In July, the University of Pennsylvania announced the offering of online degrees in Masters and Bachelors programs, which are designed to appeal to price-sensitive students. Last month, Forbes Magazine published an article skeptical of Penn’s new offering, University Of Pennsylvania’s Louis Vuitton Problem. The Forbes article concluded that the online programs are really an experiment that is at risk due to the history of luxury brands damaging themselves by trying to appeal to more buyers. I agree it is an experiment; but unlike Forbes, I believe Penn will demonstrate that by keeping enough high-value features exclusive to the premium product, lesser-scoped products can be sold while protecting the brand’s image.
UPenn, and all the Ivy League schools are clearly premium brands. They are prestigious, selective, and expensive. One could argue that the Ivies already have a mechanism for attracting price-sensitive students – scholarships. While that is partially true, scholarships are primarily intended for students who cannot afford to attend, but they ignore families who have the money, and choose not to spend so much on education. Scholarships also do not expand the number of consumers of the product, they simply allocate the limited number of seats. The University wants to expand the number of students consuming their products, without damaging their premium pricing.
We can look at plenty of other companies who offer premium products at high prices and have successfully expanded their customer bases with lower-priced offers that have not cannibalized their existing customers. They have done it by eliminating or reducing features.
Porsche and Mercedes are two premium automobile brands who started with one or two exclusive vehicles widely perceived as luxury items. Janis Joplin even memorialized their exclusivity with her song Mercedes Benz, “My friends all drive Porsches. I must make amends.” Over the years, Mercedes and Porsche have created newer, lower-priced cars to reach customers who could not afford their flagship models. They have done this without harming their premium, luxury image by ensuring the entry-level cars were not as valuable as the top of the line. The less-expensive models were smaller, had less horsepower, did not include the same engineering, or contained slightly lower quality leather, etc. So, customers had to make trade-offs to receive the lower prices.
Airlines started by offering services only affordable by the wealthiest consumers. Over time, they have successfully added options for more price-sensitive passengers while maintaining high prices for the most exclusive seats. Today, a first-class transatlantic ticket could cost up to 10 times the price of the lowest economy fare. That first-class ticket also includes champagne, caviar, full meal services, and sleeper seats, none of which are included with the cheapest tickets.
The Forbes article does not expect this type of differentiation from Penn. In fact, the author believes on-campus degrees are likely to be damaged by the online degrees. They both will say University of Pennsylvania and include the same courses. Since online programs are cheaper, they are likely to taint the overall image of Penn, potentially limiting future tuition. I disagree, and I think the author is missing some important elements of differentiation that will make the on-campus experience more valuable:
- Interacting with and learning from other students
- Learning to work in groups
- Having the ability to ask questions to professors in real time, instead of via email
- Exposure to new cultures, foods, music and styles that students from around the world bring
- On-campus recruiting for jobs
- Exposure to a wide variety of social and political viewpoints, (although this one is debatable with so many universities trying to police speech and ideologies)
I suspect the university could come up with a longer list of differentiators. The point is – there are many similarities between online and on-campus degrees, but they are certainly not equal. Potential students can evaluate the competing offers and make trade-offs between prices and features.
The Forbes article is correct that there are several case studies of luxury brands damaging themselves by offering lower prices. But as I noted above, there are also examples of premium brands successfully expanding to a price-sensitive segment without harming their image. The key is the low-price options must be different enough. There must be enough features and benefits that are excluded from the cheaper products so that the choice is not a no-brainer. When there are real differentiators and customers must make real trade-offs, premium brands can expand their customer base, revenue, and profitability without harming themselves in the long term.
Many thanks to Scott Schober for suggesting this topic, and for believing that rock and roll died with Janis Joplin.
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