It's not like 15 years ago, when most colleges and universities set price based on what was necessary to balance the budget (and, for public institutions, what would be politically acceptable). Now, more higher education institutions understand that market forces factor into the price-setting deliberations. To appropriately factor in market considerations, however, there are eight key points to mull over:
1. Include the Right People in the Discussion
Budget committees often lack members that can bring an external perspective to pricing questions. Including representation from enrollment-related offices of admissions and financial aid, or at least gathering their input early in the process, is critical.
2. Select the Right Comparison Group
When benchmarking with other institutions on things like faculty salaries and endowments per student, institutions often use a set of peer or aspiration institutions, with little consideration given to whether these institutions are actually its competitors.
The most relevant price comparisons, however, are with the institutions that most frequently appear in the choice sets of students who are part of your applicant pool. To identify this group, many institutions conduct research with admits to understand where non-matriculants are going and where matriculants would have gone as their number one choice.
Another option for establishing your competitor set is to look at SAT/ACT score overlap reports that show where else students send their scores when they send them to your institution. Finally, for schools that participate in the National Student Clearinghouse, using the EnrollmentSearch option can provide information on where non-matriculants (as well as those who attended and subsequently transferred) are attending school now.
3. Look At More than Just Sticker Price
We have found a strong correlation between sticker price and prestige across the country, as measured by such factors as mid-50 percent SAT/ACT scores, selectivity, and rank in U.S. News & World Report. Institutions that are at the top of their competitor set in terms of sticker price, but toward the bottom in terms of prestige measures, typically face significant challenges in meeting their enrollment goals. Therefore, when benchmarking with competitors, it's vital to compare prestige as well as sticker price.
In addition, data should be collected to understand the net price being charged by your competitors, not just the sticker price, because sticker price discounts can vary widely from institution to institution.
If you have trouble yielding
full-pay admits, you may already
be priced above your perceived
value in the marketplace.
For example, in conducting this analysis for a recent client, Scannell & Kurz found that the institution went from the lowest priced in its competitor set based on sticker price to the highest priced based on net price. To estimate net price, you can calculate any institution's freshman discount rate from the financial aid data it provides to IPEDS, which is publicly available (albeit a bit outdated) on the National Center for Education Statistics website (go to: www.nces.ed.gov/ipeds/cool/index.asp).
To calculate the discount rate, go to the financial aid page of a selected institution. Once there, find the percent of the freshman class receiving institutional aid and the average institutional aid provided. These figures can be used to calculate an average award across the whole freshman class [(percentage * average award) / 100]. This figure divided by the tuition charge from the same year (found on the detail page) is the freshman discount rate.
(This approach is only as reliable as the data provided to IPEDS, and, as a result, sometimes produces questionable results.)
4. Pay Attention to the Behavior of Your Applicant Pool
If you are having trouble yielding full-pay admits, this may be an indication that you are already priced above your perceived value in the marketplace. Therefore, it is critical that attention be paid to student matriculation rates, based on whether or not they apply for aid, their level of need and discount rate, their quality profile, and so on. This will help clarify how a significant price increase may impact the achievement of your institution's enrollment goals.
