Why Should I Go To Your School Instead of a Cheaper One?

The first half of most Strategic Management textbooks are often filled with the various models of Michael Porter. Around Chapter 4, the Strategic Positioning model is usually introduced:


Like many of Porter’s models, Strategic Positioning is easy to grasp, but hard to put into practice. The main point is that firm strategies are pretty generic, and can be categorized by the eponymous 2X2 matrix. The axes represent the type of strategic advantage over the competition that is sought and the relative size of the target market. In this post, I will address the type of strategic advantage sought.

I noted in the previous post that the low cost position is very difficult to achieve, and can only work if the firm has meaningfully lower costs than its competition all throughout the value chain. These lower costs will allow the firm to charge lower prices and still make money. Rule #1 of price competition is that if a firm tries to compete on price without having lower costs, it will lose money and eventually go out of business. Rule #2 of price competition is that there is always someone hungrier or more desperate than you, and they will keep attacking you from below. For every Wal-mart, there is a Dollar Store or a Costco claiming to be even cheaper.

The low cost position is very tough for private universities. Even as public support for higher ed dwindles, public universities still get significant funding from their states. What’s worse, state legislatures are loath to raise tuition for voters’ children, so in-state tuitions are often artificially low. I believe that it is possible for private universities to compete on price, but it requires a radical reframing of the traditional university experience. I will address how a private university can compete on cost in a future post.

For a private university, differentiation is a far more attractive strategic position to pursue. Differentiators charge more than the competition, but offer their customers additional value that makes them willing to pay more for the product. If you think about it, differentiation is a far more common strategy than low cost. For every Wal-mart, there is a Best Buy, a Nordstrom’s, or an Albertson’s. These stores don’t claim to be the cheapest, but they are still plenty successful.

For private schools, prestige is the most obvious and attractive point of differentiation. Prestige – generally measured by external recognition such as school ranking services – is alluring to both faculty and administration. Who wouldn’t want to work at a “top ranked” school? However, moving up in the rankings can be a difficult and counterproductive exercise that puts great pressure on administrators to fudge the numbers, and often requires the school to try to be something that it’s not. In a future post, I will take up the topic of school rankings and trying to differentiate on the basis of prestige.

Rather than prestige, most private universities can and should differentiate based on features of the school or its programs that are valuable to potential students and unique to that particular school. If a school claims to be excellent at the same things as the other schools that it competes with, they won’t differentiate it in the eyes of potential students. Points of differentiation must be unique.

So how should a university differentiate itself? I believe there are two critical determinants: the points of differentiation must be valuable and meaningful to a population of students large enough to allow the school to meet its enrollment goals, and they must be congruent with the school’s unique mission and vision. That’s why I started this thread by talking about the need for a strong, unique mission statement. Choosing to differentiate based on a particular area means that it will become a strategic priority for the institution, and that investments will be made in building and maintaining it. If senior administration is going to make such a decision, there had better be buy in from the faculty, students and other stakeholders. And the only way to get buy in and support for strategic moves is if they are consistent with a mission and vision of the institution that everyone has agreed on. If you don’t believe me, check out the situation at the University of Southern Maine. Although the recent protests at USM center on budget cuts and the elimination of faculty lines, the underlying issue is a report produced by a presidential advisory committee that proposed a review of programs based largely financial profitability and the workforce needs of the region. Compare those rationales with the actual mission of the institution:

The University of Southern Maine, northern New England’s outstanding public, regional, comprehensive university, is dedicated to providing students with a high-quality, accessible, affordable education. Through its undergraduate, graduate, and professional programs, USM faculty members educate future leaders in the liberal arts and sciences, engineering and technology, health and social services, education, business, law, and public service. Distinguished for their teaching, research, scholarly publication, and creative activity, the faculty are committed to fostering a spirit of critical inquiry and civic participation. USM embraces academic freedom for students, faculty, and staff, and advocates diversity in all aspects of its campus life and academic work. It supports sustainable development, environmental stewardship, and community involvement. As a center for discovery, scholarship, and creativity, USM provides resources for the state, the nation, and the world.

Note that the Mission does not address meeting the workforce needs of the region. Maybe it should – that’s not my point. My point is that when the President’s advisory committee suggests differentiating on the basis of workforce readiness, but the faculty thinks their mission is to provide high quality education in a broad variety of disciplines, he is asking for trouble. The report does address the idea of alignment with the school’s mission in passing. However, it is not the main thrust of the recommendations.

This is not to suggest that the financial stability of the institution is not a critical consideration. Of course it is – it just isn’t a strategic one. A strategic process would start by uncovering what makes the institution special and unique, then ensuring that its mission and vision reflects that. Once the mission and vision are in place, the school can develop a strategic plan that supports and nurtures programs and initiatives that further differentiate it from its competitors in alignment with the mission, and scales back on programs and initiatives that do not. That way, when the president is asked why he is eliminating one program and not another, he has a reasonable, logical answer.

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