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Professional Opinion

HE v3.0: The retailing of higher education

University Business, October 2014

There exist an endless number of articles, books, blogs, and interviews on the state of higher education (HE) in America. The themes are consistent – fewer resources, fewer students, bloated administrative staff, less affordability, unsustainable student debt, poor graduation rates, unimpressive employability skills and what the heck is a MOOC and why should I care. And there exist an endless number of individuals, organizations and entities doing their part to address these and other challenges including President Obama’s push for HE to graduate more Science, Technology, Engineering and Math or STEM students, increase affordability and improve accountability.

So, given there is already a ready and willing audience for this type of conversation, why not explore a slightly different angle? Why not combine some history with technical terminology along with a new view on the management challenges facing the American HE system? Thus: HE v3.0, The Retailing of Higher Education. The premise is that our beloved HE system is in its third iteration (more on that) and this third version, though still in its infancy of development, will borrow many qualities from the retail industry. The leadership at HE institutions – boards, senior administrative and academic leadership – must not only be cognizant of these qualities but rigorously develop the talent and processes to manage this evolution or not be competitive in v3.0 and beyond.

HE v1.0 – The Rise and Continued Dominance of the Traditional University

“The early American colleges devoted themselves almost entirely to the teaching and study of theology, Greek and Latin languages, classical literature and philosophy.”—Richard Ruch, Higher Ed, Inc. The Rise of the For-Profit University

There is some debate on the “oldest university.” The word university, derived from the Latin universitas magistrorum et scholarium, roughly meaning a “community of teachers and scholars,” was first used by the Italian University of Bologna, when it was founded in 1088; thus, it is considered the first “modern” university. However, history does show a number of “institutions of higher learning” that were formed a millennium before 1088 in the ancient civilizations of Greece, Persia, Rome, China and Africa, to name a few. The differentiation mainly resides in the form and function of the medieval European model from which the current “modern” university model has evolved.

There is no debate that whether it was 1088 AD or 1088 BC, the fundamental model of teaching and learning was developed whereby a community of scholars sought to impart their knowledge to a set of young, eager, maturing minds known as students (Isn’t it interesting that the word “student” is derived from Latin studium, “study, application,” but originally meant “eagerness,” which itself was derived from studere, “to be diligent; to push, stick, knock, beat”). The model was based on the student’s ability to discern the teachings of the scholars and through certain trials (known as tests) these students would demonstrate they had gained sufficient absorption of these teachings to “apply” this knowledge to a field of study.

The advent of the land grant colleges via the Morrill Acts of 1862 and 1890 in the United States ushered in a focus on agriculture, military science and engineering while maintaining the study of the classics. Regardless of academic focus, the calendar for study revolved around crop harvests and Christian holidays. Over time, a structure evolved that organized disciplines and related fields of study into what are now called schools and/or colleges (within a university).

A further iteration of v1.0 (call it v1.5) institutions was the advent of state-supported schools – making the attainment of postsecondary education an integral component of a state’s economic development strategy – led to a focus on job/career training along with federally-funded research. This focus was furthered by the development of community colleges, which were even more focused on local workforce development. This part of the evolution views HE as a social good that should be made available to as much of the population as is possible.

HE v1.0 for the most part is still the dominant model today. Its fundamental basis derived during the millennium before the birth of Christ, leveraging a calendar based on an economic sector which now represents less than 5 percent of the US economy and though many of the innovations that have dramatically changed our world have been developed at these v1.0 institutions, the basic teaching/learning paradigm used by them is not that much different than when Plato and Socrates and their community of scholars taught their students in ancient Greece.

HE v2.0 – Advent and Challenges of the For-Profit Institutions

When John Sperling started the University of Phoenix in 1976, there was nothing new about profit in higher education.” Richard Ruch, Higher Ed, Inc. The Rise of the For-Profit University

One of our Founding Fathers, Benjamin Franklin, realized there was a need for skills beyond the classical learning paradigm of the traditional colleges of Colonial America. Franklin lamented that many of his contemporaries had an “unaccountable prejudice in favor of ancient customs and habitudes.” Eons before Franklin’s lament, the advent of the next iteration of higher education began by helping to meet the employability needs of the fifth century B.C. Greek economy via traveling teachers for hire known as sophists. Competition among sophists and proprietary schools was brisk and produced two beneficial outcomes for the consumers of education: affordability and quality. (Sound familiar?)

Ironically, as if a harbinger of current times, these early v2.0 schools were for those whose learning needs the traditional colleges (v1.0) could not meet and/or for the students who could not get admitted to the v1.0 institutions. The rise of the University of Phoenix in 1976 proved there was a large market demand (and sustainable economic model) to meet the learning and career development needs of “non-traditional” students as well as those the HE v1.0 institutions did not wish to and/or could not adequately serve. Though not without significant challenge and controversy, these HE v2.0 institutions grew from 0.2 percent of all students seeking degrees in the 1970s to over 12 percent by 2012. Many of these institutions offered many advances not offered by most HE v1.0 institutions including online, multiple locations leading to anytime, anyplace learning with introduction of some pace-based learning paradigms focused on specific career skills/development and traditional degree attainment.

HE v3.0 – The Rise of the Retail Influence on HE

Five years ago, Southern New Hampshire University was a 2,000-student private school struggling against declining enrollment, poor name recognition, and teetering finances. Today, it’s the Amazon.com of higher education. The school’s burgeoning online division has 180 different programs with an enrollment of 34,000. Students are referred to as “customers.” It undercuts competitors on tuition. And it deploys data analytics for everything from anticipating future demand to figuring out which students are most likely to stumble. “We are super-focused on customer service, which is a phrase that most universities can’t even use,” says Paul LeBlanc, SNHU’s president. Gabriel Kahn, Slate.com

Elements of the retail model have always been a part of the HE v1.0 and HE v2.0 institutions (especially v2.0 ones) – marketing, cost and revenue management, price-to-value creation, etc. What is being presented here is the need to make these and other retail paradigms (see below) more transparent and central to the academic and administrative management of a successful HE v3.0 institution.

Why is this evolution occurring? Simple and the answers are well known:

  • Students and technology. Students take in information from a variety of sources, and education is another information source. HE v1.0 and v2.0 institutions have a model whereby it is assumed that they are the sole source for ALL information that the student needs. The students, in all other areas of their life, can “pick and choose” to create the type information, the sources and economic model that suit their needs.
  • These student choices are enabled by technology, of course, but technology provides more than creating a set of choices for information access. It also creates alternative means to distribute that information freeing the traditional singular time, place and pace modality (of v1.0 institutions in particular) with anytime, anyplace, and any pace.
  • The students are customers – thus the goal as higher education leaders should be to align our brand and the experience associated with that brand in meeting the needs of the segment of the customers (students) that can best be served (i.e., meet their career and skill attainment goals) with a sustainable economic flywheel.

Let’s be clear, this argument is not meant to condone or embrace any model that subverts the fundamental tenant of being an educator – that same tenant that has existed from whatever was the first institution of higher learning – to provide an environment whereby a community of scholars can embrace, develop and grow the next generation of scholars, workers, entrepreneurs, civic leaders, business leaders, mothers and fathers. This notion of students as customers is a well-debated concept but is universally not an accepted idea in higher education. The reality is both sides of this argument are correct – “students” are customers, consumers, and students all at the same time; and it changes depending on where they are in the process of being recruited, admitted, enrolled, being taught, supported, and finally to graduating and giving. The focus should be less on a term or word and more on how best to serve these students, thus the intention of the remainder of this article.

What has been lost by many HE v1.0 institutions is the lack of flexibility in how it delivers the learning paradigm, not using technology as a means of creating the total student experience and not using retail elements as part of its core academic and operating paradigm. HE v2.0 institutions were founded on market demand and have embraced some retail paradigms, but too many have lost sight of the group they are serving – shareholders vs. the students. There are examples like Grand Canyon University and Southern New Hampshire University that have made customer service and a retail paradigm core to their DNA and are HE v3.0 early adopters.

So what are some of these retail elements that will be the cornerstone of HE v3.0 institutions? This isn’t meant to be an all-inconclusive set of elements, but represent some of the building blocks upon which HE v3.0 institutions should have as cornerstones:

Customer service orientation

  • The experience that a student has with an institution becomes even more relevant – front line employees must become more like retail front line employees – as they must represent the brand and make every experience a positive one
  • That experience can be translated into higher value as students will migrate to institutions that cater to them and understand their “lifetime value” – from pre-admit to alumni – and once they see that value being delivered they will be willing to pay a premium for that level of service (see Nordstrom’s)

Customer segmentation

  • The idea of a “student” will extend beyond the traditional undergraduate 17-21 year olds, thus HE must develop “storefronts” and “merchandise” that cater to a broader range of learning paces, timing and career needs
  • Like a good retailer, HE must be able to deliver personalized degrees delivered with the economics of mass production (mass customization)
  • Utilizing a more comprehensive marketing strategy and plan that leverages more interactive means, provides true analytics/metrics of reach and impact leveraging the latest in data mining (see Google and AMEX)

Brand management

  • Institutions will need to develop clarity of their brands and the “experience” associated with that brand \
  • Like a brand manager at P&G, university leaders will need to manage multiple “sub-brands” – professors, colleges, academic departments, athletic teams, bands, research, etc. – and they must align all these sub-brands with the overall brand of the institution.
  • This portfolio brand management model becomes a greater challenge for a system with campuses with various missions. But again, a retail analogy exists – Hilton Hotels has various “sub-brands” that exist across various service levels and price points that are still able to maintain a connectivity to the larger Hilton brand
  • Using the Hilton analogy, HE institutions must align and balance product offerings (see below) and service delivery to value and customer segmentation – the essence of the brand is defined at this intersection

SKU management/Value pricing

  • The fundamental product (SKU or stock keeping unit) of every HE institution is the courses. Up until now it was not critical to know the fundamental economics of a course/department. Going forward, the economic future of an institution will be dependent on its ability to fundamentally understand these economics, manage the stock (course availability), and develop pricing based on competitive realities and delivery modalities (online, hybrid, offline)
  • This will also require institutions to become less of “all things to all people” and focus on courses/subjects where they can be competitive and provide clarity for the customer segments they target (and create a distinctive value proposition for that segment) and create models that allow for students to “pick and choose” their learning style and source of courses (see Amazon).

· Multiple site management o When Central Michigan can have a campus in Washington, DC, and Tulane University has a campus in Madison, Mississippi, and Stanford can compete to build a research island in New York City – the idea of having a single physical campus where students come to a specific site will be irrelevant. Schools will need campuses where the customers are located in addition to the traditional v1.0 models.

What does this all mean?

The hope is that this article leads to a discussion amongst HE colleagues on this evolution, especially as conversations center on strategy development and leadership selection/development. Part of the reason HE faces the issues described at the beginning of this article is partially due to a vibrant and engaging discussion on how the industry is evolving and what fundamental changes must occur. Evolution is a natural occurrence in all aspects of humanity and commerce. HE is not exempt from this evolution; the only question is whether we see the new generation of community of scholars in a way that truly creates an optimal learning and growth environment for students or if we remain a HE v1.0 institution stuck in a v3.0 and beyond world.

—Troy Stovall is a Principal at consultancy Butler Snow Advisory Services where he serves a number of universities and colleges. He was previously Sr VP and CFO at Jackson State University and Executive VP and COO at Howard University.

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