How in the world is it possible that colleges are qualified to teach business management, finance, etc…and yet tuition hikes are WAY out of line with inflation?
There’s something wrong with this picture! VERY WRONG! - Jinx :dubious:
Is this a joke? I don’t see a smiley, but you must be kidding around, right?
Since this is Great Debates, so you’re SUPPOSED to be serious, I’ll play along; they’re hiking tuition because that way they make more money.
And making money is good business. Seems like they have a lot to teach.
Reminds me of a class I took in school. It was Introduction to Marketing, a joint Economics-Communication course. At one point the lecturer told us this very basic truism: the best price for a product is the highest price the customer is willing to pay.
All us Communications students were nodding our heads and saying yep, that sounds right. The Economics majors were flummoxed. Waht about profit margins, they asked? What about production costs? What does the consumer have anything to do with price? They just couldn’t get it.
Supply should equal demand. If there are more people who qualify that want to get in than spots that are available, then the fees are too low. Thats the theory at least…
The Economics majors were right
- they were thinking about Elasticity of demand
- what would you prefer, sell one unit at $1,000 or 10,000 units at $900 ?
There is something call ‘Differential Pricing’, where you have different prices for different punters - but it is not that easy to implement, and is generally illegal.
And yes, I studied Economics and spent the early part of my career in Marketing.
As a business owner, I’m flummoxed. What about profit margins, I ask? What about production costs? If the company can’t make money at the “highest price people are willing to pay”, who cares what the consumer has to say about price?
Yeah… I just don’t get it. And I do this for a living, not teach it.
They were right not to get it, because unless you’re making a one-time sale of a unique product (your house or car, perhaps), you don’t have just one customer. You have thousands of potential customers, all of whom you must (usually) charge the same price, and all of whom have different walk-away points. That’s why demand is expressed as a curve or “schedule” of how many units people will buy, in the aggregate, at various price points.
The ideal for a seller would be to charge each customer that customer’s own walk-away price. In most businesses, for a variety of practical and legal reasons, that isn’t possible. In higher education, however, it is–universities have mastered the art of differential pricing in the guise of “financial aid”, negotiating individual prices for each student as close to that student’s walk-away price as possible. A generation ago, they didn’t do that. That’s one reason for the astronomical tuition increases.
Well, in my experience at the university I earned my degree from, tuition doesn’t cover all the costs required to actually run the university with the coverage of all the student’s possible needs. (There’s an assumption that the student will be making use of many of the school’s resources, but not necessarily all of them.) Because it was a state institution, the state government gave them 25% of their running costs to start. Then comes in tuition. It generally covered about 50% of the costs of running the university, including all the construction that goes on in any university. (I don’t know of any university that I’ve visited in person that didn’t have something being built, renovated, torn down, etc. while I was visiting or attending school there. Construction is part of costs as a maintenance expense.) The last 25% comes from donations; alumni and non-alumni donate money to help the academics within the university, and often this goes to supplies, research, graduate assistantships, and anything that’s just not covered by the first 75% of the cost of running the school itself.
Also, to add to this, money that is earned by the athletic groups stays within the hands of the athletic groups. A school with a big, successful sports team may be lacking in academic funding for the simple reason that sports and academics do not share a pool of money from which they collectively draw for expenses.
Besides the other points, since when did the business school control the administration of a college? Most companies don’t subsidize some customers with money from other customers, not to mention most businesses are out to make a profit, which colleges aren’t.
No but they might subsidize one product with another. For example, I might take a loss on VCRs and then make money on the tapes.
Actually it’s not really. That’s all a ‘sale’ realy is. Diferential pricing. You charge the maximum price for the people who WANT IT NOW!!! You gradually keep reducing the costs for the people who give less and less a crap about that product.
Fitness clubs and gyms are infamous for this; indeed, they copy their sales pitch methods from car dealerships.
You will never, ever walk into a gym - certainly any one I’ve seen - and see a price list posted anywhere, nor will you get a straight answer from anyone you ask. The method is to sit the customer down and begin to rattle off numbers, starting with a preposterously high number and working down depending on how the customer reacts. Once the customer appears comfortable with a number, they try to close the sale. No gym will ever cite an honest price; they work backwards to get the customer’s maximum. Send ten people into a fitness club on the same day to get memberships, and they’ll walk away having paid at least seven different prices.
About a month ago, the New York Times ran an article about colleges and tuition prices. It said that parents and students associate higher tuition prices with higher quality schools, so schools actually get more applicants after raising prices. Schools that lowered the tuition price actually saw the number of applications drop. Here’s one sentence from the article (New York Times, In Tuition Game, Popularity Rises With Price, December 12, 2006), “The recognition that families associate price with quality, and that a tuition rise, accompanied by discounts, can lure more applicants and revenue, has helped produce an economy in academe something like that in the health care system, with prices rising faster than inflation but with many consumers paying less than full price.”
The last bit of the article is key; there’s a lot of discounting of college costs. When I was a student twenty years ago, we were told that something like 25% of tuition revenues went to scholarships and other student aid. So that those who could afford to pay the full price were subsidizing those of us who could not.
Um, you know inflation is an average, right? Some prices may rise more or less than the published inflation rate since that rate is an average of hundreds of products out there (a “bundle” of products most consumers would buy, I think).
Somebody should really go tell the electronics companies about your theory of business. A color TV cost about $500 in 1974; adjust that for inflation… let’s see, we should be paying what, two grand for a plain old television? Or maybe Sony is just taking it easy on us all, to make up for us getting screwed on higher education?
That sounds like a great way to run a business straight into the ground. “The highest price the customer is willing to pay” may be far less than it actually costs you to develop, manufacture, market, and distribute your product, in which case, you either need to bring down your costs or get out of the business. A failure to do this is one of the fundamental reasons companies go out of business, and yet, major companies (IBM, General Motors, Apple Computing, et cetera) have repeatedly and regularly failed to comprehend this.
Profit margins are everything in a business; obviously, you want to balance maximum profits in the near term with sustainable growth and progressive development to stimulate ongoing business (which may mean reducing margins while increasing production, and so forth). If you have negative margins, though, you’re not going to make it, period. The highest price (at any point) may be unsustainable over any significant term, and if you’ve soured the market, or given someone else the foothold at a lower commodity price point (even though their product is less functional, less reliable, less cool, et cetera) then you’ve ceeded the market. It does take a little more thought and explanation than “the best price for a product is the highest price the customer is willing to pay,” but then that’s why economists are all worried about charts and numbers instead of makeup and lighting.
Stranger
Or razors/blades, printers/cartridges. But those are targeting the same customer, not different ones, so they’re not analogous. Perhaps if colleges charged a special rate freshman year - but your credits don’t transfer.
I think maybe we have wandered away from Jinx’s original question.
When I was at Uni in the late 1970s, in the UK, I noticed that the majority of the academics had zero understanding of business.
Around 1977 the UK government allowed the colleges to hike fees for overseas students, the academics loved it, they really hiked them - to the academics it was like being let loose in a candy shop. More recently they’ve been allowed to charge domestic students ‘top up’ fees - with the same predictable results.
From the academics’ point of view, they want to pack in as many (high) fee paying students as possible, and ideally have them on courses with low costs.
One professor I knew from childhood, was a Fellow of a very senior post graduate college. He was talking about how they could cram in more post grad (foreign) students by getting them to share a room. I tried to point out people of the standard of a Rhodes Scholar would not take kindly to an absence of privacy. And yes, he was an economist - Economic Historian to be precise.
Even academic Economists had little real understanding of how a business works.
Personally I reckon that a college should be run on a business like basis, but it should be very clearly understood that the objectives are radically different from those of a normal business.
You haven’t provided the slightest bit of evidence that those academics don’t understand business. So they hiked tuition fees; so what? Did university enrollment go down so much that it offset the tuition hikes?
Every mention of UK enrollment at higher education institutions I could find indicated that enrollment is going up, up, up. Maybe these guys know a lot more about business than you think. They charge more, and demand is still going up. Where’s the problem?
So, uh, Rhodes scholars don’t have dorm-mates? It’s considered… “beneath them” to share a room?
Don’t mean to threadjack, but I’m trying to understand the above sentences.
From my daughter’s description of politics at the University of Chicago, there is a big, big difference between economics faculty and business faculty. Economics professors not understanding business surprises me not at all.
Most business profs do some consulting, so I’d think they understand something. However, as I said, there is no evidence that they have anything much to do with setting university policy.
I suppose it depends on the ‘business’ you are in.
The nadir of the education industry is selling PhDs online via PayPal.
You show me a UK degree certificate from the last 10+ years and I’ll show you a roll of toilet paper.