Value for money

David Smith, director at Simon-Kucher & Partners explains how we can adopt a more value-based approach to pricing

I noted in my previous blogs that there is a clear need for universities to adopt more value-based pricing approaches. With heightened awareness of fees – particularly in the undergraduate space – and with the proliferation of data and statistics available, students will become much savvier when choosing which university to attend. Ultimately this means greater differentiation between courses and institutions. Competitor benchmarking alone will not be sufficient in this new world.

In the Home/EU undergraduate space, this means greater differentiation at a n­et price level. In the absence of further regulatory intervention, there is little incentive for institutions to deviate from £9,000 (or thereabouts) as students now recognise that small differences in fees have no material impact on them. Rather expect to see increasingly varied (and aggressive) scholarship packages and also institutions playing with their tariff criteria. In the international and postgraduate spaces, expect to see more differentiation in both fees and financial support.

How can universities begin to take a more value-based approach to pricing? I would propose the following five golden rules:

1)   You need to talk to your customers. Understanding customer perceptions lies at the heart of value-based pricing. Ideally talk to potential customers (rather than current students) to establish key decision criteria and perceptions.

2)   Ask how you perform vs. competitors, not just how important various factors are. Universities actively track their price position vs. competitors but seldom quantify their relative value position. You need to understand what is important to potential students and how you perform vs. the alternatives they are considering. Then ask yourself how this should translate into your price positioning.

3)   Where possible, ask about price indirectly. Asking about price directly will naturally over-sensitize respondents to it. Indirect questions such as conjoint force respondents to trade-off price and value elements. Here we present respondents with a series of purchase decisions where they have to choose between alternative institutions, each described in terms of price and other value elements. A key output will be the “price elasticity of demand”, i.e. the volume change you can expect to see resulting from a given price change.

4)   Always use multiple methods. Never rely on just one methodology. Use a mix of methods to triangulate the optimal price.

5)   Do the math. The holy grail of pricing is to be able to predict how demand will react to changes in price. Simulate alternative pricing scenarios to model the impact on demand. Ultimately this can be integrated in your wider student number planning process.

In my next blog I will discuss the operational side of pricing: The processes and organizational structures should be in place to ensure future pricing decision making is scalable, repeatable and ultimately more effective.

Read more from David here