Tuesday, February 07, 2012

Do Colleges Need to Change Their Pricing Model?

CNNMoney writer Blake Ellis wrote today about the substantial tuition reduction enacted by the University of Charleston in West Virginia.   According to the article, "After seeing enrollment decline for the first time in a decade, the University of Charleston, in West Virginia, slashed tuition by 22% for the upcoming school year hoping to entice more students."  Interestingly, applications haven't increased since the move, but deposits have risen substantially.  Obviously, the jury is still out on the move. 

How did the university afford the move?   They cut some costs, but they also chose to reduce financial aid.  Thus, the net price did not actually fall by 22%.  What rationale drove the change in pricing strategy?  Here is an excerpt from Ellis' interview with the university's president, Dr. Edwin Welch:

We realized parents and families were now considering the overall price, not just the discount [financial aid and scholarships] they would be able to get. As universities we tend to market education the same way Joseph A. Banks advertises clothes, thinking the advertised price is not that important but the discounts are the most important part. But that's what is driving middle-class students away. So it seemed we needed to take a fresh look.

Could he be right?  Does the price tag at many universities drive away certain families, because they fixate on the overall list price rather than the net price (after aid and scholarships)?  After all, families don't learn their net price until late in the process?  By then, perhaps the overall list price has framed their view of a school.  I wonder if other schools might try this "Everyday Low Pricing" model of college tuition, in hopes that prospective students will look first at them because they have the lower "everyday price."  

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