Implementing value-based pricing in the Higher Education sector

Higher Education Implementing value-based pricing in the Higher Education sector David Smith, Director www.simon-kucher.com Executive summary Rece...
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Higher Education

Implementing value-based pricing in the Higher Education sector David Smith, Director

www.simon-kucher.com

Executive summary Recent years have seen a new focus on fees and financial support in the Higher Education sector. There has always been a market for fees and financial support in the International and Post Graduate spaces, but until now excess demand has relieved pressure on getting pricing right. Funding cuts combined with significant changes to the core Home/EU Undergraduate market have changed this. As competition rapidly ramps up, universities will be forced to commercialise their approach to pricing with scalable, future-proof pricing processes that enable them to manage increasingly complex pricing decisions (more decisions, faster decisions, better decisions). There is also a clear requirement to adopt the value-based pricing approaches used more widely by retail and consumer businesses. With the proliferation of data and statistics available, students will become much more savvy when choosing which university to attend, ultimately leading to greater differentiation on a net price basis (fees minus financial support). Competitor benchmarking will not be sufficient in this new world. In this document we set out three observations on the state of pricing today in the Higher Education sector, and three steps all universities should be taking right now to ensure they are best placed to make the commercial pricing decisions they are going to be faced with in the coming years.

Expert view: Three observations on pricing in the Higher Education sector 1. There is seldom internal consensus on the strategic trade-offs universities are willing to make In order to optimise your pricing (both fees and financial support), you must first have agreed your goals and the acceptable trade-offs you are willing to make (e.g. volume, quality, mix, revenue, profit, breadth of courses etc.) Too often we see differing priorities across institutions (e.g. Central team vs. Academics) and no overall consensus

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The acceptable trade-offs are particularly important as pricing decisions will typically involve making compromises between opposing objectives (e.g. revenue vs. volume) We typically see a “have it all” mentality, where the only acceptable solution is to meet all objectives, and universities are unwilling to confront the difficult questions about which of their goals takes priority This problem is exacerbated when ownership of key pricing levers such as financial support are devolved to the faculties 2. There is a strong focus on competitor benchmarking rather than on understanding “value to customer” In the near future, with the proliferation of data and statistics available, students will become much more savvy when choosing which university to attend “value for money” will take centre stage, with value easier to quantify In our experience, Universities are ill-equipped to deal with increasing demands on pricing Competitor benchmarking is the most common basis for pricing we see used in the Higher Education sector but this is far from optimal, since it relies on (a) you selecting the right competitors to benchmark and (b) your competitors fully understanding their value in the market (when in reality they are looking at you!) Today, universities do not scientifically quantify the value they deliver vis-à-vis their competition Result: Pricing is detached from value 3. Fees, financial support and other marketing elements are used in isolation World class consumer businesses use price, discounts, branding and other marketing levers hand in hand, towards a common goal

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Universities typically have a Brand Strategy but this is often independent of their pricing (and they seldom have a Pricing Strategy) Control of key marketing levers such as financial support is often devolved and managed locally in faculties, thus limiting the ability of institutions to make more impactful, university-wide decisions As a result, we often see incoherent value propositions with misaligned fees and financial support

Three steps every university should be taking right now 1. Agree and document your pricing strategy, including the trade-offs you are willing to accept Agree and document your objectives and acceptable trade-offs Agree and document your Pricing Strategy, to be fed into your wider Brand Strategy Feed pricing assumptions (fees and financial support) directly into student number planning 2. Adopt a value-based approach to pricing (fees and financial support) Understand what drives students, their decision making process and the key influencers Understand your competition (in the eyes of prospective students) Quantify your performance on key decision criteria vs. competitors Quantify students’ willingness to pay, and how it differs across faculties / segments Quantify / simulate the impact of changes to your value proposition (e.g. fees, financial support, etc.) on expected student volumes, mix and revenue Key focus: Understanding the views of potential students, not current students

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3. Establish a pricing organisation to take control of pricing and, ultimately, make better pricing decisions Establish a scalable and future-proof pricing processes that will enable you to manage increasingly complex pricing decisions (more decisions, faster decisions, better decisions) Define the organisational requirements and recruit new personnel as required Define your strategy and objectives centrally and set clear guidelines within which faculties can operate to enable harmonised, more impactful, university-wide decision making Build key pricing metrics into your existing analytics dashboards to allow you to quantify the impact of pricing decisions

David Smith is a Director with the London office of Simon-Kucher & Partners David specialises in Retail and Consumer businesses, including Higher Education He has worked with a number of UK universities along with privately owned and distance learning education providers on topics including fees and financial support, student recruitment strategy, customer segmentation, and pricing organisation development He is also a regular conference speaker on the topic of value-based pricing in Higher Education

Simon-Kucher & Partners is a global strategy and marketing consultancy with 27 offices and 690 associates worldwide We deliver smart profit growth solutions to the world’s foremost brands and are the world’s leading pricing advisor

For more information, contact us: [email protected]

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