Situation: A company sells customized products and sets pricing per product/per customer. A large client has proposed to purchase product rights across a number of products and uses. Their technology is early in its expected 5-year life span. How should the company set pricing for this customer? How to you reset pricing when the landscape changes?

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: What are their licensing objectives? What is their planned use of the technology? What protections do they seek? You need to understand these before you can make decisions on pricing.
• There are several pricing scenarios: (1) Set up a scale with a declining pricing driven by volume. (2) Would they entertain a large lump sum payment now, non-transferable if the customer is acquired by another company? (3) Would they entertain a significant annual fee to cover a preset number of uses and volumes, with small increments for additional purchases? (4) Find out what the customer is willing to pay, but you set the terms. The final arrangement will depend on the answers to these questions as well as the priorities of the customer.
• Ask what guarantees the customer desires to protect their position. This includes: the customer’s key risk factors and whether they want exclusive or usage rights. Exclusive is worth more.

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