Pricing Strategy

Pricing Strategy

by Chad Tew, Founder and Principal, Tew & Associates

Phillip Kotler, who wrote the seminal book Principles of Marketing, coined “the 4 ‘P’s’ of Marketing” to describe the four key elements of successful marketing. Promotion, which most people confuse with marketing, is only one of the Ps. The design of the “P”roduct or service and the “P”lace or location where it is offered are other key elements. The final “P” is for Price.

From a market strategy perspective, price is based on the market position of a product or service in the mind of the consumer. If an item is a commodity completely interchangeable with similar products—like regular gasoline—then whoever can offer the lowest price gets the most business. Education is at the other end of the price strategy continuum.

A product or service with highly differentiated quality or unique style has more latitude to set its price in the market vis-à-vis its competitors. Independent schools, hotels, and jewelry stores are examples of services that can use this differentiated pricing model. Although these types of enterprises have more pricing flexibility than commodities, they are still controlled by how consumers perceive value and by a nuanced market position hierarchy.

Cornell professor Bill Carroll shared a good example of brand position pricing in the hotel industry. In this example, a few select brands (think Four Seasons, Peninsula, and Ritz-Carlton) occupy the top luxury position and can charge the highest prices for hotel rooms and can “skim” the cream from the total consumer base seeking hotel rooms. The majority of hotels occupy other market positions. Here’s how Professor Carroll explains the market position pricing strategies for hotels:

Skim
This strategy clearly positions your company above the rest; it tells consumers something is special (i.e., worth paying more for) about your products.

Match
This strategy puts your pricing on par with the competition, but not necessarily for all rates. To match, set one rate comparable to your competition and another slightly higher.

Surround
This strategy positions your first room type as the cheapest in the market, but offers your rooms with better options at a price that’s close to your competitors’ first available rates.

Undercut
By undercutting your competitors’ rates in some categories, you can potentially attract more customers. Penetrate Being the low-priced option in your market has benefits and drawbacks. The strategy is primarily designed to get people in the door and in rooms.

In some cases, schools have not applied clear-eyed market position and pricing strategy to their business model. Key decision makers do not have the same dispassionate eyes as the market. Trustees, many of whom are also parents, have chosen their particular school to nurture and teach their children. In the eyes of many of these trustees, their school is like a unique snowflake.

One of the head’s main jobs is to tout the school’s quality and exceptional ability to educate children in a uniquely warm, nurturing, rigorous, character-enhancing, (fill in the blank) environment. With such a focus, nearly every school sees itself in either the “skim” or “match” strategy pricing position.

We live in an age when many localities are experiencing a decline in numbers of school-age children and competition is rising from charter schools, microschools, and internet-enabled home schooling. Schools do not have the luxury to misunderstand their market position and price their Fairfield Inn like a Four Seasons. The market will not be fooled and will demand discounts off what they perceive to be overpriced offerings. Through such a business school/market position pricing perspective, one might conclude that schools employing index tuition, sliding scale tuition, merit and no-need awards, and other tuition mechanisms that result in a high discount rate are basically just overpriced for their market position. The use of focus groups and institutional data could provide schools with a clearer view of their public perception and guide them towards effective market pricing.

Excerpted from “The Business of Enrollment: What Every Enrollment Manager Needs to Know,” by Chad Tew.

Download the report: enrollment.org/businessofenrollment



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