Magazine article University Business

Cutting Price-Factors to Consider: Helping to Determine If This High-Risk Strategy Will Have High Rewards

Magazine article University Business

Cutting Price-Factors to Consider: Helping to Determine If This High-Risk Strategy Will Have High Rewards

Article excerpt

IN THE CURRENT ECONOMIC environment, it comes as no surprise that some higher ed institutions are beginning to wonder whether a radical strategy like reducing sticker price would be the best way to maintain market share. This spring, deposits were lagging at many private IHEs, even at campuses where admit numbers were up. More families were appealing financial aid awards, and more institutions were responding to those appeals. Officials are concerned students may "melt away" before fall. Clearly, families are more reluctant to make significant financial investments in higher education than they were even a year ago.

In response, institutions are becoming increasingly transparent about how students can meet tuition, room, and board charges. Common approaches to making the case for affordability include offering guaranteed merit programs, providing online aid calculators, listing case studies, and sharing income profiles. Presenting financial aid is no longer just about the steps in the application process.

Some institutions are considering an even stronger message--a reduction in tuition charges. This high risk but potentially high reward strategy of cutting sticker price has been tried. Muskingum College (Ohio) was among the first to implement an across-the-board reduction, followed by others such as Thiel College (Pa.), Wells College (N.Y.), Heidelberg University (Ohio), West Virginia Wesleyan College, and Bethany University (Calif.). Results have been mixed.

Other IHEs are reducing tuition for specific populations. Saint Leo University (Fla.), for example, recently introduced a 10 percent reduction in tuition as an incentive to enroll new online students. Gary Bracken, vice president for enrollment, explains they were able to offer it after greater proficiency in generating online leads drove costs down. "It was only fair to pass these savings on to the new students we were able to enroll once the savings were realized."

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Southern New Hampshire University--a private institution charging $26,112 for tuition on its main campus-is offering a lower cost ($10,000), low amenities option to students studying at three of its satellite campuses. Even public institutions are selectively cutting sticker prices. For example, under a new program at Youngstown State University (Ohio), out-of-state tuition is reduced for students from eight Pennsylvania counties.

FIRST CONSIDERATIONS

The decision to cut sticker price cannot be made lightly. It must be supported by evidence that it would best meet desired enrollment goals, including building demand. Typically, there are some basic conditions that must be met before even considering a price reduction.

1. The institution needs to be significantly under its enrollment capacity for the strategy to make sense financially. This is because schools that cut tuition are hoping to make up the lost revenue through increasing enrollment.

2. The financials for an across-the-board cut will work best when almost all students are receiving institutional grant aid at or in excess of the amount of the planned tuition reduction. Aid can be cut when price is cut and most students will pay the same amount. Communication about the cut needs to be dear regarding how aid will be affected. When Blackburn College (Ill.) announced a 15 percent tuition reduction, for example, officials made this statement: "The tuition reduction is made possible by restructuring financial aid policies and significantly reducing what is known as tuition discounting. …

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