Pricing for Adult Learners?
Updated: Sep 27, 2018
An executive article written for practical application for post-secondary administrators and program directors utilizing engaged research to find solutions for pragmatic business problems.
Historically, studies on post-secondary populations attending college or university have focused on the 18-24 year old population neglecting a majority population, the nontraditional student. In fact, according to NCES (National Center for Education Statistics), at last glance of data, the shift is pushing upward of 60% of students being classified as nontraditional-aged students.
Historical Studies on Pricing Impacts on Retention
In 1967, pioneers Campbell and Siegel began studying pricing impacts on enrollment. Applying Elasticity of Demand Theory to Higher Education, researchers have since been able to generalize the impacts of tuition price changes on the 18-24 year old population segmented by several demographic populations as summarized in Table 1 with descriptions of elastic (responsive to price changes) or inelastic (not responsive to price change).
What researchers haven't answered is what is the impact of tuition pricing changes on the new majority student population, the 25+ population or the nontraditional student population. The nontraditional population often juggles multiple roles including full- time employee, spouse, parent, and even military roles. Thus tuition price changes may have a different impact on the nontraditional student population as compared to the traditional student population since many nontraditional students do not attend full time.
Economic theory suggests that if an organization operates in two separate markets with differing sizes and differing price elasticities of demand, then optimization cannot be achieved by charging a common price. (Byrd, Roufagalas, & Mixon, 2015)
Findings and Application to Your Institution
What was found after constructing a linear regression model researching the impacts of tuition on nontraditional student persistence at one private, nonprofit University in the SACSCOC regional accreditation body increased substantiation that prior research in 2015 by Byrd, et al. could be generalized across the entire online population at private and public nonprofit institutions. It was observed, for every 1 percent increase in tuition, nontraditional online students decreased their persistence by 0.9 percent, persisting less than face-to-face nontraditional students. It was also observed for every 1 percent increase in tuition, nontraditional students persisted 1.39 percent less than traditional students. For online students to be more price responsive than face-to-face students isn't a far stretch as the online education competition is fierce and thus price is not the only determinant as in any product or service transaction; however, it should be noted that additional varying impacts were noted across other demographic populations which can ultimately impact your pricing strategy.
...not surprising as online offers students the choice of when to “attend” class and no longer limits where the student can attend due to geographic location or travel.
As an administrator or program director, what does this research mean for you? Knowing the tuition price responsiveness for each demographic at your institution can ensure that your pricing policies are not negatively impacting any one certain population and can also provide you data to accurately estimate persistence to aid in accurate projections for capital budgeting purposes. Secondly, rather than a focus solely on pricing, perhaps funding and resources are the better focus. For example, if we consider that online populations are more sensitive to price changes, allocation of additional funding to reduce the student to advisor ratio or purchase early intervention software may help reduce the persistence gap between online populations and face-to-face populations. Lastly, communication campaigns can be targeted at more adversely impacted populations improving the utilization of your Student Information System/Customer Relationship Management System (such as Ellucian's Colleague or Campus Management's Radius product). And according to Seeman and O'Hara, this improved system utilization can increase student loyalty and satisfaction, which can have long-term implications for higher education institutions through alumni engagement and giving. Who doesn't want that?
Stop! Increased Tuition Prices ≠ Increased Giving
Don't get excited jumping to the conclusion that raising tuition prices will only minimally impact a few students, increase revenue, and ultimately result in large endowments for your institution. Allow one of our consultants to utilize your non-identifying student-level data to provide your institution with institution-specific data, projection sheets, and recommendations that can help your institution most effectively utilize its resources.
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. Retrieved from http://search.proquest.com/docview/205336131?accountid=9858
Byrd, J., Roufagalas, J., & Mixon, P. (2015). “Tuition Sensitivity in online education.” Journal of Economics and Economic Education Research, 16(3), 25-41. Retrieved from https://search-proquest-com.proxy.campbell.edu/docview/1768624588?accountid=146941
Campbell. R., & Siegal, B.N. (1967). “The demand for higher education in the United States, 1919-1964. The American Economic Review, 57(3), 482-494.
Funk, H. J. (1972). “Price elasticity of demand for education at a private university.” Journal of Educational Research, 66 (1972), 130-34.
Leslie, L. L., & Brinkman, P. T. (1987). “Student price response in higher education: The student demand studies.” The Journal of Higher Education, 58(2), 181-204.
National Center for Educational Statistics (NCES). (2017, April). “Undergraduate Retention and Graduation Rates.” Retrieved from https://nces.ed.gov/programs/coe/indicator_ctr.asp
Seeman, E. D., & O'Hara, M. (2006). “Customer relationship management in higher education: Using information systems to improve the student-school relationship.” Campus - Wide Information Systems, 23(1), 24-34. Retrieved from https://search-proquest-com.proxy.campbell.edu/docview/218053480?accountid=146941
Spradley, K. (2018). "Higher Education Pricing: Effects of Tuition Pricing on Nontraditional Student Persistence Moderated by Demographics." Dissertation, Georgia State University. Retrieved from https://scholarworks.gsu.edu/bus_admin_diss/101