As the higher education industry looks for new models to provide a college education at an affordable price — and to move away from annual tuition increases as the main mechanism to keep net revenues higher — I keep going back to the dynamic and consumer-centered pricing model championed by Priceline. I see similarities for college courses for non-traditional students with the dynamic pricing models we see with airlines, hotels, professional sports and others.
Dynamic pricing is generally defined as price variability based on changing circumstances, such as increases in demand at certain times, type of customer being targeted or changing market conditions.
The dynamic tuition pricing (DTP) model will almost certainly result in a variety of protestations from stakeholders across the industry; both logical and emotional. However, discussion around DTP needs to enter into debates around innovation in our industry.
Here are five questions briefly asked and answered about DTP. This proposed model applies only to non-traditional, adult college students, as there are market considerations for the traditional college student that space doesn’t allow for here.
1. Do college courses for adults have similar DTP attributes to airlines, hotels and rental cars?
Absolutely. Dynamic pricing for airline seats is based on departure and arrival times, connections and time of day chosen for travel. Hotel variables include room type, day-of-week, quality, and location.
College courses designed for adult students have similar attributes, such as day-of-week, start times, duration, topic and instructor.
2. How would non-traditional students react to tuition pricing variation?
It’s tough to tell. My guess is the market leaders (early adopters) with DTP will face considerable challenges to properly communicate the validity of different tuition prices for seats in the same class. A properly researched and designed DTP program will have tuition price winners and losers. However, the same can be said for airlines, hotels and a variety of other consumer goods and services. Consumers of these products and services understand that the seat or room next to them may have a different price than the one they paid.
It’s important to note there is currently some variation in tuition pricing in the form of tuition pricing discounts for adult college students. We can argue that colleges and universities already engage in a modest form of DTP. For example, higher academic scores get offers of increased scholarships and, by extension, lower tuition prices than those with lower academic scores.
3. How will faculty react?
It’s safe to assume the predisposed complainers will list their 97 objections on Old Main’s stone wall somewhere. However, the same may be said for the first time dynamic pricing existed for the other industries. It’s reasonable to assume that in the early days of dynamic pricing for airline seats, there were many seat-to-seat conversations that went something like, “You paid what for that seat?”
4. What benefits could there be for students?
If perceived value drives consumption, we could assume that variables such as day-of-the-week, location, professor and course topic would create an opportunity for students to balance preferences with price.
Today’s tuition pricing takes none of those variables into account.
5. Would dynamic tuition pricing help increase the degree completion rate?
If we can determine that tuition pricing incentives drive incremental enrollment, dynamic tuition pricing is a potential contributor to increasing degree completion rates.
Colleges and universities will use this type of innovation if there is a strategy attached that will allow them to see increased net tuition revenue.
A Case Study: Applying the DTP Model
Let’s briefly look at a common graduate business degree to see how DTP might work in the adult market. First, most non-traditional class formats are one night per week. So, look at the enrollment for each night of the week. If enrollment is consistently higher on Wednesdays, a statistical argument could be made that students place higher value on that night of the week.
What about filling historically low enrollment courses? Say there is a Thursday night class where the average enrollment is 60 percent below the norm. Want to fill that class? Lower the tuition for the first set of students that get the enrollment to the expected average. Change the tuition after that target is met.
There are almost certainly some very skilled instructors that students prefer — just like there are preferred airlines and hotels. Can tuition be higher for the first set of seats in that class for those students who just ‘have to have’ a highly-regarded professor? Conversely, should colleges and universities charge the same tuition rate for marginally-received or underperforming instructors as they do for talented instructors?
Conclusion
The purpose of this article was to look at an accepted practice in other industries to see how those practices might transfer to the non-traditional market of the higher education industry. Dynamic tuition pricing – like its equivalents in the travel and entertainment industries – provides a comparative model worthy of discussion and analysis.
It’s a reasonable assumption that there will be (or already exist) colleges and universities that are early experimenters and adopters of the dynamic tuition pricing model. It’s equally reasonable to project those early adopters will develop business opportunities to grow enrollment ahead of their competitors.
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