In New York City's East Village, there are a number of hole-in-the-wall spots that advertise sushi at 50 percent off. But I can never bring myself to sample the goods. We're talking about a delicacy flown in from around the world. Marking it down drastically just doesn't sit right. Something — either the price, or the fish — has to be a little off.
The same uneasiness arose recently when the National Association of College and University Business Officers released a survey of tuition discounts at private, nonprofit, four-year colleges and universities. NACUBO looked at 401 schools, and the survey found two things: almost no one pays full price, and the discounts are quite steep.
They estimate 88.9 percent of first-time, full-year freshmen received some kind of discount in 2013-2014. Of those students, the average grant they received is estimated to cover 53.5 percent of tuition and fees. In other words: more than half off. These discount rates are climbing fast. They are the highest recorded since the study began in 2000.
Now, colleges aren't in the habit of calling lowered prices "discounts." They talk instead about institutional grants, or need-blind admission, or merit- and need-based financial aid, or the difference between the "sticker price" and "actual price."
This pricing strategy, in other words, is framed as an important part of the social mission of a nonprofit educational institution. "Bringing promising students to Harvard is our main objective, and we believe your financial circumstances should never stand in the way," as one prominent university says on its website.
But we wondered. What would happen if we viewed this widespread and growing practice through a more traditional economic lens, looking at higher education as though it were airline travel, or soda, or aspirin, or rugs? So we called up a couple of economists and asked them about discounting, marketing, and branding. Why do companies give discounts? What are the pros and cons of discounting? And is it possible to discount your way out of business?
Weighing Anchor And Sending Signals
“ "If you do too high a discount, then perceptions of desperation creep in. Are they going out of business? Is this product a dud?"