Applying a data-driven niche market strategy to UK higher education

ABSTRACT

This paper argues that a data-driven, niche-focused approach to strategy development will assist Higher Education Institutions to direct their financial resources to greater effect by providing a more tailored service to students, therefore, increasing student satisfaction and creating brand loyalty. This approach will give institutions greater stability and prosperity in a constantly changing market. It is, however, the cultural risks which remain the biggest barrier to trying this approach in the UK and this paper aims to open the debate.

KEYWORDS:

• Strategy
• data
• higher education
• student satisfaction

Introduction and background

The landscape of Higher Education (HE) in the UK is changing. From the conversion of polytechnics and other institutions to universities in 1992 through to the Covid-19 pandemic in 2020, there have been many events in the last 30 years which have changed the way higher education in the UK is structured. In addition, the growth in the number of institutions in the sector and in student numbers (total student population of 2.8 m in 2020/2021 (Advance HE 2022) compared to 1.9 m in 2000/2001 (HESA 2001)) has fuelled the on-going debate about the purpose of higher education both now and in the future, particularly from an undergraduate’s perspective.

Over time the changes affecting the sector have been many and varied including:

• Political shifts from Labour to Conservative Governments bringing with them further changes to the funding structure of HE.

• Increased burden of regulation on the sector through REF, Teaching Excellence Framework (TEF) and international university rankings.

• Changes to the composition of the student body through increased visa regulations for overseas students, Brexit and the rise in quality of HE providers in China and India.

• Economic effects including the weak domestic graduate job market, increased student debt, increased cost of living and increased cost of delivering high-quality courses.

• Social and demographic changes including longer life expectancy, the need for life-long learning and in addition a growing 18-year-old population seeking access to HE.

• Technological improvements which have enabled online tuition, hybrid and flexible learning and simultaneously allowed faster and often uncontrolled dissemination of information about HE providers.

Further expansion of these ideas can be found in Scott’s Retreat or Resolution (Scott 2021).

Higher Education Institutions (HEIs) are now big business generating £18.9 bn in income from tuition fees in 2017/2018 (UUK 2022). Increased fees and the burden of cost shifting to the student have led to the concept of students as customers who are consequently demanding value for money from their student experience. Capital expenditure for UK HEIs in 2019/2020 was £4.2 bn (note that spend in the full financial year before Covid hit the spend was £5.3 bn) much of which had been undertaken using financial borrowing facilities, that is, loans. This meant that when a global pandemic came along the major worry was the impact of the loss of income on loan payments and the slowdown of progress on various capital projects. Loan payments being a priority, other operating expenses were, therefore, de-prioritised, capital projects were put on hold and staff furloughed or offered voluntary severance to balance the books.

Some scientists predict that global pandemics will be a feature of our future and even without them, policy changes in the HE sector will inevitably keep coming. Knowing this, HEIs now have the chance to reflect on the past two years and plan ahead to see how they can weather the changes to keep on providing education for the public good in the future. The answer could be that, as with nature, so with organisations and HEIs need to adapt to the changing demands of the constantly changing world and learn to thrive by using a niche strategy.

Businesses have been operating in niches for years using customer data to shape and protect their corner of the market, whereas corporates can buy and collect sector-related data to provide evidence and a basis for their strategies, the route for HEIs to get access to their data presents challenges. HE-sector data are segregated and protected with providers such as UCAS having withheld until recently detailed data from researchers (Boliver 2018, 69–70). So how are HEIs expected to function with a business mindset, find and understand their niche, create an appropriate strategy and have a chance of surviving and thriving if the data are not easily and comprehensively available? The push towards a business mentality within the sector has turned HEIs into profit-seeking, or income-seeking corporates (Beynon 2016) with detailed strategies and Key Performance Indicators but has not given them the ability to find these based on evidence.

Since 1999 when the then Prime Minister Tony Blair set the target of 50% of young adults going to University signalling a move towards mass HE in the UK, combined with the change of funding regime has meant that HEIs have been competing for their income. In addition, with the introduction of the TEF, students are expecting high-quality, student-focused teaching and have the chance to vote on whether the course met their satisfaction at the end of their undergraduate years. This focus on teaching quality has placed importance on the staff: student ratio for each course (Court 2012). To increase the ratio requires investment in more staff, which requires more income either gained from larger class sizes or by taking on more overseas students.

Alongside the financial pressure, the student number cap was phased out starting in 2012/2013 where the cap on students with AAB at A-Level (or similar) was removed and then by the academic year 2015/2016 the removal was complete, allowing UK HEIs to recruit as many UK and EU undergraduates as they could (Hillman 2014, 6). The Government reasoned that demand for HE would still remain high and that skills taught at HEIs would help raise economic performance (Hillman 2014, 1) and this triggered a period of uncontrolled growth in student numbers. In addition, applications from international students were reduced by stricter visa rules coming into play in 2009 (Shepherd 2009) which would have reduced opportunities to take advantage of income from higher fees for overseas students. Many HEIs have chosen to grow their student numbers since 1997 to capture additional income but being a large-scale HEI and being an elite HEI are two different things. UK HEIs may need to choose between being big or small, offering to the masses or offering a bespoke product.

Large-scale HEIs, or generalists, can respond to environmental changes by using different pre-determined moves to serve the audience’s changing needs. However, the outcomes from these pre-determined moves are limited which eventually will impact negatively an organisation’s performance (Péli 1997, 5–6) and although generalists can take advantage of their size by economies of scale, the larger the provision gets, the more the quality declines (Péli 1997, 6). HEIs with larger student bodies bring in more income in tuition fees and can, therefore, invest more money in non-personal aspects of their offering (for instance, the number and quality of student facilities) which will increase customer satisfaction (Venkataraman and Low 1994, 201–202), the larger the organisation, the more staff are needed to increase personal contact points with students. This increase in personal contact points combined with large organisations having more complex structures and being more bureaucratic (Goldschmidt and Chung 2001, 52) can impact negatively customer satisfaction (Goldschmidt and Chung 2001, 50) and as noted in research by Langan, it is those personal interactions (course organisation and smooth running and staff being good at explaining things) which most affect the NSS score (Langan and Edwin Harris 2019, 1081). In addition, while generalist organisations might be able to take advantage of a broader audience from a wider part of the market, it takes them longer to build a reputation and because the nature of their work is not specialist they would not be able to charge higher prices (however, price variation is only available in a free market and the UK HE market is not currently in this position, but that could of course change).

HEIs in the UK are, on the face of it, generalists trying to grab a bit of many different areas of the undergraduate market, and this has had its uses. The standard undergraduate fee can be used to cross-subsidise the courses which are expensive to run with the income from those that are cheaper. However, there is an alternative. Mass higher education does not mean every HEI has to be a mass provider. The UK as a country can still provide HE to the masses, but each provider could seek to design their offering to serve different parts of that demand i.e. different market segments, all of whom have differing needs. Translated into business terms, this is a niche approach.

Niches

In business terms a niche is a smaller part of a larger market within which the audience has similar needs demands and values (Toften and Hammervoll 2013, 272–273), that is to say, a niche is formed according to an organisation’s appeal to an audience. This niche can be modified, however, by changing how the organisation engages with their audience with some companies choosing to refine their niche further by combining several key factors and thus making the target audience segment even narrower. It is organisations operating within this narrow niche that are particularly interesting and it has been shown that engaging with a narrower market segment can enhance chances of survival (Dobrev, Kim, and Hannan 2001, 1333). This can be achieved as follows:

• By serving a smaller audience, an organisation will gain a better understanding of their audience’s needs and desires helping to develop a personal connection which will enable the organisation to develop products and services better tailored to their audience’s needs (Toften and Hammervoll 2013, 281). This leads to a more satisfied audience, creating brand loyalty and customers for life.

• The niche approach enables the introduction of a ‘transition’ approach in management which helps an organisation overcome structural issues within society (Raven, Bosch, and Weterings 2010, 58). Research has shown that this approach combined with Strategic Niche Management can help an organisation address how it can better meet social needs and improve social equality (Raven, Bosch, and Weterings 2010, 59) by providing the right environment for social innovation (Raven, Bosch, and Weterings 2010, 63). Once a transition has been experimented with and reviewed, a cyclical process of establishing the transition area, developing support for the need, carrying out the experiment and reviewing, known as the Transition Management Cycle can lead to compound improvements (Raven, Bosch, and Weterings 2010, 67). This creates an organisation evolving to meet its audience’s changing needs, keeping its offering relevant, its services in demand and income coming in.

• This two-way dialogue between the organisation and its audience enhances organisational learning. External feedback in combination with internal organisational learning (e.g. by refining internal processes) can prevent an organisation from falling into the competency trap (Levitt and March 1988, 322) which could enhance an organisation’s life expectancy. The competency trap occurs when organisations exhibit inertia, that is to say, they are stuck in a certain way of doing things and are slow to adapt to changes in the external environment. The focus for resources in such cases is on older products which leaves little time and money for the organisation to up-skill and design newer products which, in turn, can lead to a shorter organisational life expectancy.

• Niche organisations build skills and specialist capabilities which the rest of the market cannot easily imitate, therefore, protecting the niche from competitors (Toften and Hammervoll 2013, 281) in the long run, smaller organisations are known to have a greater life expectancy (Dobrev, Kim, and Carroll 2002, 261), therefore, rendering size and competition irrelevant.

• By focusing on a smaller portion of the market, an organisation can focus on its products and services, therefore, building a reputation for being an expert in a particular field. Having expert status is a key ingredient for organisational success as it often leads to increased social recognition and the possibility of charging premium prices (Moser 2017, 676).

• By only targeting a smaller section of the market there is less competition and marketing costs will be reduced. Although this reduction in spend will be a small percentage of operating expenses, the money saved could be used more efficiently by investing in the areas of the organisation which could impact rankings such as NSS more as detailed in research by Langan (Langan and Edwin Harris 2019, 1081).

• The smaller the organisation, the higher the job satisfaction for employees which can be due to more informal relationships between managers and their staff and less organisational bureaucracy (Goldschmidt and Chung 2001, 50). This job satisfaction will, in turn, keep staff in their jobs for longer periods, therefore, retaining the tacit organisational knowledge and thus offering a better service to their audience and improved audience satisfaction, which, in turn, will keep demand and income high.

• A niche approach brings a higher social status. Social status in business can be achieved through imitation of a high-status product (Park 2000, 379 and 410), which increases demand and builds up a loyal audience. According to research by Podolny, the loyalties are so strong that the link between quality and status is blurred (Podolny 1993, 835) which, therefore, means even if the quality of the service or product drops, brand loyalty will provide continued financial stability. This loyalty plays into the idea of Middle-Status Conformity, a social concept of perceived quality where providers who are at the top or bottom of their sector can take more risks.

This increased certainty in income stream gives an organisation stability to weather market changes. The niche concept can apply to many business sectors and it works, so why not openly embrace the same approach for the Higher Education market?

However, it’s not necessary for all providers in a market to be specialists. Both specialists and generalists can co-exist in a market and survive by complementing each other’s services, which is already seen in the microbrewery and micro-vineyard industries (Carroll, Dobrev, and Swaminathan 2002, 23). To survive any future shocks to the environment, HEIs need to firm up their income and they need to find their niches. However, it’s not just an organisation’s overarching niche that matters, each department and each course will have its own separate niche which needs exploring and understanding but this is out of the scope of this paper.

Advantages of niches

The advantages of operating within a niche as applied to the HE sector could bring out the following benefits:

Knowing its audience better will allow an HEI to provide a better service, increase student satisfaction and create brand loyalty. In a world with an ageing population and a population which has to up-skill regularly, creating this brand loyalty will result in customers for life. Bringing in one undergraduate and providing him/her with a good experience could mean a secure income stream for the following 40 years to meet their further training needs. Even at £1 k every 5 years over a 40-year career that’s a potential future income stream of £8 k income per undergraduate over their career and when multiplied by the number of undergraduate entrants per year, the potential income stream quickly builds up. Viewed in combination with the Government’s Lifelong Loan Entitlement which commences in 2025 (Department for Education 2022) this is a key income stream for HEIs to tap into.

If an HEI were to develop an expert reputation in a particular area, demand for places would continue due to the ‘expert’ status and higher fees could also be charged. Developing and maintaining this expert status will keep demand high and, therefore, build a reliable stream of income going forward.

In addition, a further beneficial effect would be to be able to direct financial spend to the areas which would lead to maximum added value for students. If HEIs want to provide good value-for-money and good employability outcomes for students, they need to understand the audience and spot the gaps between their audience’s needs and pre-existing skills and what an HEI is offering and invest in the gap. This could be anything, for example, enhancing workplace-related skills, building up industry-related networks or additional on-course support, all of which enhance employability. There is no point investing money if you do not know what is missing and, therefore, needed. This skills-focused approach will put better-equipped graduates into the job market, which, among other things, will strengthen HEI’s brand.

A secondary benefit to this kind of investment is that knowing where to invest will lead internally to a more focused approach to capital investment, or a move towards capital rationing, where facility or service improvements can be selected based on potential return. Better facilities and student experience will again increase demand for courses and strengthen the brand in the UK, again leading to a more secure source of income.

But in order to take this approach easy access to the data is needed. Subscription-style access to the longitudinal data will allow the sector to really understand what is happening within their market segment and, therefore, determine what is needed. These data will make the sector operate more inclusively and more efficiently from a resource point of view and is the natural next step in moving to a business-oriented model. And it is not only students who will benefit. If an HEI frees up the cash and invests in the right place (joined-up, easy-to-use administrative systems for example), the administrative load will ease and make life easier for all. It is a win for students, professional services and academics.

Disadvantages of niches

While a niche can be a successful operating model, there are associated risks which applied to HE are as follows:

Operational risks

• Working in a smaller subsection of any market limits the opportunities for growth, which is against the current trend of the massification of Higher Education. Limited growth may mean limited potential income which could limit an HEI’s NSS score as it will not be able to take advantage of the benefits which come from having a critical mass of students such as increased funding for on-course student support and other facilities.

• Operating in one part of the market can leave an organisation at risk of failure should demand for the sector change dramatically or suddenly. At an overarching level, HEIs are selling themselves on the ability to get a graduate a job after graduation through the emphasis on transferrable skills (Lauder and Mayhew 2020, 7). However, as Lauder & Mayhew go on to argue, graduates are under-employed and this could negatively affect demand for HEIs. At the subject-specific level, with the emphasis on education being purely to get a job, subjects like modern foreign languages are now in decline resulting in departmental closures. Research shows that between 2008 and 2019 there was a loss of 50 HEI language providers in the UK (Polisca et al. 2019, 24). The impact of this on a niche HEI could be a merger or total closure, such as Heythrop College’s demise which began when tuition fees were raised to £9000. The College finally closed in 2019 (Grove 2018) and is a prime example of a niche strategy going wrong.

• In the social media age, any wrong step could cause a tidal wave of problems, leaving less room for error and where the profit margins are small, this could negatively affect demand and therefore income. Social media ignites, amplifies and sustains negative press (Pownall 2015, 19–20). Even for larger organisations this can cause enduring problems with reputation, as shown by the Qantas Luxury Twitter debacle in 2011 (Glance 2011) which was still being talked about four years after the initial event and saw the company lose top place for domestic customer satisfaction rating (Pownall 2015, 20).

• It is known that the deficit incurred by publicly funded teaching is counteracted by the surplus made from tuition fees from overseas students (Office for Students 2022, 7–8). Therefore, the departments that are more expensive to run, that is, STEM departments need cash cow departments (e.g. a Business School) to cover these costs. This cross-subsidy could be lost in a niche model if not carefully managed.

Cultural challenges of niches

• Operating as a niche organisation will require a cultural change from within an HEI. Data analysis teams will be needed in-house which will initially be costly and the data will need to be actively managed and accepted as the one source of truth. That is not to say human opinion will not matter, but all stakeholders would need faith in the approach and this would be challenging in an environment where differing opinions and debate are key parts of their existence. A risk of cultural change is that staff become unhappy which might induce strikes in turn leading to damage to teaching and research and consequently rankings.

• In addition, HEIs would need to reassess their governance (in terms of people and practices) in light of a new way of working. A slimmed-down, more agile governance structure would need to go hand-in-hand with this new approach.

Operational risks can be minimised if the right strategy is in place and the right money is invested, but cultural risks will be challenging to manage. A data-driven approach to strategy would be able to pick up minute changes in the HEI environment and flag when customer demands or needs change and from this, an HEI’s strategy unit can make recommendations for change at the earliest possible stage before a merger or closure is the only option. Data are, therefore, key to an organisation thriving using a niche strategy.

Data

According to HESA, there are currently 31 sources of data about UK HEIs (HESA 2022) all reporting on slightly different aspects of the environment. While all datasets are available, they are mostly independent of one another. The power that uniting these rich sources of data, so that HEIs can make efficient, data-driven decisions could be immense; however, data protection legislation and organisations wanting to hold onto their data as a form of competitive advantage will provide challenge to a transition to a more transparent data process within the sector.

One company, however, Data HE (https://datahe.uk/), is putting data at the forefront of HEI decision-making and actively helping HEIs use the available data better. They have combined all the publicly available data of the whole market and can look at market share for undergraduate and postgraduate courses, model recruitment targets and carry out competitor and brand analysis with the overall aim of helping HEIs to ‘avoid chasing statistical noise’ (DataHE 2022).

So, if we make the case that HEIs will be better able to make good decisions (in terms of financially and student satisfaction) we need to consider the evidence that such an approach can work.

Niches in action

Niches work in business. Take, for example, the gluten-free food industry. As people are becoming more aware of their dietary needs, this industry has boomed. In 2010 sales in the UK were estimated to be £166.2 m, rising by 95% to £324.2 m in 2015 (Statista 2016) and future compound annual growth rate (CAGR) is predicted at 6.2% in the UK between 2020 and 2027 (Mordor Intelligence 2022). The UK market for gluten-free food did not even see ‘significant losses’ during the pandemic (Mordor Intelligence 2022).

Looking at the HE sector, niches have always existed, but due to political pressures placed on HEIs to appeal to the masses, the underlying niches are often disregarded. In reality, all HEIs have a narrower appeal than the mass market and are, therefore, unable to engage with everyone despite all efforts to do this. In turn, this begs the question of whether spending money in this area is the most efficient use of the often limited financial resources. In addition, being honest about the existence of niches does not necessarily sit well with current political policy on HE-for-all and widening participation because niche businesses bring with them an association of being of a higher social status. However, every student has differing needs when going to university and these can be and are already being addressed by different providers.

To illustrate this point, in the UK one example of a niche in HE are the music colleges which are recruiting musical talent and thus are drawing on a small market segment. In addition, there is the University of Buckingham which works on a 4-term a-year basis, so degree courses can be packed into 2 years providing a quicker route to the job market. The results of these niche-operating institutions are good. Of course, it all depends on how you measure outcomes but in the 2021 NSS the Royal College of Music (796 students) received a student satisfaction rating of 85% and the University of Buckingham (2,531 students) 82% compared to the University of Birmingham (31,364 students) which received 71.9% (Hunter 2021). Durham University has been narrowing its niche for many years. In 1963 the federal University of Durham dissolved and the part formerly known as King’s College became Newcastle University (Newcastle University 2022). Further to this in 2007 Durham shut down its East Asian Studies and Linguistics departments due to funding cuts for minority subjects from HEFCE (Killeya 2007) and to invest more in research and areas more attractive to potential students (MacLeod 2003) and by 2018 had transferred its School of Medicine, Pharmacy and Health to Newcastle University. The University’s rationale on both these latter occasions has, among other things, been to focus on areas which will have a higher research impact (Durham University 2018) which could be described as the organisation becoming increasingly niche in its offering.

Further afield in Australia the University of Divinity educates in religion, philosophy and spirituality and received an overall student satisfaction rating of 82.6% in 2020 which placed it second in Australia for student satisfaction. The University attributes this high score to dedicated staff and small class sizes (University of Divinity 2022).

Generalists in action

Looking to business for an example of success in the generalist arena, is John Lewis, the UK department store. John Lewis was founded in 1864, starting life as a draper’s shop on Oxford Street (John Lewis Partnership 2022), London and over the years the company has grown, developed and adapted to the changing needs of its customer base.

Translating this into the HE market, mass HEIs can work and provide, according to NSS results, a good outcome for student satisfaction. Take the Open University (63,446 FT students) for example which in 2021 was ranked 3rd in the NSS rankings with a student satisfaction of 88.24% or Glasgow University (27,625 FT students) which was ranked 12th with a satisfaction rating of 83.68% (Hunter 2021).

Conclusion

HEIs in the UK are being steered into operating with a business mindset without the tools to make a success of it. Mass HE can be provided in the UK, but not every provider needs to cater to the masses. The approach of accepting the pre-existing market niches and changing how HEIs engage with them has many advantages. If the available data were to be shared and databases joined up more easily, HEIs could understand their market segment, design and drive their strategies based on evidence, enabling them to use their income more effectively to improve student education and outcomes and thus provide better value for money, higher quality and differentiated offerings. This will help students make informed decisions about which course to study at which HEI and could, therefore, even reduce the drop-out rate. In addition, for on-course students, improving outcomes will increase student satisfaction and create loyal customers who will return to their alma mater for on-going lifelong education, providing an HEI with lifelong income streams.

There are, of course, risks related to this approach. Niches can change over time and if this approach is to be adopted, there is a need to monitor the data regularly. The audience for niche businesses often expects higher quality, leaving little room for error and this will be challenging in a world where reputation spreads in an uncontrolled way through social media. The biggest red flag would be the increased emphasis on data would signify another shift towards HEIs being run as businesses which is out of line with the standard idea of a university which will not necessarily be met with pleasure by the academic community. But perhaps it is time for academics to work on acceptance of the direction of the sector and save energy for bigger battles.

With the direction in which the sector is headed, pressure should be placed on Office for Students and all other data providers for the UK Higher Education market to collate, compile and combine the full market data through a subscription service and let HEIs find, own, accept, embrace and exploit their niches and reap the rewards for the public good. Higher Education is for everyone, but there are many ways this can be achieved and these need to be explored to make certain the future of the sector. Research needs to be carried out into the potential impact of social niches on the UK HE market, the impact of embracing these and the effect that would have on the operating models of individual HEIs as well as the wider UK market.

Acknowledgement

This is to acknowledge any financial or non-financial interest that has arisen from the direct applications of your research. The author reports there are no competing interests to declare.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Kate Ayres

Kate Ayres is a student on the Doctorate of Business Administration (DBA) course at Durham University conducting research into how social niches influence organisational structures and strategies of UK Higher Education Institutions. She has worked in HE in the UK for 14 years in a variety of administrative and financial roles.