Welcome to Marketing BS, where I share a weekly article dismantling a little piece of the Marketing-Industrial Complex — and sometimes I offer simple ideas that actually work.
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Thanks for reading and keep it simple,
Edward Nevraumont
No more lecture halls
Last week, Cambridge University announced a stunning departure from tradition — a cancellation of all in-person lectures for the 2020-2021 academic year. Instead, the university will provide online lectures for its students. A May 19 BBC article highlights an interesting fact about the COVID-related changes to Cambridge’s educational model: “Universities can charge full fees even if courses are taught online.”
Nicola Dandridge, CEO of the Office for Students (a regulator for post-secondary institutions in the UK), encouraged schools to communicate clear information about their plans:
What we don’t want to see are promises that it's all going to be back to usual — an on-campus experience — when it turns out that's not the case.
Without question, universities glowingly describe their “on-campus experiences” as a key selling point for recruiting students. So what happens when schools are abruptly forced to close their doors? Disappointment, frustration, and anger — along with lawsuits. Attorney Mark Shaffer contributed an opinion piece in the Washington Post, highlighting the impact of the changes on students:
When my daughter was deciding where to go to college, we were persuaded by George Washington University’s promises of an extraordinary on-campus experience. … In exchange, GWU expects around $30,000 per semester.
As college campuses across the country have shut down to slow the spread of the novel coronavirus, most schools, including GWU, have offered only online classes since mid-March. The reason for the shift is not the schools’ fault. But this remote education is nowhere near the caliber of the on-campus experience students were promised. For this reason, I and other GWU parents have requested a partial refund of this semester’s tuition and fees.
Unfortunately — and offensively — the university has refused these requests. This is why I am suing GWU for damages to compensate my family for losses suffered because of the school’s breach of contract, and why I am seeking to represent all families similarly harmed by the school through a class action. [Emphasis mine]
Why don’t schools just agree to offer partial refunds for what’s obviously a partial experience? COVID-19 has placed schools between a rock and a hard place. On-campus classes or not, post-secondary institutions are still obligated to cover substantial operating expenses and fixed costs.
On the revenue side, many schools face a challenging future. Analysts predict that COVID-19 will impact student enrollment in a few ways:
A drastic collapse in the number of international students (and because they pay inflated fees, they contribute a disproportionate amount of schools’ tuition revenue).
Approximately 20% of graduating high school students might defer their post-secondary studies for a year (with the hope that campus life will return to “normal” by that time).
Students might decide to attend schools closer to home (paying in-state tuition, rather than the higher fees charged to out-of-state students).
One important note about the looming revenue crisis for schools: even before the pandemic disrupted campus activities, many institutions were facing grim financial situations. Here’s one projection, from education strategist Michael Horn:
I think 25% of schools will fail in the next two decades. They’re going to close, they’re going to merge, some will declare some form of bankruptcy to reinvent themselves. It’s going to be brutal across American higher education. Fundamentally, these schools’ business models are just breaking at the seams.
In a recent Marketing BS post, I argued that COVID-19 would likely accelerate trends that were already in motion. As such, I expect that schools experiencing financial instability pre-COVID will find themselves in even more precarious positions post-COVID. As Michael Horn noted, failure of some intuitions seems like a very real possibility.
You can understand, then, why schools aren’t offering refunds to students impacted by campus closures.
Endowments to the rescue?
In stark contrast to the schools facing financial ruin, many top-tier institutions are sitting on endowment funds worth billions of dollars. Could that money help cover any COVID-caused shortfalls?
A recent letter in McSweeney’s emphasizes the complexities of tapping endowments:
As president of this University, there is nothing more important to me than the health and safety of our community. Though I’m currently away from campus, summering on my private island off of Maine, my thoughts are almost always with you, and my secretary is literally always available to field your questions and hear your concerns.
What’s not here for you, however, is the University’s endowment.
I bring this up because a number of you have reached out to provide us with valuable feedback regarding our recently announced budget adjustments. Specifically, many of you have asked why an institution with a $46 billion endowment is freezing salaries, rescinding job offers, refusing to adjust tenure tracks, and laying off staff instead of using an endowment the size of Iceland’s GDP to keep our community afloat.
Let me say this: We hear you. You are valid. You. Matter. Secondly, and no less importantly, let me make something clear: The. Endowment. Is. Not. For. You.
Okay, so that letter is obviously satirical, penned be humorist Stephen Wood. But in reality, a number of rules limit the disbursement of school endowment funds, as noted in Harvard University’s 2018-19 financial report:
There is a common misconception that endowments, including Harvard’s, can be accessed like bank accounts, used for anything at any time as long as funds are available.
In many cases, large-scale philanthropists stipulate a specific purpose for their contributions — support for an annual sports medicine conference, fellowships for visiting professors from China, etc. Although these donations can provide financial stability, they also limit the school’s flexibility to subsidize general operations. So even Harvard — the school with the world’s largest endowment fund ($40.9 billion at the end of 2019) — has implemented a number of austerity measures, including layoffs, furloughs, and freezes.
Bottom line: tuition provides an essential source of revenue for schools. Refunds are out of the question. A decline in enrollment poses a real crisis.
Perceptions of quality
Schools might need tuition revenue to survive, but they should not expect that students and families will continue paying full price for partial experiences. As with most marketplaces, if consumers do not value the product, they will not pay the asking price. As long as COVID-19 continues to limit the full “on-campus experience,” some students will delay their enrollment and other students will explore alternative options.
COVID’s damage to campus life is painfully evident, but what about its impact on academic quality?
Many people have suggested that remote learning can provide educational opportunities that match the quality of in-person experiences. Some people have even claimed that digital methods of teaching are more effective.
Consider the perspective of eighth-grader Veronique Mintz, from an opinion piece in the New York Times:
I have been doing distance learning since March 23 and find that I am learning more, and with greater ease, than when I attended regular classes. …
Distance learning gives me more control of my studies. I can focus more time on subjects that require greater effort and study. I don’t have to sit through a teacher fielding questions that have already been answered. I can still collaborate with other students, but much more effectively.
George Mason University professor Alex Tabarrok argues that Marginal Revolution University — a free program of videos and resources — provides a world-class economics education that is vastly superior to ones offered by conventional colleges:
The online classes that Tyler [Cowen] and I teach, using Modern Principles and the Sapling/Achieve online course management system, took years to produce and feature high quality videos and sophisticated assessment tools including curve shifting (not just multiple-choice), empirical questions based on FRED, and adaptive practice–plus the videos are all subtitled in multiple languages, they can be sped up or slowed down, watched at different times of the day in different time zones and so forth. Moreover, technology is increasing the advantages of online education over time.
One obvious problem with the idea that online learning exceeds the quality of traditional education: many students discover the greatest lessons through in-person activities, rather than classroom lectures. If you survey graduates about their most valuable experiences, you will probably hear about student clubs, special events, and social programs.
To that end, schools have recruited students under the premise that a vibrant campus experience is immensely valuable — and worth paying a premium to obtain. Online-only institutions (like Western Governor’s University) set tuition levels at a fraction of the ones charged by traditional schools.
As noted by the parent suing George Washington:
Even GW seems to recognize the difference. Graduate students in the School of Engineering and Applied Science pay tuition at $2,035 per credit. But graduate students seeking an M.S. for Engineering Management & Systems Engineering online pay only $1050 per credit.
Based on the sizable disparity between tuition for online versus in-person programs, it seems disingenuous for schools like GW to suddenly contend that digital experiences offer a comparable value to campus life.
Local maximization
In addition to concerns about tuition revenue, there is an even greater challenge for institutions attempting a quick pivot to online teaching: schools have been designed exclusively for the in-person experience.
Schools, with few exceptions, are traditional institutions. Administrations are (mostly) run by leaders who have spent their entire professional life in academia. Students and alumni celebrate shared rites of passage. When looking for improvements, schools tend to focus on minor tweaks rather than radical actions.
The process of incremental iteration has become the standard practice for school governance. Over time — decades for most and even centuries for others — schools have refined their operating model to the point that the student experience is probably as good as can be reasonably achieved by the specific conditions (reputation, resources, etc.).
To be clear, I am not arguing that the college experience is perfect. Far from it! Instead, I am suggesting that schools have reached (or are approaching) the best possible version of themselves. They are LOCALLY MAXIMIZED.
Imagine a mountain range. Each mountain represents the potential quality of a college experience. One school might find themselves climbing a mountain, trying to get a little higher each year. With a minor adjustment of the first-year curriculum, maybe they move a little up the mountain. Perhaps an ill-fated cancellation of a football stadium drops them back down a few notches. Sooner or later (or maybe much later), the school will reach the peak.
But what about all the other mountains? Aren’t some of them higher?
Yes, but this fact doesn’t matter. Moving from your mountain to one of those other mountains is HARD. Plus, if you descend from your current mountain and try to climb another one, there are no guarantees that you will ever reach a higher peak. Worse, you might not even get back to the same altitude where you are sitting on your current mountain.
COVID-19 has forced schools to jump off their traditional mountains and try scrambling up another one as quickly as possible — without any of the proper equipment or expertise required for such an arduous journey.
Perhaps some schools will eventually reach even greater heights of educational quality. But in the short-term, though? That seems unlikely. Remember: schools have been optimized for an in-person experience. Whatever remote learning formats they try will, by definition, NOT be optimized. Maybe after decades of incremental iteration, schools will reach a point that the online experience matches, or even exceeds, the level of the current in-person experience. Alas, that thought will provide little comfort for prospective students and overwhelmed schools.
Perceptions of quality
Let’s apply these ideas to a marketing lesson. Most conversion rate optimization hinges on the ability to find the local maxima. For instance, the website team might test different ways to display product photos in order to shift conversion rate from 5.0% to 5.1%. But what happens when the team implements more radical tactics — like replacing all the product photos with cartoon illustrations? Chances are high that the new version will underperform the previously optimized version. Not because the cartoon illustrations were an intrinsically bad idea, but because the previous layout had been optimized over time. The website version with product photos had reached (or approached) its local maxima. With just one iteration of the website version with cartoon illustrations, you cannot assess its peak effectiveness.
If we want to experiment with radical new ways of doing things, then we need to exercise patience. We need to iterate and test to see if the performance of the new concept lives within the same order of magnitude as the previous version. If so, then we need to invest the time to locally optimize the new design; at that point, we’ll have a clearer idea if the new “peak” is higher than the old one.
The good news for marketers: we can optimize websites far more quickly than colleges can optimize online experiences — and the downside is much lower. (See Marketing BS post on fast feedback).
In my experience, most companies focus their attention on reaching the local maxima, rather than spending time looking for other peaks. And when companies do experiment with radical designs, they fall into one of two traps:
Not testing the new version, only to be shocked when it underperforms the old design.
Testing the new version, but giving up — after too few iterations — when they discover that it underperforms the old design.
My advice: keep running tests, but be willing to take some risks. Now more than ever. And good luck to anyone in academia right now!
Keep it simple and stay safe,
Edward
If you enjoyed this article, I invite you to subscribe to Marketing BS — the weekly newsletters feature bonus content, including follow-ups from the previous week, commentary on topical marketing news, and information about unlisted career opportunities.
Edward Nevraumont is a Senior Advisor with Warburg Pincus. The former CMO of General Assembly and A Place for Mom, Edward previously worked at Expedia and McKinsey & Company. For more information, including details about his latest book, check out Marketing BS.