Students aren’t the only ones getting student discounts

I recently came across an article titled ‘How to Get Student Discounts Forever’, in which the writer discusses ways to reap student discounts long after one’s college days are over. It’s a well known fact that the lack of issue date and expiration date on student ID’s allows this behavior to happen.  However, I’ll admit that I was surprised when the writer suggested several additional dishonest ways of cheating the system to receive a discount that is specifically aimed at cash strapped college students.

The article includes instructions describing how to print fake enrollment stickers, alter transcript dates using Photoshop, and even how to borrow or purchase a fake student id via Craigslist.  Whether these methods seem unethical to you or not, they should be of concern.  Students and merchants are both negatively affected by these actions.  Many businesses do not have the resources to deal with this fraud and have discontinued their discounts, due to the effect that the widespread abuse has had on their profits.  Honest, deal-seeking students are punished for the irresponsible acts of these imposters.

Student deals are used by businesses for a variety of reasons.  Some businesses promote student deals with the long term goal of brand loyalty in mind, hoping to attract this young demographic when they are starting to develop brand preference and spending habits.  Some create student deals with hopes of creating incentives for a student to pick their business over a competitor’s.  Yet, other business owners are college alumni themselves or have children in college, and discount out of goodwill, or sympathy of a time in their lives when they did not have the disposable income they do now.  Whatever the rhyme or reason be, discounts have become an increasingly important aspect of college life for students – in a time when tuition costs are soaring, borrowing is on the rise, and the job market remains weak.   

To help solve the problem of abuse and dishonesty in the industry, many companies have been abandoning their own student discount initiatives to join loyalty programs that are set up to verify student enrollment.  Companies using this method can now guarantee that they will not be giving away part of their margins to an audience that they never meant to target.  With more national brands taking advantage of programs like this, it will hopefully start to become an industry standard that will help eliminate fraud, and bring discounts back into the hands of the college student.

Loyalty Expo 2009 Millennial Marketing Loyalty Panel

At the Loyalty Expo this Spring, I was participating in a panel discussion about how to reach Millennials. My remarks are mostly specific to college students, and price differentiation towards them.

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Chinese train station: half of the student IDs are fake!

My daily routine includes checking out Woot and my personalized iGoogle page. I wasn’t particularly interested in the United Artists Cinema Greats 12 DVD Collection on Woot, but something in an RSS feed caught my attention. The headline was “Fake student IDs getting fresh graduates real discounts“, and the article was translated from Chinese.

China has enrolled more than six million freshmen this year alone, and has the largest college population in the world, estimated at 21 million - over 3 million more than the United States. Everybody who’s ever been to a major Asian city knows that the Chinese doesn’t necessarily have the same concerns over copyright and intellectual property as we do in the States. Copying for personal benefit is so normal that it’s almost expected.

In China, like in most of Europe, the most utilized student discounts are on transportation - often trains. Here’s are a couple of amusing paragraphs from the article:

Li, a student, told the Global Times he spent 30 yuan ($4.39) on a custom made fake ID from China University of Political Science and Law, the whole process taking only several minutes.
“I brought my photo to the vendor. She asked me to stand to the side and minutes later, she came over with my ID. I just had to fill in the blanks with my info,” said Li.

Then, the kicker, from an interview with a train station clerk:

Wang, a clerk at the Summer Palace ticket office, told the Global Times that ever since summer vacation began, nearly half of student IDs used have been found to be fakes. Usually after being confronted, most of these counterfeit carriers awkwardly cough up the rest of the money for a full-price ticket.

I knew that people have a tendency to use their old student ID cards here in the United States, but imagining a fake student ID market so large that half of the student train tickets are rejected is hard. Even for a student verification guy like me.

Edhance is now in private beta

So, the purpose of this blog is not promoting any particular company. However, since this directly correlates to student discounts, I felt that it was appropriate to do a quick run-down of Edhance - a brand new student discount service currently in private beta. Full disclosure: I do work for this company.

Edhance is short for enhancing your education. Below is a quick summary of how it is different from the other student discount services out there:

• All members are verified currently enrolled students
• Completely free for students to join
• Students simply register and swipe their Visa, Mastercard, or American Express payment cards at any participating merchant locations to get the discount
• The discount is posted as a statement credit on their debit or credit card statement
• No integration needed for the merchant partners - we work directly with major payment processors
• Merchants do not need to train their staff to read student ID’s or process discounts
• Advanced analytics and reporting available for merchants
• Ability to offer promotions based on day of week, minimum purchase, etc.

We did a press release last week, which got picked up by Entrepreneur, Forbes, Reuters, Yahoo Finance, Marketwatch, and a bunch more. So far, our beta users really like the service, and merchants are very happy. More information for merchants, students, and universities.

Interesting facts from the LoyaltyExpo

I just got back from two great days at the Loyalty Expo 2009 in Hollywood, FL. It is a great event for loyalty marketers to get together and brag about the latest and greatest in the loyalty industry.

One session stuck out in particular. There was a panel discussion about merchant-funded loyalty programs, sponsored by Vesdia. They have a merchant-funded loyalty platform that basically powers many of the 2x, 3x, 4x, 5x point offers you see in your bank loyalty programs like Citi’s ThankYou. These additional points are typically funded by the merchant - not via the interchange from the bank.

Amazing fact 1: One of the panelist was the woman in charge of the Vesdia relationship at Sunglass Hut. She reported that 93% of the customers brought in via this program were new!

Amazing fact 2: Then, later on, Vesdia reported that 80% of their revenue comes from their few (I think less than 10) retail merchant partners, and 20% comes from their 750 online affiliates!

This type of program may actually be the new “offline affiliate program” - where 90% of shopping still happens. Now, since merchants are more willing to give a reward (read student discount) to a verified college student, there are some interesting opportunities coming up. Watch out for Edhance!

Article in Loyalty Management

I was asked to write an article about student discounts and how they build loyalty for the magazine Loyalty Management by Loyalty360. Take a look here - (page 25). I’m working on a PDF version.

Universities - the masters of flexible pricing

It may not occur to you, but the universities themselves are perhaps the most effective price differentiatiors out there. Everybody pays a different price in college, and it’s all based on ability to pay and future revenue. Sounds familiar?

Ability and willingness to pay

The term gross household income sounds seems to be the most important question when filling out the financial aid paperwork for college. Tell us what you make, and we’ll find a good price for you. We’ll start with a high price point, then see how much we can get the government to finance, then add our own rebates until we agree on a price you’re able to pay. If it’s too high, by all means, let us know and we’ll see if we can “dig up some more scholarships for you”. 

Future income

There is a high correlation between good grades, high income, and university donations. In other words, by offering rebates (scholarships) to students with good grades, chances are they will retain their investment in the years to come. On top of that, getting customers in the door today that will favorably project our brand tomorrow is always a good idea.

Let’s learn

Nobody knows students like colleges and universities. These multi-million organizations face fierce competition, branding challenges, pricing dilemmas, and product issues every day. These organizations are businesses. When it comes to pricing, they know that students and their families are willing and able to pay and charge everybody a different price in a socially acceptable way. Merchants can do the same by offering discounts to students - charge what they can pay today and retain them for life.

Student discounts do not discount your brand

Your student discount should be 1/3 of your gross margin

The most critical question merchants looking to offer student discounts are faces with is what discount should we offer? There are three main factors that go into answering this issue:

• What is my gross profit margin?
• How much incremental business can I expect from offering the discount and does this change from time to time?
• What is the future value of a student customer?

Gross margin

Finding your gross operating margin is fairly straight-forward - it’s your sales revenue minus costs of goods sold, divided by your sales revenue. In other words, how the profit made on each product sold that, which again will pay for your overhead and other fixed costs. Below are some examples, based on annual years ending at some point in 2008:

• Apple - 34%
• J.Crew - 41%
• Microsoft - 81%
• Starbucks - 19%
• Best Buy - 24%

Incremental revenue

This is the holy grail. How much incremental revenue can I expect from offering the discount? First of all, you have determine if you already have all the students as your customers. If you are an on-campus bookstore, chances are offering a discount won’t give you any incremental revenue - you’re only going to hand away your margin. Secondly, you have to determine if students like your product, but the main reason they don’t transact is pricing. That creates an enormous opportunity. Lastly, perhaps the most important question is, will the discount actually be perceived as a good deal? This is where most marketers are surprised. Students are more price sensitive than probably any other group out there. When I worked at StudentUniverse, we would see students who opted for two connections with hours of waiting only to save $15 on a $300 flight every day. In fact, one of the most successful campaigns we did was a $15 promo code, and when we did A/B testing between $15 and $30, we saw very little difference. If you’re honest with yourself, what kind of cost-per-acquisition are you paying through other channels? Do you give half of your margin away to Google because they drove “incremental revenue” when somebody searched for your brand in the first place? And that customer probably referred another friend, so you really only gave away a quarter? Can you then really make the argument that acquiring a customer with an average of 60+ years of shopping lifetime in front of them is not worth giving up, say a third of your margin for? Especially when you factor in that we’re talking about the most viral, chatty, connected group of people in the history of this planet.

Lifetime value of a customer

Why do you keep buying that same toothpaste over and over again? Why do I love Volvos? Why do banks line up next side by side during freshman orientation at virtually every college and university in the United States during freshman orientation? Simply because when we like something, why change it? If it ain’t broke, why fix it? You know what you have, but not what you don’t have. If your marketing research reports tell you that a significant portion of your customers are repeat, what is then the value of a new customer? Isn’t this why both Netflix and my local gym offer up the first month for free? Some people would make the argument that even if you don’t make any money on your customers while they’re in college, that’s okay, because a significant portion of them will transact with you for life. Now, I’m not going to go that extreme. I know that you as a marketer are more concerned with right now, maybe the next year, and on a good day the next five. But, it’s a great argument for the exectuves who do decide the strategy of your company. Steve Jobs got it.

Conclusion

So, I promised you a guide, and so far this post probably looks more like a rant. As a general rule of thumb, your base discount should be somewhere around 30-35% of your gross profit margin. That gives you enough to play with at times when you need extra business, or when you know that students are looking for a good deal, such as back-to-school. But from my experience, giving up about 1/3 of your gross margin is low enough to sell internally to your organization and high enough to excite students to drastically change their shopping behavior. It also happens to be exactly what other companies with successfull student discount programs are offering (i.e. J.Crew and Apple). In essence, if you drive 50% more business from students by offering the discount, you’re back to point zero. Anything above that, plus the word-of-mouth and the future value of that customer is just yummy gravy. Plus, you can actually increase prices slightly to the general public and offer less sales to them - after all, now you don’t have to worry about scaring away students, right?

Embarrassing train situation for Norwegian student

Knowing (and caring) about whether or not a student is eligible for discounts seems to be a never-ending challenge for companies. An hour after I arrived in Norway for the holidays, I saw this play out in real-time.

My wife and I were taking the train from the airport. She had purchased a student ticket, since she is currently an architecture student back in Boston. However, I was a bit worried, because I vaguely remembered that NSB, the Norwegian Railroads, used to be really sticky on the type of proof they accepted. In Norway, bringing your student ID on the train is usually not enough - you actually have to carry with you a receipt showing that you’ve paid the tuition. My concern wasn’t so much the money, even though the discount was a significant 50% on a $70 ticket, but rather the fact that we had no Norwegian money and the embarrassment of “being caught”.

The conductor walked by our seats, took our tickets, and stamped them. He didn’t ask about a student ID. “Phew!”, I thought, as he kept walking. We took a nap, passed Oslo, and suddenly I heard his colleague approaching, telling everybody loudly that he was checking everybody’s tickets. Then it happened. The passenger behind us was a student, and gave the conductor his ticket and student ID. It seemed like this conductor had a different view on following the rules, and also asked for a tuition receipt. The poor student explained that he didn’t have it, and that he also didn’t have any cash. “You have two options”, the conductor said. Pay a regular fare here and now, or step off at the next stop. Since he had no money, he had to step off the train, and the 50% fare he had already bought was void.

Luckily, when he saw that our tickets were already stamped, he didn’t ask for my wife’s student ID (which does not have an expiration date). Not only was I happy that we didn’t have to go through the same embarrasment as the student behind us, but I was truly fascinated at the situation:

• Even in Norway, where they actually have one database with all eligible students in it (FEIDE), the government-owned railroads have not been able to come up with a better system than this for student discounts?
• No wonder Apple, Microsoft, and Dell does not dare to start thinking about validating their student customers in the United States, where we have 6500+ colleges and no easy and cohesive standard for offline and online validation of enrollment.
• It makes sense that student discounts are more widespread in Europe than the United States. Despite this horror story, it’s still much easier to validate enrollment due to more common standards.
• When a company does have tight validation, they feel better about offering a deep discount. 50% discount, even on transportation, is unheard of in the United States.
• Sadly, the biggest loser is the student, the customer with hopefully 60 years ahead of them as a consumer. He is embarrassed publicly in front of a packed train car and has to pay a full fare. A non-government business would never allow their customer to go through that. The ROI on the money gained versus the damage in the brand simply wouldn’t be worth it.