Higher Education as a Retail Business

Several years ago, I was delivering an all-staff workshop for a large university and I was asked what I thought higher education would look like in the future. My answer was that what we think of as the “higher education industry,” would be smaller with many fewer institutions and that those that survived would look a lot more like retail businesses. Prognosticating about anything is always a little risky, but in this case, I seem to have been right about both predictions (I wish that happened all the time!). Enrollments have been declining now for eight straight years and over 1,200 institutions have closed outright in the last ten years. You can see why here. In fact, there are about 3,000,000 fewer students enrolled in U.S. colleges today than there were in 2014. Since we are nowhere near the bottom of the market decline, when the dust finally settles, the overall higher education system will probably be a least a third smaller than it was in 2010.

As for my prediction about the academy adopting more of a retail model, there are multiple indications to suggest that is happening in fundamental ways. Over the last ten years or so, colleges and universities across all sectors have begun to focus on areas that were previously associated with retail practices and that, in most cases, were purposely avoided in higher education because they were seen as “undignified” in the rarified air of academe. No longer.

As competition for a shrinking pool of students has intensified at the same time that the students who are still enrolling have become very price sensitive, the vast majority of institutions of higher education (IHEs) have had to significantly rethink how they attract students when students have become shoppers and tend to see higher education as a commodity. While there is a small sliver of institutions whose exclusivity ensures that there will continue to be substantially more applicants (who can pay) than available enrollment slots, about 80% of IHEs do not have that luxury. Even institutions that used to be fairly exclusive are seeing their enrollment “yield” (the number of students who are accepted that actually show up) tumble precipitously in the last few years. In short, the structural factors that historically insulated colleges from competition in the past have been breeched and viewing students as retail customers has become central to survival across much of higher ed.

The most obvious and common retail practices visible in the academy today include approaches to:

Marketing (and sales)

Until fairly recently, colleges tended to avoid any direct marketing to students. It is now common via multiple retail marketing channels. Likewise, historically, “admissions” was a filtering process for inbound inquiries and applications. It has broadly shifted to lead generation and outbound sales.

Pricing and Incentives

For most of the last century, higher education was a highly exclusive club with fixed prices for those who could afford it. Although access began to be more democratized in the 1970s, that was facilitated by state funding that kept public tuition relatively low. State funding for colleges and universities has broadly collapsed over the last 25 years, shifting the cost to students and their families. Pricing for most consumers (students) has become inelastic at the same time fewer are willing to incur substantial debt. As a result, IHEs have begun to aggressively compete on price, resulting in the actual price paid by students in private schools being less than 50% of the advertised price!

Amenities

Another practice out of the retail playbook is to incentivize students with amenities. This has led to an “arms race” among colleges whose primary market is young, traditional students. Dormitories now typically include private baths, mini-gyms, climbing walls, baristas, free wi-fi and free streaming services, etc.

Customer Service

Although a very long time coming, many colleges and universities have accepted that students are customers with choices rather than indentured students who are lucky to be there. As a result, IHEs are purposefully addressing the customer experience as it relates both to enrollment and retention. Some have employed customer service experts.

Customer Retention

For most of the history of higher education in the U.S., a large amount of attrition was seen as an acceptable and necessary outcome of weeding out students who didn’t belong in college. Like other retail businesses, IHEs have become very focused on retaining existing customers as a business imperative (and protecting them from other institutions—see the note below on the elimination of a competition firewall).

Value Proposition

Historically, higher education did not acknowledge or promote any kind of value proposition for students because the ivory tower assumption was that the value of higher education was intrinsic and that it was a privilege to be a student. In the current high-competition, high-choice environment, as in other retail contexts, a clearly understood and articulated value proposition may be more important than mission and vision for most institutions who need to ask, “Why would a student-customer choose us?”

Direct Competition with Other Providers

For most of its history, higher education operated in a world in which demand exceeded supply and “gentleman’s agreements” generally protected colleges and universities from the messiness and indignity of retail competition. No longer. Existential crisis, which much of higher education is facing, tends to clarify the thinking and open the dialog to previously off-limits strategy and behavior.

Specifically, a previous competition firewall among traditional institutions of higher education was embedded in a “code of ethics” promulgated by the National Association for College Admission Counseling, which until 2019 prevented institutions from “poaching” other schools’ enrollments. In response to a Department of Justice investigation of potential anti-trust violations, NACAC voted in the fall of 2019 to eliminate the protections enumerated in the code of ethics that were targeted by the DOJ.

As noted in Forbes magazine, before these changes were made, member colleges were not allowed to do the following:

  • Offer incentives such as larger financial aid packages or priority housing, to applicants who applied under an early decision program.
  • Recruit a student once they had submitted a deposit to another institution.
  • Convince previous applicants or prospects to transfer to their school unless the student inquires first about transferring.

After the NACAC vote, all of these “protections” were eliminated, and many institutions have already begun to “assertively” pursue students with direct incentives who had previously committed to other institutions. In fact, many have been sending unsolicited communications to students who are already attending other schools to incent them to transfer. In short order higher education may broadly resemble the cell phone industry in its efforts to get “customers” to leave their current provider for a better deal!

What are the implications for higher education as a retail business?

First, students are shoppers who see themselves as customers regardless of what colleges think. They are highly price sensitive and they want value for their money. Outside of the small minority represented by the most exclusive colleges, institutions who fail to see students as customers with many choices, will lose those customers to competitors.

Second, due to the shift to a retail model, IHEs must build competencies and develop leadership teams that support retail practices. And potentially more importantly, they must build culture that supports a retail reality. If your school is still debating whether or not students are customers, you’re probably doomed. If your faculty don’t believe they have a central role in student recruitment and retention, you’re probably doomed. If your institution thinks that consumer marketing is “unseemly,” you’re probably doomed. And if you can’t clearly articulate a compelling value proposition, it won’t be evident to potential customers either.

In short, the old days are gone and whether you use the term “retail” or not, in order to be competitive, institutional structure, operations, and leadership must support students as customers with many choices.

At the same workshop that I mentioned at the beginning of this article, I acknowledged that students are not retail customers in exactly the same way they are in other industries. If you buy a car or a big screen TV, your only obligations as a customer are to pay for the items and use them legally. College students have many obligations beyond paying tuition. In fact, we ask them for more money than many have ever spent on anything in their lives, then ask them to work harder than many of them ever have to use the service they’ve purchased! It is clearly a complicated customer relationship, but it is a customer relationship nonetheless. And interestingly, students may have even higher expectations as education customers than they do in other retail contexts!

5 thoughts on “Higher Education as a Retail Business

  1. Dr. P
    Very good article and I fully agree and have said to you over the years, education regardless of for-profit or not has to survive on a fundamental level as a retail business. And regardless of the spin, or how some educators feel, or whether or not people hate the idea of it – it remains a retail model on many levels and essential from a pure marketing and sales reality. Many, many schools fail to stay in business because they refuse to accept that reality. They close their doors more times than not because they have fewer students, not more students, to keep operating expenses in line with reality and fiscal demands. Forbes said pretty clearly “The most common reasons large or small businesses fail include a lack of capital or funding, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives. Aug 12, 2019”. Lack of capital generally is the result of poor sales performance followed by inadequate marketing expenses that are not sales focused. My thoughts – be well Doc Dave

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    • Hi Dave. Thanks for taking the time to read the article and for your comment! Some sectors of higher ed are a little better than others at accepting the reality, but it’s about impossible to keep the doors open if you don’t understand that running a college is running a business. There may be some differences, but if you don’t generate more revenue than expense, you can’t keep operating.

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  2. Wallace,
    While this is a new era for higher education they have been in the retail business all along and did not realize it. Now it is a consumers market and a high value proposition will be the key to luring the customer and their families in the door!

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    • Thanks, Myra. It might have previously been a retail business on some levels, but it sure wasn’t run that way, at least in most traditional institutions. I made my first presentation referring to higher ed as retail back in 2005. It was a pretty novel suggestion back then!

      Wallace

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