What do colleges have in common with Kohl’s?

I oft say that anybody who pays sticker price at Kohl’s should look over their shoulder to make sure that Darwin isn’t chasing them.

Maybe the same should be said of parents who pay list price tuition to fund their kiddies through college.

Lots of talk re: how college costs are soaring.

According to the WSJ

Published tuition rates have soared in the last decade, but only a small percentage of families actually pays full freight.

Between grants to needy students and merit scholarships to entice other desirable candidates, schools these days are giving back nearly 50% of gross tuition revenue in the form of aid and awards.

In other words, list prices are going up, but more stuff is being sold at sale prices.

image

 

Increasingly, colleges are using pricing methods previously the domain of airlines and discount retailers …

Among the practices in play …

“Skim” the cream

Though roughly 2/3s of full-time undergraduate students receive “discounts” (via scholarship and grants), there are still plenty of families out there (the other 1/3) who are willing and able to pay full price.  Money would be left on the table if these list price buyers got the financial benefit of an across-the-board  tuition decrease.

It’s more efficient for colleges to tailor pricing to individual students. Think: haggling with your local car salesman.

In technical terms, the process is called “price customization” … using discounts (i.e. scholarships and grants) to price each customer (student) precisely at their willingness and ability to pay.  Think: airlines offering first class, business class and economy seats at different prices.

As I used to harp to my students: “For revenue maximization, more prices always beat fewer prices” and “Marketers should always give customers the opportunity to pay high prices if they’re willing and able to do so.”

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Leverage “was-is”

Administrators at Roger Williams University in Bristol, R.I., had pondered a tuition cut, but instead froze tuition last year after market research suggested families overwhelmingly preferred a high sticker price and scholarships over a low sticker price with no aid.

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Sell the image

Wells College cut tuition by 30% in 1999, but a decade later reversed course after the onetime women’s college went co-ed. The higher price is “a more accurate representation of the value of a Wells education,”

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Increase the price of complementary products.

A few institutions cutting tuition rates are simply increasing room and board prices.

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Cater to sale shoppers

Parents can be “economically irrational,” when it comes to tuition, even willing to pay a higher price in exchange for the right to brag about their child’s merit-based aid,  “There is a psychological value to a scholarship.”

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Price for share

The stakes are especially high for small schools, he added, since losing even a few students can harm the bottom line.

Concordia University, St. Paul estimated it would have to add 24 more students this fall to break even on its recent 10% tuition cut.

Sewanee, the University of the South, in Sewanee, Tenn., reduced its tuition by 10% two years ago after nearby state schools in Georgia and Tennessee landed students it had courted. Enrollment had crept down, along with the number of full-paying families.

Sewanee’s freshman class grew to 433 from 401 in the fall of 2011, the first year of the new pricing plan, while the discount rate dropped below 40%, and the share of full-paying families topped 30%. Freshman enrollment hit 488 this fall.

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What’s next?

Jos. A. Banks style buy 1 and get 3 free?

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