is not strategic procurement but instead that is cost cutting, which is not what we're aiming for.

It's not providing value other than very, very short term goals. And I'm not even sure if such short term goals could be realized off the paper once projects and things start running.

So I'm absolutely with you. I don't like this type of game at all because it's so easy to destroy and it is simply also not worth the effort and the time to prepare. 

Yeah, absolutely. And I mean, you don't have to be negative or confrontational to get a good or desired result result.

Everyone has different styles and but that's not the way to achieve things. Of course, sometimes you have to be aggressive, and sometimes you will come into conflicts. 

But at the same time I just think that role playing is just old fashioned and something that really doesn't really deserve worth mentioning. But that's pretty much it. So shall we just do a quick summary?

Yes, absolutely.

Perfect

Have a very nice day. And from Tanya it's goodbye.

And from Phil as well. Bye, bye.