How Normal is Your University? A study into university retention and attrition rates. By Tweedledum and Tweedledee

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1 How Normal is Your University? A study into university retention and attrition rates. By Tweedledum and Tweedledee Abstract Retention and attrition rates within the tertiary sector (universities and colleges) have been a major concern to universities for many years, so much so that there are publications dedicated solely to the issue of student retention and attrition. However, in the past, known patterns of consumer behaviour appear to have been largely ignored in interpreting student retention patterns. In this study, university retention patterns in Australia are explored to understand norms of retention in Australian universities and whether the well established Double Jeopardy effect is evident in these norms. Results suggest that between 65% and 96% retention can be expected within the context of Australian universities and the Double Jeopardy effect was found to be evident as well.

2 1. Introduction Retention and attrition rates within the tertiary sector (universities and colleges) have been a major concern to universities for many years (Murtaugh, Burns, & Schuster, 1999). Studies have focused on a number of themes, amongst other: (a) the relationship between students scores at high schools and their university success (Anonymous, 1997); (b) examining the reasons for student attrition (Astin, 1993; Tinto, 1993); (c); the development and evaluation of specific retention programmes (Baker & Pomerantz, 2000; Boudreau & Kromrey, 1994; Gallini & Moely, 2003; Glass & Garrett, 1995; Johnson, 1996; Person & Christensen, 1996; Reyes, 1997). In fact there are even publications the Journal of College Student Retention devoted to considering the vexed issues of student retention and attrition. 2. Literature Review Researchers (Hagedorn, 2006) argue that measuring student retention is both complex and confusing being highly dependent on the context. Hagedorn (2006) goes further claiming higher education researchers will never reach consensus on the correct or best way to measure this very important outcome (p.2). Nevertheless student retention is clearly an issue of concern, the implication being that if the university has failed the students, the students have failed themselves. 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 with 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 (Tresman, 2002). 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 other words, if students do not complete their courses then funding may be cut. Whilst these are important issues and should not be diminished in any way, it appears, however, that none of these studies considers a) what a normal level of retention or attrition is, and b) how a particular university s attrition or retention level compares to competing universities. Yet within the marketing discipline such questions are regularly addressed and a number of empirical generalisations have been established that clearly link attrition rates to market share and market penetration; such as the well established Double Jeopardy Law (Ehrenberg, Goodhardt, & Barwise, 1990; Fader & Schmittlein, 1993; McPhee, 1963). The Double Jeopardy Law demonstrates that bigger and better-known brands get not only more customers but get these customers more often (Ehrenberg et al., 1990; Stocchi, Wright, & Guerini, 2010). 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. To assess the Double Jeopardy Effect, consideration must be given to the competitive market being investigated. Markets can be divided into two categories: repertoire or subscription markets (Sharp, Wright, & Goodhardt, 2002). Repertoire markets are where consumers purchase from a range of brands over a period of time (e.g. groceries items). Subscription markets, on the other hand, are where consumers purchase just one brand at a time (e.g. main bank account, dentist and hairdresser). On this basis, universities can be classified as operating in a subscription market. A subscription market can be based on a yearly contract which is then renewed or as a tenure contract which remains in place until cancelled (East, Wright, & Vanhuele, 2013). As with universities, 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.

3 Research into defection rates in subscription markets shows a defection rate from around 4 per cent to 20 per cent of a brand s customers (East et al., 2013). Lees, Garland & Wright (2007) noted a defection rate of 3.6 per cent for a main bank. Meanwhile Gupta, Lehmann & Stuart (Gupta, Lehmann, & Stuart, 2004) found defection rates of 5 per cent for on-line stock trading and 15 per cent for credit card companies. Wright & Riebe (2010) saw switching rates in consumer and business to business markets of 4 per cent for financial institutions and 20 per cent for annual industrial pipe contracts. Meanwhile, Reichheld (1996) believed defection varied quite widely but seemed to average about 15 per cent across a range of services. While a defection can occur for many reasons, Lees, Garland & Wright (2007) showed that with New Zealand banks a change of main bank was due to better offers 32 percent of the time, product or service failures 31 per cent of the time, reasons beyond the bank s control 22 per cent of the time and a combination of those reasons 15 per cent of the time. On the other hand Bogomolova & Romaniuk (Bogomolova & Romaniuk, 2009) when examining brand defection in a business to business financial service noted that 60 per cent of defection was for reasons that managers could not control. Given the empirical generalisations on customer turnover it is reasonable to expect that universities would experience student attrition that is a normal part of the education market. The aim of this study is to answer the following research questions: RQ1: Explore whether there is evidence of such a normal attrition pattern in universities in Australia RQ2: Establish whether there is a Double Jeopardy Effect is evident. Wright & Riebe (2010) have examined the best method for calculating such norms for a subscription market. This study extends their research conducted in subscription markets in a range of industries to universities within Australia. 3. Method This study utilises publicly available university retention and attrition data from The Department for Innovation Australia (Department for Innovation, 2013) and the My University (My University, 2013) websites. Only data for domestically enrolled students was utilised for this analysis. In line with previous research (Wright & Riebe, 2010), a theorised retention rate was calculated by using five years of market share data and retention data ( ) provided by the government websites listed previously (Department for Innovation, 2013; My University, 2013). As both of the sources of data separate domestic from international onshore students this analysis has been conducted separately as well. These data were used to calculate a theorised retention figure for each university by calculating an intercept (0.71 or 71% for domestic students and 0.85 or 85% for onshore international) and constant (Market Share x 3 for domestic and Market Share x 1 for onshore international) between the average market share and retention. As there are 36 universities, data has been summarised into two scatterplots. Figure 1, below presents the market shares, retention for each university for domestic students.

4 Retention 95% MELB 90% ANU UNSW UWA SYD MONASH UTS 85% WOOL UQ 80% UADL 75% GRIFFITH CSU 70% USQ CQU 65% DARWIN 60% 0% 1% 2% 3% 4% 5% 6% Market Share Figure 1: Market Share and Retention for domestic students in Australian Universities A simple eyeball of Figure 1, above, demonstrates that there is an increase in retention as market share increases. A Pearson correlation was conducted between the market share and retention figures to address RQ1, the results indicating a correlation between market share and retention (r=0.62). However there are some large positive deviations for particular universities, which upon closer inspection appear to be generally those that are members of the G8 group. To the contrary there are also some large negative deviations which appear to be regional universities. Figure 2, below, repeats the analysis for international onshore students in thirty-six Australian universities. Selected deviations are highlighted. 100% 95% 90% ANU UADL MELB SYD UNSW MONASH Retention 85% 80% 75% USC UB CSU CQU 70% 0% 2% 4% 6% 8% 10% Market Share Figure 2: Market Share and Retention for international onshore students in Australian Universities A simple eyeball of Figure 2, above, demonstrates that there is an increase in retention as market share increases, suggesting a similar pattern for international onshore students was seen for the domestic students, however, retention levels are generally higher across all universities for international onshore when compared to domestic. A Pearson correlation was conducted between the market share and retention figures to address RQ1, the results

5 indicating a slight correlation between market share and retention (r=0.33). However there are some large positive deviations for particular universities, which upon closer inspection appear to be generally those that are members of the G8 group which have notably high retention for their market share, or regional universities with less reputable reputations with exceptionally low retention for their market share size. 4. Discussion This study has extended previous work exploring the market structure of subscription markets (e.g.wright & Riebe, 2010) by considering patterns of defection in higher education. In addressing RQ1, it appears given the evidence that it is likely that universities operate in a subscription market like any other industry does. It should be acknowledged that retention rates are similar to those observed in other industries such as banking for example (Lees et al., 2007), suggesting that universities are not exceptional in regards to customer switching patterns. Retention was found to be as low as sixty-five per cent and as high as ninety-six per cent. In addressing RQ2, the results above indicate that there is likely to be a double jeopardy effect in the education market just as marketers would see if exploring any other industry. The results of this study suggest that there is a market share effect on retention as would be expected given the Double Jeopardy Law (Ehrenberg et al., 1990; Fader & Schmittlein, 1993; McPhee, 1963) and the possibility given the deviations found that there may be an effect based on reputation or salience of the institution, which requires further investigation. This suggests that like other industries, customer retention in universities may be affected by more than just the satisfaction of the students and also suggests that universities who focus on increasing student retention may need to consider the context of the size of the university (e.g. Astin, 1993; Baker & Pomerantz, 2000; Boudreau & Kromrey, 1994; Gallini & Moely, 2003; Glass & Garrett, 1995; Johnson, 1996; Murtaugh et al., 1999; Person & Christensen, 1996; Reyes, 1997; Tinto, 1993). An eyeball of the deviations suggests that there may be market partitions evident in this market which require further explanation and a more systematic investigation. Possible market partitions may relate to greater publicity being evident for G8 universities due to their reputation for innovation and research, which may drive greater salience. On the other hand those with greater negative deviations generally appear to be those universities not near to large cities or with poor reputations. 5. Conclusion This exploratory study suggests that universities may operate in a subscription market that demonstrates consumer purchase patterns not dissimilar to that of banks or insurance companies. The results suggest that a) universities should understand that student attrition may be a normal part of student consumer behaviour and b) universities suffer or benefit from the Double Jeopardy effect. Future research should extend these findings to other countries, in particular to explore whether attrition and retention patterns in other countries are similar to that found in Australia and whether the Double Jeopardy effect holds consistently across educational markets. Future research should also explore whether there are partitions evident across the university sector.

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