Couponing Theory and Low-Cost Pathways: Service Providers Widening Access

The market for online college courses is being upended by the influx of new providers and plummeting prices. Here’s why: first, anyone — college, company or individual — can offer a course online. You no longer need to be a college to offer a college-level course. Second, online courses are much cheaper to deliver than face-to-face courses. Not only do online courses not require the expensive facilities of face-to-face courses, but the elements that were previously expensive — learning management system software and course content — are radically cheaper and trending toward free. Third, despite delivery costs being less, more than 90 percent of colleges charge the same or more for online courses as they do for face-to-face courses. Fourth, students are transferring credits — “swirling” in higher education vernacular — in record numbers.

More than a third of students transfer before getting a degree, and this doesn’t include credits imported from other sources such as dual enrollment programs, other colleges, ACE Credit-recommended providers and more. When combined, the resulting picture is of an online college course market that has been extremely profitable for colleges (non-profit and for-profit alike) but whose margins are under pressure from a surge of new accredited and unaccredited providers. Existing online providers, which include more than two-thirds of all colleges, are confronted with a difficult choice: how to adapt to a rapidly changing market without undermining their own programs?

To better understand the dilemma, it helps to look at other markets with similar characteristics. These characteristics are: many providers, many consumers, low switching costs for consumers and a relatively standard product offering. In commoditized markets like these, couponing is one of the arrows in the marketer’s quiver. For example, if I sell Cheerios, I’m competing with other cereals and cheaper generic brands. If it costs $1 to produce the cereal and the suggested retail price is $5, then I make a $4 profit. However, I would profit from any price greater than $1. I don’t want to lose customers who would pay $3, but not $5. To maximize buyers, I create different purchasing pathways for different customer segments. Buyers who cruise the shopping aisles without any forethought end up paying $5. However, those willing to go through the trouble to clip a $2 coupon from the Sunday paper get Cheerios for $3. Cheerios now attracts buyers in both segments.

What does this have to do with online higher education? This “couponing” dynamic is the same theory that applies to the partnerships struck between colleges and emerging alternatives such as ACE Credit-recommended providers (such as StraighterLine), Prior Learning Assessment (PLA) evaluators and Massive Open Online Courses (MOOCs). Whether by awarding credit for experience or taking general education courses in advance, the new providers promise a much lower overall price for a degree. Though many students will take advantage of these pathways, many others won’t. After all, because these providers aren’t accredited, students must endure inconveniences in exchange for lower prices, like paying out-of-pocket, lack of financial aid and assuring credit transferability. For colleges that partner with service providers such as StraighterLine and LearningCounts, they now have a marketing channel to both full-price and “coupon”-using students.

Most of the MOOC and MOOC-like models in higher education are reflections of this trend. Which models a college pursues is a reflection of its position in the higher education market. For instance, MOOCs are offered by elite, branded colleges. With substantial wait lists, these colleges have no motivation to create a “coupon” by offering credit for their free courses. However, these colleges are interested in extending their brand to generate more applicants, which creates a larger pool from which to enroll better students. On the other hand, non-elite colleges – which make up the majority of colleges – are interested in attracting more students. Those that aspire to elite status may use a “touch-of-credit” tactic where they offer a limited selection of free courses with enough credit to attract students, but not enough to create a substantial discount. Lastly, colleges that offer significant online programs, serve adults and accept a significant number of transfer students work much more closely with new providers such as StraighterLine and LearningCounts to create low-cost pathways into degree programs. This is becoming a requirement in a fiercely competitive marketplace, particularly for attracting online students.

For many colleges, their default position has been to ignore credit pathways for new providers as much as possible. After all, accredited colleges have significant competitive advantages over new providers. Accredited colleges and their students are recipients of significant taxpayer subsidies, employers understand the degree as a credential, colleges have the discretion to accept or reject credits from any other provider and students use “accreditation” as a signifier of legitimacy when making enrollment decisions. However, to use the language of the market, past returns are no guarantee of future performance. As college prices continue to rise, students are migrating to new providers to reduce the overall price of college. Further, the success of MOOCs undermines the power of accreditation as the only signal of quality. Lastly, those colleges willing to conveniently award credit from alternative providers become more attractive than their competitors for adult and online students — the most profitable students for colleges. The bevy of choices for students is forcing colleges interested in serving online learners to more easily award credit for lower-cost pathways.

Colleges willing to confront this market dynamic head-on will be better able to attract online students and adjust their offerings and educational structures to ensure continued relevance for them. Those that don’t will gradually stop attracting online students.