What if the Price of College isn’t the Problem?
Why Institutions Should Think Twice Before Reducing Tuition
If you’ve been following the higher education industry at all lately you’ve no doubt seen that price is playing a larger and larger role in how organizations choose to position themselves and their offerings.
Whether they’re cutting tuition, freezing it, or increasing scholarships, it seems everyone is focused on finding ways to make college more affordable, all in an effort to stay more competitive in an increasingly competitive market.
But there’s only one problem: People don’t actually buy based on price.
Understanding Price v. Value
What many people fail to realize is that enrollment decisions aren’t actually about price, they’re about value. In fact, as former Southern New Hampshire University CEO Steve Hodownes taught me during my time with SNHU, purchase decisions are actually about perceived value.
And here’s how it’s calculated:
Perceived Value = Perceived Cost - Perceived Benefit
Perceived Cost is the cost to the student, if they choose to enroll with you. This includes price but isn’t limited to it. It also includes any other costs that the student associates with the decision, such as the investment of time in the program, their anticipated time to completion, the flexibility and convenience of the learning environment, and the potential impact the commitment will have on their life (e.g., less time with family and friends, a potential distraction from work).
Perceived Benefit is the outcome the student believes they will receive at some point after they make their decision to enroll. This can include both direct benefits (e.g., the learning experience itself, the completion of a degree) as well as indirect benefits (e.g., anticipated career growth, projected future financial position).
Perceived Value is the students’ conscious and subconscious assessment of the perceived cost minus the perceived benefit (e.g., answering “Is this worth it?”). When a prospective student is considering your institution and offering, they are often answering this question in near-real time as they assess their desire to progress through the prospective student journey.
The Problem with Price
For colleges and universities that are choosing to position on price - rather than value - they may be making a serious strategic mistake. In an industry with over 4,000 competitors, there will always be someone cheaper. In fact, under the newly elected Biden administration, it’s likely the free college movement will see continued support and potential expansion.
While reducing price will likely have some impact on perceived value, it may not be significant, and in some cases could even be negative. There is ample evidence that at least a subset of the higher education population equates price to quality, which is likely why our industry has been built on a scholarship strategy where students receive a discount off a sticker price few students actually pay.
So What Should We Do?
Critics of higher ed’s stratospheric rise in tuition over recent decades are certainly justified, but not because the price is too high, but rather because in many cases the value isn’t high enough to justify the price. That has left us in a place where the market is increasingly asking whether college is worth the investment.
As the market becomes increasingly critical, and we see a rise in low cost alternatives, it will be more important than ever that we seek ways to increase our value, as well as how we communicate it. That is what institutional leaders, as well as the marketers who support them, need to be focused on.
Conclusion
For colleges and universities searching for answers on how best to respond to an increasingly competitive market, I encourage you to consider that reducing price is easy, but increasing value is hard.
While you very well may need to decrease tuition in order to improve your offering, it is absolutely critical to remember that you will almost certainly need to increase the value you provide - and the perception of it - in order to survive and thrive in an increasingly critical marketplace.
So, before you suggest reducing tuition, I encourage you to ask:
What can we do to increase value?
Editor’s Notes
This article originally appeared on Linkedin over the weekend. If we aren’t yet connected there, feel free to send me a connection request.
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Hope you’re well,
Seth
Seth Odell
Founder & CEO, Kanahoma