Universities can’t win a war on attrition

Universities are obsessed with student retention, but should they be? Paul Miller/AAP

Retention and attrition rates have been a major concern to universities for many years, so much so that there are publications dedicated solely to the issue.

Although universities and colleges are basically businesses that provide the service of education, many seem to overlook known patterns of consumer behaviour. Should they really be so addicted to retaining students?

Student retention is an issue of concern for many post secondary educational institutions, the implication being that if the students have failed themselves, the university has failed the students.

Alongside the concern for universities is that of governments who are naturally worried about their investment in higher education, which could be seen as wasted if there are high levels of student attrition.

For universities there are also problems with reputation management as a high level of attrition may be seen as an indicator of a substandard or poor performance. There are also financial implications as in some countries’ public funding of higher education is linked to a range of performance outcomes, including student completion rates.

In Australia for example, the Higher Education Participation and Partnerships Program (HEPPP) has a stated aim of increasing student retention. While there is no direct link between student retention and funding, it is likely in the future if students do not complete their courses then funding may be cut.

While it may seem worlds away, this is not so different from the fears of businesses that are concerned that any lost customer equals lost revenue.

There’s a commonly used adage that it costs five times as much to acquire a customer than keep one - first argued by loyalty expert Fred Reichheld. Unfortunately, the calculations Reichheld presents are seriously flawed, as explained by University of South Australia marketing professor Byron Sharp in the video below.

What is a ‘normal’ level of attrition?

These concerns about customer attrition in business have been adapted in a number of studies focusing on education where authors have examined the reasons for student attrition as well as the development and evaluation of specific retention programs.

While no university wants students running out the door in great numbers, it appears few studies and few universities consider what a “normal” level of retention or attrition is, nor do universities consider how their particular attrition or retention level compares to competing universities. Rather there is an assumption that by improving teaching quality, universities can improve retention.

Yet within the broader marketing discipline such questions about attrition and retention are regularly tackled, using established empirical evidence that clearly link attrition rates to market share and market penetration; such as the Double Jeopardy Law.

Universities should probably spend more time targeting new students. Alan Isherwood/Flickr, CC BY

Big is best?

The Double Jeopardy Law demonstrates that bigger and better-known brands get not only more customers but get those customers more often.

In the context of universities, this would mean that bigger universities or possibly more salient universities would be expected to achieve better retention rates than smaller or less salient universities.

Universities can be classified as operating in a subscription market, which is based on a “yearly” contract which is then renewed or as a “tenure” contract which remains in place until cancelled.

In a subscription market, the failure to retain a customer leads to the inevitable loss of revenue, therefore the rate of retention/attrition is an important measure. Research into defection rates in a range of subscription markets suggests a defection rate from around 4% to 20% of a brand’s customers per annum is normal. For example, research has revealed a defection rate of 3.6% in banking, 5% for online stock trading and 15% for credit card companies. Even Reichheld believed defection varied quite widely, and he observed an average of about 15% across a range of services.

Given the above evidence, it is reasonable to expect that universities would experience similar patterns in student attrition and retention to other industries.

We investigated publicly available university retention and attrition data in Australia from the Department for Innovation and My University website. Using five years of market share data and retention data (2005-2010) the average attrition rate was within the range expected at 12%, but varied anywhere from as low as 9% to as high as 33%.

As expected, our research indicated that there is an increase in retention as market share increases. However there are some large positive deviations for particular universities, which upon closer inspection appeared to be generally those that are members of the G8 group which have notably high retention for their market share, or exceptionally low retention rates for their market share for less reputable regional universities.

This demonstrates that like other industries, customer retention in universities is driven by more than just the satisfaction of the students. Smaller universities who focus on increasing student retention may therefore need to consider the context of the size of their university when comparing retention or attrition rates to their competitors.

Strategically this means university leaders need to ask themselves whether they should put so much effort into trying to change something that is largely a function of market structure at the expense of recruiting new students.