For-profit Schools Focus on Marketing

By Staff

According to a Reuters report at the end of 2012, the biggest advertiser on Google is a for-profit school, the University of Phoenix.  Such expenditure on advertising and marketing to get students in the door is typical of for-profit universities.  These schools spend more on recruiting and enrolling students than on educational infrastructure.

The for-profit education industry blames a downturn in its fortunes for the need to increase marketing.  Stepped up federal scrutiny has also hurt enrollment as students worry that federal aid may not be available to them if they enroll.  Bad press, law suits and accreditation woes have also helped keep students away. As less expensive, accredited non-profit colleges enter the online realm – the thus far traditional bailiwick of for-profit schools, the market share for profit oriented schools has been eroded.

Critics say that intensive marketing at the expense of education has always been the driving force behind such schools.  The schools respond by saying they focus more on job skills than traditional education, focusing on giving graduates a practical leg up in their chosen field rather than a broader foundational education. Analysts expect some of the more familiar brands, such as Apollo Corp.’s University of Phoenix to “compete in the low-end of the market by building a second brand, which it would likely do by acquiring another college.”

The practice of boosting marketing and slashing costs to please investors raises flags from both business and ethical perspectives.  For profit colleges compete with traditional schools for students.  Schools, such as community colleges, see students as a source of sustainable funding to continue their educational mission.  On the other hand, schools such as the University of Phoenix see enrollees as a revenue source from which to derive profit.

While this is not an inherently problematic practice — the tens of thousands of students enrolled with University of Phoenix certainly speak to a level of customer satisfaction — it does make one wonder just how well the business’s customers (students) are being treated in the long run. The problem such schools have is that they offer an inferior (in an economic sense) product. The economic value of a degree from a for-profit school tends to be less than that of a degree from a traditional school, whether due to accreditation issues or public and/or employer perception. Moreover, the degrees from for-profit schools tend to be more expensive on a per-credit basis than courses from community colleges and many accredited public schools.

Rather than putting their dollars into creating a better product, schools are using their funds to beef up marketing.  This means that such schools are exemplifying a sales orientation, really, rather than a customer orientation.  Further, such schools compete for – and accept as a major source of revenue – state and federal financial aid dollars.  Students go into debt to attend such schools.  It seems a little less than ethical to coerce students to incur debt to attend a school that is more focused on separating a student from her money than in educating and graduating the student.

Meanwhile, nonprofits like community colleges and other public schools, must keep raising tuition to make up for shortfalls in both tuition and tax base.  At the same time, several for-profit schools are increasing marketing budgets while slashing other costs in order to lure more students.  This, for the most part is to satisfy investors, which such institutions clearly deem to be their most important constituents.

It seems that from a sales perspective, they are alienating their customer base to bolster stock price.  In the long run, this could prove to be a mistake.  By ignoring students and — as the federal government alleges — their employment prospects, for profits will continue to rankle regulators.  This in turn could affect for-profit schools’ ability to qualify for federal student aid.  Without such aid, students are less likely to be able to afford to enroll in a for-profit’s courses.  Fewer students means fewer revenues.  Fewer revenues means unhappy investors and lower stock prices: a lose-lose for all involved.