U.S. for-profit colleges spend big on marketing while slashing other costs












(Reuters) – Google‘s biggest advertiser is neither a bank nor a retailer.


It’s the for-profit University of Phoenix, which has recently been spending nearly $ 400,000 a day on ads, more than any financial firm or retailer, the traditional big spenders on online advertising, according to search analytics firm SpyFu.












That kind of spending may seem surprising coming from a college, but marketing has become vital for the university and its for-profit rivals as enrollments plummet and they fight back against a host of criticisms, including low job-placement rates.


Colleges such as University of Phoenix, the industry leader owned by Apollo Group Inc, will not only have to boost enrollments to reverse their fortunes, analysts say. They will also need to consider cutting tuition fees as well as continue to slash costs and take market share from rivals.


“I have witnessed several versions of this cycle but none as extreme as this,” said Trace Urdan, an analyst with Wells Fargo Securities, who has been covering the U.S. for-profit education industry for about 15 years.


“We are going to see more pointed efforts at marketing and more price competition in an effort to try to capture more market share both from each other as well as from traditional schools,” Urdan said.


Operators of other for-profit colleges, whose ranks include the Washington Post Co’s Kaplan business, DeVry Inc and ITT Educational Services Inc, are also boosting their spending on marketing and are among the 25 biggest advertisers on Google.


But no one is spending like the University of Phoenix, which doubled its spending on Google ads to about $ 380,000 per day on average between October 12 and November 12, compared with $ 170,000 a day in the previous month, according to SpyFu.


Increased marketing alone will not be enough to fatten fast-shrinking profit margins and increase enrollments, however. Lower tuition fees and increased specialization of the type of programs offered, along with further streamlining of operations, will also be necessary, analysts say.


Industry bellwether University of Phoenix, which offers courses at about 230 campuses as well as online, announced plans last month to shut about half its locations and cut 800 jobs in order to save about $ 300 million a year by 2014.


New enrollments in the Apollo system are down nearly 50 percent in the past two years. As of August 31, enrollment totaled about 328,000.


Career Education Corp, which owns American InterContinental University and the Le Cordon Bleu colleges, and Lincoln Educational Services Corp have also announced closures.


LOW-COST MODEL


The $ 25 billion industry, which typically serves adults looking for a career change or a program to enhance job skills, is reeling after government investigations revealed fraud related to financial aid, worryingly high student debt loads and low rates of graduation and job placement.


“Many for-profit colleges make decisions that prioritize their bottom line, even when those decisions limit their students’ opportunities for academic success,” a U.S. Senate report said earlier this year.


Tuition fees, and therefore profits, is one area under pressure as potential students need to be convinced to take out loans in an uncertain job market.


Apollo, whose stock has lost about 65 percent of its value this year, implemented a tuition freeze earlier this year and promised students it will not increase prices through the course of their programs.


Apollo is also looking at different cost models, with a view to serving segments of the population that it cannot serve with current University of Phoenix tuition prices.


“We have certainly seen a lot more competition at the lower end of the price scale, and that’s something we are focusing on,” Apollo spokesman Mark Brennar said, while declining to offer specifics.


Wells Fargo’s Urdan said it is likely that Apollo wants to compete in the low-cost end of the market by building a second brand, which it would likely do by acquiring another college rather than starting from scratch.


As colleges lower their revenue base by cutting tuition fees even as they spend more on marketing, lower margins could become the norm, analysts say. That has spooked investors already worried about sliding enrollments.


The S&P 1500 Education Services index has lost three-quarters of its value since April 2010, including a 50 percent decline in 2012.


Some for-profit colleges already differentiate themselves in the crowded higher-education market by offering programs in a particular field or by targeting students of a particular background, and that trend could accelerate.


American Public Education, for example, is known for enrolling those who work in the military and public services, while Universal Technical Institute offers programs related to the automotive industry.


For-profit colleges play up their links to employers to attract students who may otherwise opt for traditional or community colleges, said Rob Lytle, head of the education practice at advisory firm Parthenon Group.


“They are about getting people workforce employability skills, and I think they are going to be focusing tighter on that,” said Lytle.


(Reporting by A. Ananthalakshmi in Bangalore; Editing by Ted Kerr)


Internet News Headlines – Yahoo! News


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