Module 3 - Pricing Strategies in Higher Education

Pricing Strategies in Higher Educatioin

Why is Pricing Important?

In U.S. Higher Education, pricing is a set of strategic decisions that determine how much to charge for student tuition (in-text citation). According to Monroe (2003), price decisions are one of the most critical decisions of [finance leadership] because it affects profitability and [a] company's return along with their market competitiveness (in-text citation). University finance administrators must develop and define prices by understanding how customers perceive value in the price of tuition, the intrinsic and relevant costs to comply with that necessity, and their pricing objectives based on competitor pricing in the world market. When university finance leaders lack a proper understanding of the impact of price on demand, then pricing volatility can quickly erode its profits.

Consequently, the difference between conventional price setting and strategic pricing is setting prices by reacting to market conditions and managing them proactively to avoid price reductions due to poor pricing policies that increase the bargaining power of its consumers (i.e., students). Hence, prices have the most power to influence a university's profit without the obligation of needing to increase sales volume.

General Steps to Pricing for Student Tuition and School Programs

Define Product and Services Objectives
Leverage Tuition Revenue and Enrollment Modeling
Collaborate input from leaders across various departments and schools
Secure the right strategy

Challenges of Pricing

Lack of Consumer Data
Poor Inventory Management
Incoherent Pricing Methods
Poor Margins
Uncertainty of competitors' reactions

Pricing Strategies & Its Most Common Mistakes

As previously mentioned, in setting prices, businesses take into account a variety of factors, including their own costs, what similar products are selling for on the market, and the customer's perceived value of their offering. Pricing strategies vary between sector and market situations, and therefore what works in the U.S. High Education system may not work for Vietnam National Universities and depends on each entity's business model and offerings.

Most Common Pricing Strategy Categories

Cost-based pricing

Tuition Tiered Pricing

Competition-based
Value-based pricing

Price Transparency
Deferred Payment Based on Employment

When a university finance administrator gathers balanced information about these pricing techniques, concurrently, they formulate "pricing optimization" (a tuition strategy that considers many factors ranging from inventory and customer stratification to historical margin levels). Therefore, pricing optimization is a holistic approach that allows research universities to view which cost to serve, products to sell, and how best to utilize resources to serve core consumers while simultaneously earning a profit.

Dynamic Pricing: How prices evovle over time

Differential Pricing: "Cost-Per-Credit Pricing." U.S. higher education degrees are priced at different costs as compared to the global market.

Competitive Pricing: "Price matching." A forward look into a pricing strategy that is based on your competitors' prices

The Impact of Changing Prices in a Competitive Environment

Using Pricing Sensitivity to Make Pricing Decisions

Pricing Sensitivy Tactics include:

Competition Analysis
Price Sensitivity Survey

Takeaway: Finance leaders need to do an excellent job in balancing their pricing and financial aid strategy because the common wisdom holds that cost is a major factor in a student's decision to attend

Source: Thomas and Joan Read Center for Distribution Research and Education

Using Price Elasticity & Regressions to Maximize Revenue

Pricing Elasticity Tactics include:

Creating a tuition pricing model based on student's willingness to pay
Creating a price elasticity of demand with simple regression

Takeaway: Tuition pricing models assist finance leaders with establishing tuition rates based on projected net earnings. Price elasticity regressions can tell finance leaders the likelihood of sales demand increasing or decreasing as price changes

Pricing Simulation Game

Next year's team to create or purchase a price simulation game (Ex: In this pricing simulation game, finance administrators will use a set of tactical tools to evaluate the effect of a price on demand and profitability... )

References

Smith, Dean O. "University Finances: Accounting and Budgeting Principles for Higher Education"
Bryan, G. A., & Whipple, T. W. (1995). Tuition Elasticity of the Demand for Higher Education among Current Students: A Pricing Model. The Journal of Higher Education, 66(5), 560–574. https://doi.org/10.2307/2943936
Toni, Deonir De, et al. "Pricing Strategies and Levels and their Impact on corporate profitability" (2016)
Knowledge Center for Texas A&M University Department of Engineering Technology & Industrial Distribution
Inside Higher Education

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