BILLS BILLS BILLS

When US universities sink in the rankings, what do they do? Raise tuition

Obsession
How We Buy
Obsession
How We Buy

Chivas Regal is one of the most popular whiskeys in the world. According to marketing folklore, the brand owes its success to an aspirational pricing push: Years ago, Chivas purportedly doubled its sales when it doubled its price, with the higher cost suddenly signaling to consumers that it was an elite product.

Today, tons of brands across various industries employ some version of the “Chivas Regal strategy.” Even colleges and universities.

A recent study from business professors at Insead and the European School of Management and Technology found that US colleges are more likely to hike their tuition fees right after they experience a sharp drop in the rankings. The study’s authors, Noah Askin and Matthew Bothner, parsed through years of data from US News & World Report’s college rankings and compared that to the tuition charged by 400 of those schools in that period.

Schools that sank in the rankings tended to start charging more—especially if their rivals were more expensive.

“In contrast to past work that has assumed that organizations passively experience negative effects when their status falls, our results show that organizations actively respond to status loss,” Askin and Bothner wrote. That response comes in a very tangible form: steeper tuition bills. (All this when US college students already swimming in debt.)

Commenting to Forbes this week, the two researchers noted that their work shows how many organizations, even institutions of learning, “are willing to raise their prices as a way of indicating something that they want to be, as opposed to what they are.”

Granted, the study measures a relatively small sample of the US’s 4,000-odd colleges and universities; it also doesn’t comprehensively examine other factors that go into tuition raises, such as building construction, faculty hiring spurts, and other infrastructure improvement projects. But the main implication—that schools often operate as business-savvy, consumer-unfriendly entities—seems interesting, especially against the backdrop of other evidence.

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