Could Online Learning Force Down the Cost of Business School?

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Monday, November 22, 2021
Marco De Novellis
Senior Editor, BusinessBecause & GMAC Media
Photo by iStock/sorrapong
To remain competitive in the digital learning space, business schools may need to overhaul their current pricing strategies.

Following a surge in demand for online programs after the COVID outbreak, business schools are increasingly tapping into online learning—launching degrees, certificate programs, and short courses.

Yet on the internet, more than in the physical world, schools are collaborating and competing both with each other and external industry disruptors.

Coursera welcomed more than 20 million new learners to its online learning platform in 2021, while Google launched a range of new career certificate courses.

Business schools may charge a premium for their programs—whether in person, blended, or fully online—but online courses offered by these alternative providers are often low cost, or even free.

As more institutions go online and face competition from inside and outside the industry, could the rise of online learning force down the price of business school?­

A Competitive Edge

When considering business school programs, both online and offline, candidates tend to look at three key factors:

  1. Knowledge. What can I learn that will enable me to upskill and take on more senior-level positions?
  2. Experience. How will the classroom and campus experience help me forge human connections and build a professional network that will support my career progression? Is this an experience I can enjoy?
  3. Credential. Will completing this program grant me a credential that will benefit my CV and help me stand out in the job market?

How far programs can deliver on each of those factors impacts how much a candidate is prepared to pay.

Top-tier business schools, with ranking and brand reputation, will continue to attract demand from students who are focused on the credential, and those schools will be able to maintain their significant price tags.

Programs offered by these big-brand schools provide great experiences, too. Across the board, schools that can provide valuable experiences—a close-knit campus community or exciting international excursions—will also avoid price pressure.

Knowledge, explains Jordi Robert-Ribes, CEO of student review website EDUopinions, is the easiest factor to offer online and where business schools face most competition from the likes of Coursera.

“Business school courses that only offer knowledge will be prone to price pressure and will compete head-to-head with a plethora of new non-degree providers,” he explains.

Business schools that are less able to maintain their competitive edge—the credential and experience factors—will see the rise of online learning impact the pricing of their programs the most.

What’s likely is a two-tier approach. Big-brand schools will be able to maintain premium prices for both online and offline courses. However, business schools without high rankings or reputations will need to excel in terms of the experience they provide in order to compete.

Business schools that struggle to offer something more than you can get from a low-cost online course with an outside provider will be forced to lower their prices.

Pricing Online Programs

For some schools, simply entering the online space has already triggered a reduction in prices.

The fully online iMBA program, offered by Gies College of Business at the University of Illinois at Urbana-Champaign, is priced at 22,000 USD, significantly lower than MBA programs at other schools, and enrolls around 3,000 students.

“From a financial perspective, by increasing capacity you’re driving a large part of the revenue,” says Andrew Crisp of higher education consultancy CarringtonCrisp. “The question is whether that’s sustainable, as others enter the marketplace and take some of that share away.”

Tim Westerbeck, president of higher ed consulting group Eduvantis, agrees. “The only way these programs make money is scale. If the volume is high enough, ultimately they will recoup what they need.

“But a lot of programs still struggle to keep their profit margins even when they scale. The reality is many schools don’t know the full cost of everything they do,” he explains.

Calculating an accurate overall cost of the faculty, programming, and resources needed to provide a specific program is a challenge. Plus, the idea that an online program is cheaper to run than a full-time equivalent is, for now, an illusion.

A school can reduce its overall cost of teaching by increasing the quantity of students it teaches; in theory, fewer professors can teach a greater number of students online. 

The idea that an online program is cheaper to run than a full-time equivalent is, for now, an illusion.

However, delivering online programs involves additional costs. Schools must pay for new educational technologies and instructional support services. Marketing online programs can also be expensive as schools compete with more programs in multiple global markets.

Professor Jean Philippe Rennard, from Grenoble Ecole de Management, says that even when full-time students demanded refunds after they were forced to study online during early COVID lockdowns, no French business school reduced their pricing.

“You need to make huge investments for online teaching. If you want to preserve the quality of teaching, online teaching must not be seen as a way to decrease the cost of studying,” he says.

Online and offline programs at Grenoble Ecole de Management are therefore priced similarly, although online programs still include a residential component.

At Vlerick Business School, in Belgium, the on-campus MBA is priced slightly higher than the Online MBA, but only due to the inclusion of international trips to destinations like Silicon Valley and China.

“Lots of content is available online, but the value is not in the content itself. It’s in the selection of content and in making sure students learn how to apply the content in a specific context and turn that knowledge into action,” says Steve Muylle, associate dean for digital learning at Vlerick.

When deciding on pricing, schools should consider their overall program portfolios. Reducing the price of online programs comes with the risk of entering a downward price spiral, Muylle says, with cheaper online programs also impacting the price of on-campus programs.

Reinventing the Model

For some schools, online learning is not changing the cost of tuition for candidates, but it has helped introduce more flexibility in how candidates pay for their learning experiences.

You can pay for the Vlerick MBA module by module. Stackable microcredentials also allow learners to complete low-cost, credit-bearing courses online that count toward a future formal degree programs.

“You can go many places now and buy a bitesize piece of knowledge from a quality brand for a moderate price,” Westerbeck explains. “Schools are trying to build models where you can bring in a prospective student who might face a barrier regarding cost.”

The biggest-brand schools are unlikely to overhaul their pricing strategy in the near future. If Harvard or Stanford launch an Online MBA, you can expect that candidates will be prepared to pay a premium—demand will sustain prices.

To maintain market share and survive against the tide of online learning, schools need to analyze their offerings from a business perspective and then focus on their unique strengths.

Outside the most recognized programs however, and despite the cost of running online programs, candidates generally feel they should pay less for studying online, says Rennard.

Many say they miss out on the campus, social, and networking experiences of an in-person program, despite efforts by schools to replicate this kind of experience virtually.

To maintain market share and survive against the tide of online learning, schools need to analyze what they should and shouldn’t be doing from a business perspective and then focus on their unique strengths.

Rather than being a one-stop shop for business education, some schools will have to increasingly specialize in a particular area—in supply chain management or data analytics, for example—to maintain a share of the market.

Ultimately, while some schools will be able to innovate, enrich their virtual experiences, and sustain prices, the rise of online learning will force others to rethink their models completely.

For Crisp, analyzing past trends to inform strategic decision-making is important. But in the current climate, he says, schools should not necessarily see the past as the best guide to the future.

“If there was ever a time to start with a blank piece of paper and think again about what business education might be, it is now.”

Authors
Marco De Novellis
Senior Editor, BusinessBecause & GMAC Media
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