A shrinking marketplace is a buyer’s marketplace: The changing scope of higher education

According to the Western Interstate Commission on Higher Education (WICHE) the number of graduates nationally began to decline slowly after 2010-2011. WICHE’s projections indicate that the number of graduates will continue to fall through 2013-2014, a reflection of the small decline in the number of births in the U.S. in the mid-1990s. Though not a particularly steep drop—the number of graduates is expected to decline by just 5.6 percent between 2010-2011 and 2013-2014 before slowly beginning to rise again—the recovery period will take years. The total number of high school graduates in the U.S. is not expected to reach 2010-2011 levels again until 2023-2024.

What this means for institutions is that a shift has occurred in the higher education market from one that is seller-centric to one that is tailored to the buyer. This changing marketplace clearly presents students and their families with new college opportunities. Oft-repeated tales of students who receive college rejection letters in spite of 4.0 grade point averages, high board scores and extraordinary high school vitaes are more myth than reality, generally true only at a small number of extraordinarily selective private and public colleges and universities. Most institutions have neither widespread brand recognition nor the luxury of excess demand. Questions about whether they make their class most often trump questions of who is in the class.

For colleges, the shrinking marketplace raises the stakes associated with winning and losing even further. There are today more than 4,700 institutions of higher education in the United States (1,000 more than in 1996), according to the National Center for Education Statistics. The crowded postsecondary marketplace has already contributed significantly to competitive pressure at many institutions, even when enrollment was growing. A flat market, or worse, declining market, will add fuel to already intense competitive pressures. If the costs of winning under those circumstances are high, the costs of losing are even higher in a winner-takes-all competition. Barring collaborative behavior currently legally forbidden as collusive, there will be no end to the competitive stakes game for most institutions.

We can decry rush-to-the-bottom pricing practices or the amenity wars, but much like negative political campaign ads, as long as those strategies yield a seemingly positive result, they will continue as widely practiced market tactics. Price is the most malleable and powerful tool we have in our market arsenal. That we manipulate it as much as we do should not be surprising. Widespread price manipulation is characteristic of a crowded, competitive market place shaped by binary purchase choices. In a fixed market game, each of us will fight as hard as we can with the tools we have to achieve our objectives.

A shrinking marketplace is a buyer’s marketplace, one in which institutions need students more than the students may need a particular institution—a notion family’s are increasingly likely to embrace and one we can ill afford to forget. The shifting balance of power will add fuel to those shopping for college on price and will contribute to rising demand for net price negotiation.

To learn more about current issues facing higher education, read Jon’s complete white paper, Disruptive Adaption: The New Market for Higher Education, published in The Lawlor Perspective.

Jon McGee

October 2013

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