Turning university prestige into something students value

Matthew Hartley ponders how prestigious (and pricey) colleges can justify their course costs

May 13, 2016
Choosing a smart phone

At a recent board meeting at a highly selective, wealthy private university, the conversation about medium-term strategy turned to “sticker price”, the published tuition price for one of its degree programmes. 

The term comes from car retailers, where the price posted in the car window is really only the opening gambit by the seller. Buyers are expected to haggle: “I saw a similar car at another dealer for far less.” “There is new model coming out next month.” The seller counters, conceding as little as possible, adding confusion by mentioning optional extras such as wheel trims, and offering to finance the purchase. 

This bargaining process also happens at many private US colleges and universities. They offer grants to entice students. Sometimes this is to attract a very talented student: an outstanding athlete, perhaps, or a bass bassoon player. Sometimes it’s because the institution would rather bring them in for less than lose them to the competition.

It seems that this discounting” has become more common lately because the high school graduating class has been decreasing in number, making it harder for some less prestigious schools to fill their incoming class. 

So some financially savvy students shop for the best deal. And as private institutions set their own prices, there is a lot of variation. Prestigious institutions with high name recognition and deep application pools tend to have a higher sticker price. Wealthier institutions that tend to have higher prices use some of their wealth to decrease the real cost of attending by offering scholarships and financial aid to some.

At this institution, the sticker price for the teacher education programme was at least four times more than that at some regional competitors. A board member asked: “With all the other competitors in this region, why should a student come here?”

Good question.

It reminded me of the economist Michael Porter’s observation that firms can compete in only two ways: price and differentiation. Clearly, in this case, there was no price advantage, which left differentiation.

From one perspective, it was like comparing Rolex and Timex watches. The elite programme is staffed by top researchers, its facilities are better built and maintained and beautiful, particularly in spring. It enrols bright students who, in turn, attract others. But the real difference is prestige.

The institution is known nationally and its reputation is reflected in the university rankings. Its local competitors are known regionally, and many scramble for students. Yet all the programmes produce graduates with the same basic qualification – a master’s degree in education; in much the same way that the $10,000 Rolex and the $20 Timex both tell time.

The challenge for this institution’s board is assuring the future viability of this kind of value proposition. What kind of innovation will maintain its comparative advantage?

Read more: World's most prestigious universities 2016

I remember shopping with my daughter for her first cell phone 11 years ago. We looked at flip phones. Most were basic and battleship grey. A few had slide-down keyboards. She chose one that cost a little more but folded up remarkably small and stored music on MP3 files (a feature neither of us ever figured out).

Several years later, she traded up to an iPhone. The iPhone, like the flip phone, makes calls and texts. It does a lot more, too. There was no problem figuring out how to store music. Its design was seamless and intuitive. The App Store offered a wide range of options that either delighted, were useful, or both.

The iPhone also cost a lot more – both outright and in the monthly data plan. But the ability to carry a GPS, take high-quality pictures and movies, organise your life with the calendar, notes, and emails on the go were a game changer.

High-cost and high-prestige institutions will need these kinds of value-added services to compete in the future marketplace.

Innovations could include offering a degree programme where learning opportunities never end – by networking successive cohorts of graduates, building them into a community that shares information on an ongoing basis. It could form a virtuous circle, where researchers at the university draw data from the experiences of alumni and then push out key research findings, or design professional development activities to ensure that its graduates are always at the forefront of their chosen field.

This value-added learning model might legitimise the price, and give substance and meaning to the institution’s prestige.

Matthew Hartley is executive director, Alliance for Higher Education and Democracy, at the University of Pennsylvania. He has no shares in Apple, but is iPhone dependent.

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