Higher Education and the Power of Choice & the Power of Choice - E&Y.pdf · student choice… u...

Higher Education and the Power of Choice

Ernst & Young Conference PaperANZUIAGNovember 11th 2011

© 2011 Ernst & Young Australia. Liability limited by a scheme approved under Professional Standards Legislation.1

Introductionu Context – the Bradley reform agenda

u Looking forward to a demand-driven market – Ernst & Young study

u Overview of study

u Key findings

u Growth in competition

u Ways to compete

u Discussion, comment and questions

EY Higher Education Study, 2011


Context – The Bradley reform agendau Origins – The ‘Education Revolution’

u Bradley Review Dec 2008

u 20-40 targets

u Enhance student income support

u New independent national regulatory body (TEQSA)

u Demand-driven funding model

u Increase base funding

u Government response – Transforming Australia’s higher education system

u Yes to 20-40 – with different timelines

u Yes to student income support, TEQSA, demand-driven funding model

u Base funding - TBD


Looking forward to a demand-driven market: Overviewu Objectives of study

u Market research – drivers of choice and experience and competitor ratings

u Executive interviews

u Parallels from other industries – telecommunications, utilities, retail

u Drawing out the ‘so what’ – What does it mean? What might happen?

u Caveats – external perspective not an academic treatise


Key Findingsu Increases in competition will place significant pressure on the business models of established

universities

u Battles for market share between established players

u Further deregulation and the threat of new entrants

u Growth of the ‘second estate’ in international markets

u There will be winners and losers… a number of universities trail significantly on the drivers of student choice…

u Universities at risk will need a clearly differentiated market position and a strong alignment of the student experience and brand promise.

u Established institutions should consider strategies and techniques used in consumer marketing industries – market positions based on the principles of psychographic segmentation, multi-brand strategies etc

u Universities – especially those at risk - may also need to consider more fundamental restructuring


Increases in competition: (a) Battles for market share between established players

41.229.6

27.426.1

24.524.5

23.022.022.0

17.016.7

16.115.9

15.214.0

13.613.513.413.3

12.612.512.4

11.611.611.5

11.010.6

9.87.6

7.36.8

3.72.6

1.90.9

0.1-0.2-0.3

0.0 10.0 20.0 30.0 40.0

ACUMacquarieSwinburne

CanberraUWS

WollongongUNSW

NewcastleCSUECUUSC

AdelaideUni Qld

FlindersLa Trobe

Vic UniDeakin

QUTRMITUSQ

GriffithCurtin

CDUUni SA

UTSMonash

UWABallaratSydney

ANUUNESCU

Uni TasMurdoch

CQUJCU

MelbourneNotre Dame

Note: (1) Percentage over-enrolled. Source: The Australian 6 July 2011, based on data from DEEWR.

u Aggressive pursuit of market share

u Implies significant market growth – for now

u Over time will become zero-sum game

u What happens then?

u Tier 1 unis… unconcerned

u Tier 2 with strong brand – opportunity

u Tier 2 with weak brand – large threat

u … what would happen if you lost share from a high margin program eg business?

University Over-Enrolments in 20111


Increases in competition: (b) Further deregulation and the threat of new entrants

u What has market opening meant in other sectors?

u Utilities

u Telcos

u Airlines

u Aren’t these sectors different to education? Yes and no…

u What would this mean for universities?

u Shift from product-led to consumer-led organisations

u Telcos & utilities – from engineering-led to sales & marketing-led

“If we do not have the right government support, new entrants will cherry pick

our most profitable courses. We’re going to be left providing loss-making courses

that serve the public good”

Vice Chancellor’s Chief of Staff

© 2011 Ernst & Young Australia. Liability limited by a scheme approved under Professional Standards Legislation.

Shift in international student volumes

Traditional international

education providers

7

Increases in competition: (c) Growth of the ‘second estate’ in international markets

u The ‘perfect storm’… visa rules, exchange rates, violence

u Yes – all issues – but... change in the market poses just as big a threat

u Past – completely different price point justified by completely different level of quality

u Now / future – quality gap closing

u Impact – price / volume drops

u Unless… can reinvigorate the value proposition

u The good news… fundamentals remain superb

Second estate

Emergence of the Second Estate

Traditional local institutions in

emerging economies

uHigher education in OECD countries

uTraditional provider of world class education to emerging economies

uAnnual fees: approx $20,000

uLocal institutions

uLarge gap in quality and reputation compared to OECD institutions

uIndicative annual fees: $500-$1,000

uLocal institutions with foreign owners/partners – or large injections of state capital

uNear-OECD standard education

uIndicative annual fees: approx $5,000


Sidebar: Fundamentals for growth in international education

Population of Tertiary

Education Aged People

(million)(2007)

Tertiary Education

Participation Rates

(2007)

Note: Gulf Region here excludes Iran and Iraq. Source: 2007 World Bank, World Bank Education Statistics (online database)

110.8 112.9

54.0 38.0

6.3

50.4

0

20

40

60

80

100

120

China India ASEAN MENA (Total) MENA (Gulf Region)

Latin America

22.1%13.5%

20.6%27.1% 26.9%

34.8%

75.0%

0%

20%

40%

60%

80%

100%

China India ASEAN MENA (Total)

MENA (Gulf Region)

Latin America

Australia


Implications of growth in competition… there will be winners & losersStudent ratings of Victorian universities on key drivers of choice

u Large gap b/w tier 1 and tier 2 – and large gap within set of tier 2

u What happens to the lower end universities in a competitive market?

u What are the opportunities for universities with strong brands?


What to do?(a) Differentiate / ‘cherry pick’

10

“We competed on locationin the past — that won’tbe enough for us in the

future…”

VC’s Chief of Staff

u To win in a competitive market… need a clearly differentiated market position and a strong alignment of the student experience and brand promise

u Review portfolio – focus on areas of strength

u Where strong – consolidate market leadership – and cherry pick share if opportune


What to do?(b) Look to consumer marketing – Segmentation

11

Segmentation

Definition…

u (a) understand & select target customers based on defined set of demographic factors and psychological drivers

u (b) build the product offerings, customer experience, brand and marketing strategy around the needs and preferences of the chosen segment(s)

u Has your university done… (a) ? (b) ?

u Case study – Health & Beauty Retail…

“Our strategy is built around the programs and courses we offer... We haven’t defined a

target set of students”

Pro Vice-Chancellor, Student Services


Segmentation case study… Health & Beauty Retail

12

u Six psychographic segments

u Complete woman

u Modern woman

u Budget woman

u Sensitive woman

u Conventional woman

u Adventurous girl

u Each segment defined in terms of demographic profile (age, family status, income level, employment status etc), drivers of satisfaction, shopping and media habits, and channel preferences (online vs store etc)

u Product range, in-store experience, and marketing strategy tailored to suit the needs and preferences of the chosen segments

Segmentation case study… Example


2.5 3.0 3.5 4.0

Quality of education

Career opportunities

Specific course offered

Flexible study options

Location

Affordability

Reputation/ image

Social/family connection

Lifestyle

Facilities

School leavers (n = minimum 211) Mature age (n = minimum 119)

Student Experience by age segment(ratings out of 5, a higher rating is better)

u Victorian universities lag in delivery of experience to females and mature age students – in nearly every dimension of the experience

u Is this lack of analysis of needs? Or lack of execution?Note: Survey question: “Please rate your current or previous place of study on a scale of 1-5 for each of the university attributes. “ (1-Very Poor ,2-Poor, 3-Average, 4-Good, 5-Very Good)

Segmentation… Some data on quality of experience –males/females, school leaver/mature age

2.5 3.0 3.5 4.0

Quality of education

Career opportunities

Specific course offered

Flexible study options

Location

Affordability

Reputation/ image

Social/family connection

Lifestyle

Facilities

Female (n = minimum 296) Male (n = minimum 119)

Student Experience by gender(ratings out of 5, a higher rating is better)


What to do?(b) Consumer marketing – Multi-brand strategies

16

u Sub-brands…?

u Enable tier 1 institutions to target new segments without diluting core brand?

u Premium brands…?

u Enable tier 2 institutions to selectively go ‘up-market’

u A familiar set of case studies…

u Toyota – Lexus

u Qantas – Jetstar

“Our actual teaching and student experience exceed

our brand in most dimensions – we need to

find a way to shift the market’s perception...”

Deputy Vice-Chancellor, dual sector university


What to do?(c) Institutional restructuring

17

u Mergers, acquisitions, divestments etc – common strategy in the private sector, but frequently overlooked in the public sector

u Our view… Australian universities should actively consider the potential benefits of restructuring (or threat of others doing so)

u M&A activity could deliver value by…

u Combining areas of strength to create sustained, market leading programs and courses;

u Creating economies of scale for traditionally un-profitable courses;

u Creating savings in ‘back-office’ activities and the asset base

u Merger discussions underway… CQU-CQIT; UC-CIT

u Not so friendly ‘acquisitions’… CQU and the Sleep School

u Case study… Fitzroy Lions and the Brisbane Bears


Ernst & Young’s framework for assessing readiness for a competitive education market

Diff

eren

tiate

d M

arke

t Po

sitio

n

Collaborations, mergers and divestment activities

Alig

nmen

t of t

arge

t se

gmen

ts a

nd s

tude

nt

expe

rien

ce

Operational excellence and alignment of business model to market position

Recognise value of differentiation

Align capabilities to market demand

Gain market share through differentiation

Recognise position on student choice drivers

Align delivery to target student drivers and needs

Sustain position through targeted superior delivery

Review portfolio and assess market opportunities

Evaluate strategic options

Grow through strategic alliances

Identify operational shortcomings and gaps to target business model

Streamline operations and align business model

to market position

Sustained high performance

Sustained leadership in chosen education

markets and student segments

1

2

3 4

Pulling it together…A framework for reviewing institutional readiness

All universities are on this journey to varying extents. Our question to the sector…“Where is your institution on this journey, and are you ready for a more competitive,

consumer driven market?”

All universities are on this journey to varying extents. Our question to the sector…“Where is your institution on this journey, and are you ready for a more competitive,

consumer driven market?”


Comments & Questions?


About the presenters…

Peter Rohan is a Partner in Ernst & Young’s Advisory team. Peter is Ernst & Young's national head of Higher Education and Universities, and has more than 20 years experience as an advisor to Government and industry. Peter's university work has included operating model transformation, financial modelling and cost reduction, shared services, and advice on strategic direction. Peter has consulted to more than 12 different universities in Victoria and nationally.

Peter RohanPartner, AdvisoryTel: +61 3 9655 2668Mobile: +61 433 983 [email protected]

Justin has 15 years experience as an advisor to public and private sector organisations, with a focus on strategy and operational performance improvement. Justin has consulted extensively to multiple universities in Victoria and nationally, as well as to Federal and State departments of education. His university work has focused on assisting clients with their strategic direction and business plans, new channels to market for international education, financial modelling, and securing Commonwealth grants. Justin's university clients have included the Group of Eight, the ATN, and multiple universities in Victoria and nationally.

Justin BokorExecutive Director, AdvisoryTel: +61 3 9655 2755Mobile: +61 401 288 [email protected]

mailto:[email protected]

mailto:[email protected]

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