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The University Pricing Problem

Everyone knows about the skyrocketing costs of going to college, and as the last of the Millennial generation leaves school over the next few years, universities must cope with what should be a smaller group of potential customers/students. Indeed the battle for students has escalated resulting in university marketers taking a classic retailer approach towards marketing in this hyper-competitive environment -- offering an initially high price and then offering sales promotions to sweeten the deal. Why can this be a problem?

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Retailers have discovered that there is no end to the consumer's desire for deals or other kinds of value-added incentives to purchase goods and services. Such promotions can cut deeply into profits forcing marketers to generate higher volume and more revenue to compensate for thinner margins. But that hasn't stopped private universities (and to a lesser degree public ones) from vastly inflating the "list" cost of an education so that it can then be grossly discounted in the form of "net" costs to consumers.

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The average net cost for private schools is half the list cost, and the net cost is about 25% lower for public universities. But net tuition at private schools is over double that of public schools, so for the former, this promotional pricing is a bigger deal. Private universities are the more egregious offenders because they do not have access to tax money like public institutions and so they must offer higher tuition as well as lower average salaries for faculty and administrators. But is inflating the list price a sustainable marketing strategy?

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Obviously a marketer doesn't want to give a potential customer "sticker shock" and so a price must remain price-competitive with its peers; but if everyone is jacking up the price, there is usually ample room for competitors to lower the price point through sales promotion. The latest trend in academia involves "price matching" wherein a private institution offers to drop the price to "match" what a public in-state student might pay. Wow. That's a pretty steep drop for a lot of schools, but the smaller private universities are particularly keen on achieving higher volumes to keep the doors open.

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A logical conclusion of all of this price escalation is that consumers will begin to understand that the list price is negotiable, and that with much haggling, a savvy negotiator can get a much better deal. What this means for universities is unclear. What is clear is that the job of attracting students has become much more difficult of late, and university marketers are turning to more traditional marketing tactics to cope with this major shift in the marketing environment.


Discussion:  Explain whether or not you think that this strategy is sustainable.

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