How Much are Your Students Willing to Pay? Testing Institutional Price Sensitivity Sarah Parrott, Ph.D Rob Mirable, Ph.D

Price is what you pay. Value is what you get. Warren Buffett 2UK-IR June 25, 2008

United Kingdom n Top-Up Fees (Per Higher Education Act, 2004) –Discretionary up to £3,000 –£ 3,000 Cap per year until Top Up Fees ? ? ? £3,000 £5,000 £7,000 £9,000 UK-IR June 25, 2008

Impact on Enrollment Students and Families n Become better informed “consumers” of higher education –Net cost is an important consideration –Price versus perceived “value” of the institution –Students will “vote with their feet” –Increased cost to consumer = increased consumer expectations 4 Institutions n Become more competitive for students  Market and improve upon programs and services  Maximize student headcount and net revenue  Enroll high quality students  Shape incoming classes UK-IR June 25, 2008

The Value Equation UK-IR June 25, Value = (Net) Cost + Quality

6  Optimize net revenue  Set the best financial aid and scholarship awarding amounts  Improve enrollment among target populations  Impact value perceptions in the marketplace  Inform key marketing messages  Develop a stronger financial base to support long-term operational needs and other strategic goals The “Right” Price UK-IR June 25, 2008

Research Techniques 7UK-IR June 25, 2008 n Primary –Surveys –Interviews n Secondary –Existing databases on campus –Third-party data sources –Literature

8UK-IR June 25, 2008 Monadic Testing

Gabor-Granger 9UK-IR June 25, 2008

Optimum Price Point: $15,160 Range of Acceptable Prices $13,297 - $17,204 Expect to Pay: $19,332 Price (Dollars) 10UK-IR June 25, 2008 Van Westendorp Price Sensitivity Meter

Understanding Cost Perceptions  What roles do perceptions of the institution’s total cost and its financial aid program play in the willingness of current students to consider the institution for application or enrollment?  At what levels do families feel an institution’s education is under-priced, just about right, and over-priced for the value received? How do these perceptions compare to what they are willing to pay for their first-choice institution?  What are families attitudes toward net versus sticker price?  How can the institution develop a stronger financial base to support long-term operational needs and other strategic goals? 11UK-IR June 25, 2008

Understanding Quality Perceptions and Willingness to Pay  What are the educational priorities of prospective students and their parents? Which priorities drive up their willingness to pay for a college education?  How do prospective students and their parents perceive the institution, including its overall reputation for quality and value and its relative strengths on specific features of a college?  Which features of the institution increase their perceptions of the its value? Is it associated with cost, academics, prestige or reputation, and/or educational and professional outcomes?  Are there differences in the ways target audiences, such as high-ability students, weigh their priorities and view the institution?  How do the positive attributes and promises of the institution map to key drivers of application (and enrollment)? 12UK-IR June 25, 2008

Understanding Competitive Position  Who are the institutions’ top competitors at the inquiry and enrollment stages?  What characteristics set the institution apart from other institutions? How can it capitalize on its advantages and position itself against different categories of competitors?  Specifically, where does the institution rank on overall academic quality and value on a list of leading competitors?  How do issues related to cost and financial aid affect the institution’s position in the marketplace? 13UK-IR June 25, 2008

Value UK-IR June 25,

Competitive Position Analysis 15UK-IR June 25, 2008

Segmentation Analysis 16UK-IR June 25, 2008

Competitive Position Analysis 1.Other school1 2.Other school2 3.SAMPLE COLLEGE 4.Other school4 5.Other school5 6.Other school6 7.Other school7 8.Other school8 9.Other school9 10.Other school10 11.Other school11 12.Other school12 Academic Quality Scale: 1 = Very low quality to 5 = Very high quality Value Scale: 1 = Very poor value to 5 = Very good value Scatterplot Analysis: Value by Academic Quality 17UK-IR June 25, 2008

Primary Drivers of Application and Perceptions of Value Value of Education Outcome Measure Variance Accounted for (R 2 ) = Scale: 1 = Very Low Quality to 5 = Very High Quality Predictive Model of Perceived Value of a Sample College Education 1 = Very Low Quality 5 = Very High Quality Quality of faculty and their teaching ß =.322 Preparation for graduate/professional school ß =.234 Career planning and placement services ß =.168 Total cost of attendance (tuition, room, board and fees) ß =.152 Availability of need-based financial aid ß = UK-IR June 25, 2008

Testing Price Sensitivity  Testing different price points among random sets of students and parents Enrollment Likelihood by Applicant Group Price Point Likely to Apply Not Likely to Apply $15,000 (0 – 4% Increase*) $16,000 (5 – 10% Increase*) $17,000 (11 – 17% Increase*) Q: Assuming that your child applies to the College and is accepted, please rate the likelihood that he/she will enroll at the first-year cost (tuition, fees, room and board minus scholarship and grant awards) of [$15,000/$16,000/$17,000; price determined by random assignment]. Yellow shaded cells significantly higher than green shaded cells in the same row (p <.05). 19UK-IR June 25, 2008

Testing Price Sensitivity  Exposing students and parents to a series of costs of attendance to assess tipping points PRICING SCENARIOS We’d like you to imagine a situation that relates to college costs. We ask this so we can learn more about how financial aid affects student decisions. We remind you that your answers will have no effect on your own financial aid award. Please consider the grant/scholarship award (not total award) offered to you by Sample College. How do you think your enrollment decision would have been affected if that award had been increased by $1,000? Still would have enrolled at the other school Might have enrolled at Sample College Very likely would have enrolled at Sample College Please consider the grant/scholarship award (not total award) offered to you by Sample College. How do you think your enrollment decision would have been affected if that award had been increased by $3,000….$6,000….$10,000? 20UK-IR June 25, 2008

Testing Price Sensitivity  Soliciting the prices at which the costs of attendance are "too expensive," "expensive," "inexpensive" and "too inexpensive" Price Expectations Q: What is your best estimate of the amount of money you would expect to pay (regardless of how you finance it) for one year at Sample College? This price should include what you expect to pay in tuition, fees, and room and board minus any scholarship or grant awards your son or daughter may receive. Sample College First-Choice School* Expected Price for One Year at the School Price at Which the School is Unaffordable Price at Which the School is Expensive Price at Which the School is Inexpensive Price at Which You Would Question the School’s Quality 21

Testing Price Sensitivity  Gauging preferences for a series of tradeoff options, which include different pricing scenarios $30, $20,000 $35,000 $15,000 $10,000 LessSelective HighlySelective ModeratelySelective Preferences Within Dimensions Importance of Dimensions  56% Selectivity  31% Scholarship  13% TR&B 22UK-IR June 25, 2008

Testing Price Sensitivity Agreement with Statements 23

1.Cost of attendance 2.Availability of need-based financial aid 3.Sites convenient to home 4.Flexibility of program 5.Career advancement opportunities 6.Academic reputation 7.Quality of academic facilities 8.Quality of program 9.Close contact with faculty 10.Diversity of students 11.Liberal arts and sciences foundation 12.Small classes 13.Advising program 14.Quality of faculty 15.Value of education (combination of quality and cost) 16.Safety and security of sites 17.Quality of library facilities 18.Religious affiliation 19.Sites convenient to workplace 20.Opportunities to conduct research 21.Conveniently scheduled courses 22.Curriculum characterized by facilitated discussions 23.Faculty who are practicing professionals 24.Availability of on-line courses 25.Use of state-of-the-art technology in the classroom 26.Availability of on-line library resources 27.Availability of parking 28.Availability of accelerated courses 29.Ability to obtain professional certification following graduation 30.Ethical perspective included in curriculum Strengths & Areas for Improvement Scatterplot Analysis: Quality of Sample College by Importance 24

25 $0$10,000$20,000$30,000$40,000 Institutional Grant Amount 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Probability of Enrollment as a Function of Average Institutional Grant Assuming a $ 35,000 COA UK-IR June 25, 2008

26 Net Revenue as a Function of Institutional Grants $0 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 $45,000,000 $50,000,000 $55,000,000 Net Revenue $0$7,000$14,000$21,000$28,000$35,000$42,000 Institutional Grant Amount Maximum probabilistic contribution to net total revenue. Assuming a $ 35,000 COA No Grant Aid All Revenue All Grant Aid No Revenue UK-IR June 25, 2008

27 Application Status Quality measure/ Exam Score GPA Score Early Decision Application Gender Cost of Attendance Financial Aid Applicant Financial Need Institutional Aid per Student Academic Institutional Rating Home StateEthnicity Legacy Status Commuter/ Resident Status Academic Interest Other Typical Data Requests Collect and Analyze Data UK-IR June 25, 2008

Thank You! More information and paper: 28UK-IR June 25, 2008