Is the price right?

HEIs must get to grips with pricing and address what value for money they offer students, or risk losing out to competitors

The warning comes from global strategy and marketing consultants, Simon-Kucher & Partners who have launched the white paper: ‘Implementing value-based pricing in the Higher Education sector’.

“Until now excess demand in the graduate and undergraduate market has relieved pressure on higher education organisations getting the price of their tuition fees right,” said David Smith, director at Simon-Kucher & Partners. 

“But funding cuts combined with significant changes to the undergraduate market mean competition is rapidly hotting up amongst universities. 

“There is a need now to adopt a value-based pricing approach similar to those used by retail and consumer businesses. Students are becoming savvier when choosing which university to attend, ultimately leading to a greater differentiation on a price basis. Competitor benchmarking alone will not be sufficient in this new world, in which students will become customers.”

Issues preventing higher education institutions from getting their price right include:

  • Little internal consensus on strategic priorities: pricing decisions require compromises between opposing objectives, for example revenue vs. volume. Different priorities of management teams and academics mean there is no overall consensus as to what should take priority: volume, quality, profit or breadth of courses.
  • Too much focus on competitor benchmarking rather than on understanding the value offered to students: value for money will take centre stage for future students. Focus on competitor benchmarking assumes competitors knows their value in the market. As universities do not quantify the value they deliver vis-à-vis their competition, pricing is detached from value.
  • Fees, financial support and other marketing elements used in isolation: world-class consumer businesses use price discounts, branding and other marketing tools hand in hand towards a common goal. While universities often have a brand strategy, they seldom have a pricing strategy.

“A further complication for universities are management structures that devolve oversight of the factors that affect pricing to individual faculties, such as financial support,” said Smith.

“This is challenging to institutions that want to make more impactful, university-wide decisions. Defining strategies and objectives centrally and setting clear guidelines, within which faculties can operate, will solve this problem.”

Simon-Kucher has set out three steps every university should be taking to tackle this issue, these are:

  1. Agree and document a pricing strategy, including the trade-off the organisation is willing to accept – feed this into the brand strategy, and pricing assumptions into student number planning
  1. Adopt a value-based approach to pricing (fees and financial support) – understand what drives students and how the competition is viewed through the eyes of prospective students
  1. Establish a pricing organisation to take control of pricing to make better decisions – establish a pricing process, recruit new personnel if required, build key pricing metrics into your existing analytics dashboards to quantify the impact of pricing decisions

Smith concluded: “The key focus for universities is to understand the views of potential students, not current students. This approach will ensure universities are best placed to make the commercial pricing decisions they need to in order to remain competitive and relevant to tomorrow’s students.”

 

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