Situation: The Company sells customized products and pricing has been per product/per customer. A large client has proposed to purchase product rights across a number of products and uses. The technology is early in its expected 5-year life span. How should the Company set pricing to this customer?
Advice from the CEOs:
- Start with a series of questions:
- What is the value of your technology to the customer?
- How much competition do you face?
- What other solutions are available to the customer?
- Based on this framework, ask contacts within the customer company open-ended questions that will reveal what is important to them including:
- Licensing objectives,
- Planned use of the technology, and
- Any protections that they seek.
- You need to understand these before you can make decisions on pricing.
- There are several pricing scenarios:
- Set up a scale with a declining pricing driven by volume.
- A large lump sum payment now, non-transferable if the customer is acquired by another company.
- A large annual fee to cover a preset number of uses and volumes, with small increments for additional purchases.
- The final arrangement will depend on the priorities of the customer.
- Find out what the customer is willing to pay, but you set the terms.
- Ask what guarantees they desire to protect their position. This includes:
- The customer’s key risk factors.
- Whether they want exclusive or usage rights. Exclusive is worth more.
Key Words: Pricing, Custom, Technology, Life-span, Value, Competition, Licensing, Objectives, Protection, Scenario, Scale, Lump-sum, Annual Fee, Guarantee, Exclusive, Usage