The Importance of Primary Research, Part 2: Stay Focused on Your Customer, Not Your Competitors

Co-written by Dr. Rob Van Cleef, Market Strategy Analyst for RNL.

Have you ever felt like Fezzik, Andre the Giant’s Character in The Princess Bride, when they were climbing up the Cliffs of Insanity?

Vizzini: “Faster”

Fezzik: “I thought I was going faster…”

Vizzini: “You were supposed to be this colossus, you were this great legendary thing. And yet, he gains!”

Fezzik: “Well, I’m carrying 3 people, and he’s got only himself.”

Vizzini: “I do not accept excuses! I’m just going to have to find myself a new giant, that’s all!”

The assumption that the head of enrollment isn’t doing good work, if the incoming class is flat or down, is often a false narrative. The reality is that two of the main levers impacting enrollment are really outside of most enrollment leaders’ direct influence: price and product (half of the Four P’s of Marketing)!

Having said that, your price (or perceptions of your price) greatly impact your ability to succeed!Unfortunately, it’s a demonstrable trend that many “pricing resets” have ended up resulting in less net tuition revenue per student without the needed rise in volume that would fill in the net revenue gap.Said more simply (and for fun, read this in Vizzini’s voice):

• You are on a demand curve.
• The goal should be to maximize revenue on that demand curve (while taking into consideration your mission).
• Making decisions with regard to pricing, without the consideration of market demand, could be fatal!

In my last blog I discussed the importance of primary research in program development (product), and I received some fantastic feedback! However, without strong, primary research on pricing, we may be climbing the “Cliffs of Insanity”, focused on our competitors rather than our place in the market!

Many of you know my colleague, Dr. Rob Van Cleef, whose dissertation research is the largest quantitative analysis of success drivers for tuition resets. I have asked him to discuss the role of primary research to inform pricing decisions!

Rob, take it away!

As Eric mentioned above, pricing is one of the most powerful levers to stimulate the financial performance of your institution. Getting it right can be an existential decision for many colleges and universities.

How do you decide on your annual price increases?

A common approach to setting prices involves competitive benchmarking for campuses. Perhaps you collect data around a small number of measures (e.g. tuition & fees, rate of increase, discount rate). More sophisticated colleges create detailed data sets on who their competitors are, what their tuition is, and what the rate of increase has been for each competitor. After looking at what competitors are doing, the institution then sets an increase somewhere close to the middle of what they believe competitors are doing, not wanting to raise prices too much or too little. Years will go by with no primary market research about price sensitivity in their market.

The important benefits of competitive benchmarking for campuses

• Benchmarking provides a quick glimpse into broader market trends. Looking at benchmarks helps decision makers quickly grasp what is happening more broadly in a market.
• Benchmarking creates awareness about how you are different (for better or worse). When comparing your institution to others, you have an opportunity to see if your institution’s values are higher or lower than your competitors.Just being aware of these differences can lead to generative conversations. What is the cause of the difference? Do we see that as an advantage or a problem? The “why” is more important than “what.”
• Benchmarking frequently relies on secondary data sources which are regularly collected, even in times of upheaval. Institutions were struggling before the pandemic, and with COVID-19, many institutions are scrambling to find their footing.Such consistency of measurement can provide an anchor point for decision making amidst an upheaval.

However, for all its benefits, competitive benchmarking alone can also lead to sub-optimal pricing decisions.

• Benchmarking heightens focus on the actions of peers and competitors, not market response.Many institutions set their prices by a certain percent each year after hearing competitors are raising their prices by a certain percent. But this line of thinking usually does not include an evaluation of whether competitor actions resulted in positive outcomes.
• Benchmarking focuses on metrics over context. Too often, competitive benchmarking does not consider the health of other institutions to which they are comparing themselves as well as differences in the population each institution serves. While you need to be aware of what your competitors are doing, stop to ask if those competitors are thriving? Perhaps they are raising prices at a higher rate now trying to make up for lost students because they over-priced themselves in the past.
• Benchmarking does not focus on identifying unmet opportunities to serve your students. This is the most critical flaw of working from competitive benchmark data alone:
  
  Even if our competitors are raising prices by X%, this does not mean the market my institution serves will accept this price increase for my institution given what they know about my current offerings and current market conditions.

Competitive benchmarking will not factor your institution’s reputation, or allow the opportunity to segment students into different groups by which price sensitivity can be assessed.

Primary market research data overcomes many of the deficiencies of competitive benchmarking

Primary market data allows an institution to see if the population served will accept an increase from your institution or defect to a competitor institution, or even may require some form of reduction to remain engaged. Primary data also allow an institution to identify opportunities to better communicate what your institution offers or develop new offerings. Primary research asks your prospective students how they evaluate your brand and your offer at prices you would like to explore, and observe how sub-populations of your students vary in their response.

Just as Eric emphasized from the previous article of this series, primary source market data is necessary to contextualize findings from freely available secondary data sources. A well-designed price sensitivity analysis uses benchmarking information as a foundation but also adds value—engineering components to help your institution improve its value proposition, a mix of offerings,identify different segments of price-sensitive students, and illustrate how price, financial aid, and capacity constraints can impact overall net revenue. In chaotic times like we have now, obtaining primary market research data is more critical than ever.

Let’s talk about how you can achieve your enrollment and net revenue goals

We can help you address key issues raised in this blog, including:

• Competition analyses to see if your competitor set has changed.
• Price sensitivity research
• Strategic financial aid management
• Student marketing and recruitment

Reach out today to set up a time for us to talk.