HE Research Snippet 10 – PGT price expectations and how fees affect demand
Research Snippets: Our monthly Research Snippets look at interesting and topical findings unearthed by the HE team at YouthSight. See all our HE Research Snippets here. If any of your colleagues would like to receive our Research Snippets, ask them to drop a line to: james.macgregor@YouthSight.com
November’s Snippet is based on findings from our latest syndicated research study, PGT+BE: Using behavioral economics (BE) to understand how students really make their taught postgraduate (PGT) decisions.
Although our PGT+BE study is wide-ranging, this Snippet will focus on just one narrow area – the issue of fee sensitivity. Tuition fees are, of course, part of a complex ‘return on investment’ assessment that prospective students make when choosing whether or not to undertake a taught master’s course.
Prospective students often over-estimate the difference in PGT fees charged by low versus high-ranked universities
We asked respondents considering doing PGT degrees, how much they would expect to pay for their course (or rather a course they might consider doing) at a ‘high-ranked university’ and at a ‘low-ranked university’. Depending on their subject of interest, prospective students expected to be charged an average of 75% more for a course at a high-ranked university (see Figure 1). Depending on the definition of ‘high-ranked’ and ‘low-ranked’ this can be seen as a fairly large over-estimation. While institutions traditionally found at the very top of the league table can charge significantly higher than other institutions for certain PGT courses, the difference between other Russell Group institutions and lower-ranked universities is often more variable and usually does not reflect expected differences of 75%.
Figure 1: Fee expectations – low-ranked vs. high-ranked institutions
Base: PGT+BE – All considerers (1997)
One possible interpretation of this likely over-estimation may be that universities are not adopting value-pricing strategies and are instead falling back on market oriented pricing and cost-plus pricing strategies for PGT degrees. There could be a compelling argument to review PGT fee levels at some universities.
Estimating the impact of fees on demand
As well as looking at price expectations, the PGT+BE study looked at demand for taught master’s degrees amongst different groups of prospective students: how many would actually be put off applying at various different price points? To establish levels of ‘willingness to pay’, the study simulated demand for PGT courses using principles of the van Westendorp Price Sensitivity Meter.
We asked prospective students what fee levels would be too expensive to pay for a taught master’s course, and what price would be so cheap that they would doubt the quality of the course. A ‘U-shaped’ net rejection curve was produced by combining the percentage of respondents ‘rejecting’ at each price point (either because fees were either too high or too low).
To offer a flavour of the findings, Figure 2 below shows the willingness to pay across our overall sample of prospective students (the actual study breaks this down into sub-group too – and, of course, provides a fully calibrated X axis!). Looking at the chart, a few key observations can be made.
Figure 2: The price builder – willingness to pay amongst prospective PGT students
Base: PGT+BE – All considerers (1997)
Firstly, there is a broad range where fee levels have relatively little impact on demand. Net rejection remains below 20% between a span of around £4,000 to £8,000 (see note 1 on Figure 2). At these levels, there is a high degree of price inelasticity, in other words changing the fees could very well end up having little impact on demand.
Note 2 on Figure 2 points to the fact that there are also key psychological price points where demand for PGT courses drops off rapidly, either for being too high (and therefore being perceived as too expensive) or too low (and therefore being perceived as of a low quality). There is a sharp increase in net rejection when prices go below a certain point (a realistic base price for PGT degrees) and above a realistic price cap for all but the most prestigious and expensive PGT degrees.
As the data behind Figure 2 is based on a carefully constructed overall sample made up of prospective students at different life stages (current undergraduates, 2013 graduates, graduates from 1-5 years ago and graduates from 6-10 years ago), its findings (in isolation) should be approached with relative caution. However, our PGT+BE report breaks down this data and looks at differentials in willingness to pay by life-stage (as described above), as well as between other key sub-groups including subject area of interest, undergraduate university type, home vs. overseas students and social grade. The differences within sub-groups vary significantly and are very interesting – contact me for more information.
In comparison to the undergraduate market, institutions have far greater scope to set fees for PGT courses. But HEIs have to strike a balance between setting fee levels that aren’t too low or too high, that minimise rejection and subsequently boost revenues. Interestingly, there appears to be a wide range of fee levels where demand is fairly inelastic and fees could rise without killing off demand.
As 2015 approaches (the year the first £9,000 undergraduate cohort enter the PGT market), it will become increasingly important for HEIs to consider how their course offerings reflect market demand.
Our syndicated study PGT+BE provides detailed insights into the decision-making process of prospective taught master’s students, highlighting key differences between important groups of interest. As well as including qualitative and quantitative analysis, the study employed behavioural economics techniques to further unpick the process that prospective students go through when deciding on a taught master’s course. Priced at £3,250 plus VAT, the report is available now!
Contact me for more information.
John Newton, (Senior Project Manager, Higher Education)
020 7288 8789
PGT+BE is a 100 page report. It looks at the decision-making process of prospective taught master’s students. To give a flavour of what else is included in the report, the sections are as follows:
- Executive Summary
- Appeal of and barriers to postgraduate study
- Postgraduate study preferences
- The decision-making journey
- How students make PGT choices
- Price, value, fees and funding
- PGT study at UG university
- Information sources
The report is accompanied by a Marketing Toolkit and a literature review.
YouthSight owns the consumer access panel for higher education: 70,000 current students, 18,000 graduates and 17,000 applicants and 10,000 other young people.We’ve completed hundreds of projects for our HE clients, helping over 90 universities and HE organisations obtain the insights and data they need to drive important decisions. We’ve helped policy bodies collect evidence for ground breaking reports, we’ve helped marketing directors develop winning strategies and we’ve helped Deans to create new early stage course propositions that genuinely meet market needs.Our portfolio of products is based on a clear understanding of the needs of HE professionals combined with a sophisticated approach to the ‘tools of our trade’, including qualitative and quantitative interviews, regression & key driver analysis, Price Sensitivity Meter and choice-based conjoint or trade-off techniques. Here are some of our key products and approaches:
- Higher Expectations – shows universities how to improve
- Helping you define your brand – an appealing and differentiated brand position is now an imperative
- Course development, portfolio review and fee setting – time and again courses fail because they lack market appeal
- Recruitment for in-house surveys (qual and quant) – we can help you interview pre-applicants, applicants, students at competitor universities and recent graduates
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