Dwindling Enrollment Hurting Parent of University of Phoenix

http://pacific.bizjournals.com/pacific/stories/2006/02/27/daily10.html

 

Maybe if they charged less for tuiton they would have more students?

 

Maybe if they charged more for tuition, they would improve revenue and earnings.

 

I wonder if the focus on getting younger students will eventually lead to residence halls like DeVry's Taylor Hall

 

The answer to the question in regards to whether UOP would improve its improve revenue and earnings by increasing tuition or decreasing tuition is: well, it depends. For starters, you would need to know their variable cost percentage. The variable costs are those that go up or down in direct proportion to increases or decreases in sales. In short, the variable costs are, for the most part, the cost of goods/services. In the case of a university, that would be the direct costs of actually educating one student and the variable cost percentage would then be percentage of said student's total tuition dollar attributable to the cost of services. Once you know your variable cost percentage and your total gross sales, you can arrive at your cost of services (in dollars). Then you subtract your cost of services from your gross sales and arrive at what is known as gross profit or gross margin or contribution margin. So far, so good, assuming that that number is actually a positive number. Now your contribution margin contyributes to two things. First, your contribution margin contributes to your fixed costs. Your fixed costs, which would be most of your operating expenses, are those that tend to remain the same regardless of whether you have 1000 students or 100,000 students. Knowing your dollar amount of fixed costs and dividing by your contribution margin percentage will tell you your break-even gross sales figure and, presumably, your marketing gurus will tell you how to reach or exceed said gross sales figure. Now, as an economics thing, price times quantity equals gross sales (revenues). The big question then becomes: will an X% increase in price yield a decrease in quantity greater than or less than X% and, conversely, will an X% decrease in price lead to an increase in quantity greater than or less than X%?

 

Interesting concept. A dorm for an online university. Although there are no B&M classes to go to, the students can still interact with each other.

 

I really don't think the calculations of price/volume/breakeven is UoP's real issue. I would like to believe the people at UoP have already done this math. I would also like to believe they update it fairly regularly.

 

Sounds like supply and demand as well as the elasticity of demand.

 

Yes, thanks for reminding me. Professor Dan Arosteguy's ECON 201 and 202: Principles of Economics was in 1981-1982 and Professor Chuck Waldman's MC 514: Mangerial Economics was in 1991. Hence, it has been quite a while and most of my jobs have been out of field.

 

They probably did do the math. At least a smart business would do so and regularly update same. I never said they didn't. And the fact that UOP has stayed in business for as long as they have would seem to indicate that the owners and/or the people they've hired seem to know something about business. But, obviously, jtaee and jayncali have made opposite assumptions about whether UOP should raise prices or lower them. I merely expounded upon how that determination would (or at least should) be made. Calculations price, volume, and breakeven is every business' issue, including UOP's.

 

Ted:

Thanks for doing the math. On thing I don't understand is how a 3 unit online course that uses Outlook Express (old technology) can cost $1500? It kind of feels like the gas prices.

 

Yeah, I realized that, but I still think the concept is cool. Here in Gainesville (by UF with 50,000 students) we have apartment complexes trying to compete for student renters by throwing in all kinds of ammenities. Pools, fitness centers, free plasma TVs, you name it, someone tried it.

I can just imagine it now, an apartment complex that says, "Heck, move in today and we will even throw in the university!"

 

These factors coupled with the fact that more universities are now offering online and evening degrees for less.

 

Apparently enrollments aren't doing too bad because today I saw a brand new five-story UoP building that just went up in my city. One must also consider the fact that everybody (and his brother) is now getting into the online business, so even though the online market is growing, so are the number of universities who are offering online degrees. Thus, while the online market is increasing by leaps and bounds, UoP's marketshare is being taken away by other competing schools. Look at all the new online schools that have sprung up in the last 10 years: NCU, Keiser College, Capella, et al. UoP used to have the lions share of the market some 20 years ago, but that is no longer the case. Subsequently, customers (students) have more options to choose from and those options aren't nearly as expensive as UoP -- and the options are regionally accredited. The unheard-of profit margins that UoP once experienced may never again return, though I'm sure they will continue to do well.

 

A few more words on pricing strategy. If demand is unit-elastic, an increase in price usually causes a proportionate decrease in quantity and a decrease in price usually causes a proportionate increase in quantity, so teying to effect one's gross sales by fiddling with price doesn't get one very far. On the other hand, there are some situations where demand is inelastic: an increase in price causes an increase in quantity and a decrease in price causes a decrease in quantity. That is, if I were in, say, the wine business, if I increased the prices of my wine, demand would probably go up, if my wine were of a good enough quality to be positioned as a prestige wine and conversely, if I were to drastically drop the prices of my wine, even if it had been up to now known as a prestige wine, Heiks Wines would probably lose many, if not most, of its former upscale yuppie customers and become known as a cheap wine for the masses. So, this is how that applies to the marketing of universities.

A. Hypothetically speaking, if the University of Phoenix were considered to be the absolute most prestigious online MBA program ever to exist, they could well afford to price themselves far and away above everybody else and still have mundo lots of demand ... sort of like, in the world of bricks & mortar universities, everybody and his dog who ever tried to go to grad school has no doubt said unto themselves, "Gee, I wonder if I'm a prestigious enough person to get into Harvard!" Of course, this sort of high demand is what allows high prestige universities to keep their prices high, which in turn reinforces the high prestige image and, by the way, allows said prestige schools lots and lots of money to buy lots and lots of prestige professors who are the absolute gods (and goddesses) of their respective fields.

B. Hypothetically speaking, if the University of Phoenix were considered to be, well, good enough to be accreditable and maybe an okay working adult school, then they might be best served by pursuing a low-price strategy, which would hopefully get them very high volume (and this, by the way, is the exact strategy which Ashworth College really is pursuing in the real world).

C. And, of course, if UOP's reputation were somewhere in between those two extremes, then they might be somewhere in between in terms of their pricing strategy.

That said, while it is true that UOP does have a reputation for being "expensive," it might be quite interesting if someone were to do an analysis of how expensive DL MBA programs really are and where UOP (and the other "expensive" schools) really are along that continuum. Point being, is the customer's perception of UOP as "expensive" really grounded in reality?

 

While I haven't done a study (and I'm not about to), the anectdotal reputation of UoP I hear is largely negative. It's seen as overcommercialized; a diploma mill/PCDI - like entity writ large, despite their legitimacy and accreditation. I perceive this from those who don't understand accreditation (which, as we know, are most people).

Honestly, I'd expect a variety of reactions from prospective employers if were I to put UoP on my resume. I least where I live. And i don't think that's a good thing.

Bob

 

Bob, are you saying that you consider PCDI to be a diploma mill? Or are you simply comparing the reputation of UoP to that of organizations such as PCDI (also then Ed Direct, Foley-Belsaw, et al) and implying that their reputation places them on a par with diploma mills such as Almeda, Glendale, Belford, et al)?

Does all of this imply that if a university (or any school) over-markets then they become " cheap wine for the masses".

Would it be possible for UoP to change their marketing/advertising message in a manner that promotes their image instead of holding it at "cheap wine" level? I think so. It's as simple as changing the message from:

to

 

Large aparment complex owners, like Avalon Communities could offer rent discounts for UoP students, in exchange for a promotional fee from UoP.

 

I worked for UOP for 2 years and trust me, they will never, ever do the dorm thing, honestly, they are too cheap to pay for it.

They will however find a way to stay profitable, they just need to realize that they cannot generate the returns of the golden age of apollo group due to competition and near market saturation.