In my last article, I mentioned that the language used now by the formal VET sector regulator, the Australian Skills Quality Authority (ASQA), indicated that their turnaround of the VET has moved onto the next stage. While the last 2 years ASQA has focused on “cleaning house” since the mandatory up grade to the TAE40116 industry benchmark came into effect to repair the damage to the formal VET sector.
Step 3 is “think money in, not money out”, which relies on finding customers. However, in an industry that is propped up by government funding and guarantees of quality, history shows us that by the time the Government looks at how it can get money back into these industries, it already too late and not seen as value to the Australian taxpayers to do it.
It seems that people in the formal VET sector are themselves poor learners if they are now stuck on the TAEtanic and have not learned from other industries. Think about import tariffs or sub-prime loans for the manufacturing and banking industry, and their effect on the Australian economy. Particularly ones that have a ready-made replacement product of higher quality? How long do you think that industry will still exist in the real world that the rest of Australia lives in? During a global pandemic, do you think the government is going to save any industry?
Damage caused from things like VET FEE-HELP providers, and other sub-prime learning like funded job seeker training that did not result in people on Centrelink benefits getting skills (or jobs in the majority of cases), “ghost RTOs” using international students as “cash cow” selling an apparent “Star” product internationally,… we could go on and on,… but we will just move to (of course) the precedent that was set with the TAE upgrade that it was OK for RTOs to teach people to do jobs the employers in the training industry didn’t actually want to pay trainers and Assessors to do.
How does L&D get “money in”?
Performance assessment, self-assurance, these terms now used by ASQA to describe what is to replace a “compliance audit”, is starting to sound more like L&D. Which basically operates on step 4 or you get corporate clients”. Step 4 is “Asking the right customer the right questions”,
The right question is not “what would people pay for”, the question is “what would people pay extra for?”. That gives a realistic list of what businesses can do to grow sales to a sustainable level, but it depends of who you ask. You could be asking the 20% of customers that cause 80% of your problems. So if you build those customers to 25% of your business, 100% of your resources are tied up in just fixing problems.
If any business has a weakness in any of the 4P’s in their marketing mix – Product, Price, Place, or promotion – the business will fail in 100% of cases.
This is the case for RTOs too. Another history lesson, Vocation Limited was the biggest RTO group in Australia, a publicly listed company, with a former MP as it’s CEO, when its biggest customer (the Australian Government) stopped paying them to do training.
Are RTOs a business?
RTOs also have financial viability requirements for continuing registration under the 5 areas of the Vet Quality framework that ASQA also enforces. So if you are looking to do your own version of Porter’s 6 forces analysis to see if your RTO is viable in the VET sector, here’s how I teach my certificate IV marketing students to analyze the 4P’s
Money going out is your costs – What it cost to produce a product for a market. If suppliers have the power, you have increased costs. The Australian government is the supplier of the training products RTOs are licensed to sell, so pushes the price up, and as the Government funding rarely covers the cost of setting up an RTO. If you can’t show that you can run an RTO without funding, you won’t get the funding. As may start-up would have found out when applying for a government grant.
What you charge is your price. If you get this price, However, it is another story, The customers are given the bargaining power here because it depends on what a customer is willing to pay (if they can afford it at all right now). Even if it is a free course or close enough to it under the Job Trainer funding, people still have to pay a price to give up their time and do the work.
When the Government paid the price as a loan to students (VET FEE-HELP), they also paid a price politically as less than 5% of people completed the qualification out of all that signed up. Although this only related to 6% of formal VET system training providers, the whole formal VET sector is still paying the price for this. For RTOs, the Barriers for new entrants into the formal VET sector also gives RTOs a false sense of security
How much people can use your product is the value to the customer. So it comes down to the convenience and benefits of buying the product from you, so competitive rivalry is a strong force here. It’s not the features of a product, like online, blended or face-to-face learning, that is just the vehicle to get the product to the place people want to learn. So a feature of the RTOs product, qualifications quality controlled by the government for consistency, means the threat of substitution is a killer for many RTOs.
money coming in is a consequence of providing value. This is what you promote to attract the right customers, but the sales team still have to convert marketing into customers. This is also where complimentary products have been added onto the original 5 forces and the rise of the affiliate marketer. Collaborations are not a new thing, but these days you don’t have to have the resources of Microsoft, HP, and Intel behind you to compete with companies like Apple and promote each other’s brands.
Understanding the “job to be done” theory of innovation will help you understand how disruptive innovation work, and what is a hot promotional tool in the information post-industrial age. The world’s biggest accommodation business owns no hotels (Air BnB), the worlds largest transport company owns no cars (Uber). In Australia, the world’s 3rd largest educator of international students, how long do you think it is before they will do no training (TAFE), and they will still own the IP for what is an AUD$100 billion industry?
Setting “prices” in the training industry
There are many ways to do this, but the ways I’ve seen that have sound theory in consumer behaviour most commonly used in a business during my more than 25 years experience in franchising and start-ups relate to another of Porter’s well know theories:
- Markups – “Cost Leadership” (no frills) and cheaper products usually dominate this. Common with a higher threat of substitution, like supermarkets selling the same brands, but for RTOs it is more to online course comparisons where basically the cheapest wins. So it is real a race to the bottom is both products and services too.
- Perceived value – “Differentiation” (creating uniquely desirable products and services). Creating a point of difference to your competitors by bundling and adding feature to increase the value of your product. Where these pricing strategies come undone is usually from adding features that customers don’t want and never use (but still pay something for). And to advertise your bundle is “valued at…” the ACCC says you have to have sold 1 of this product at this price, which few in the training industry do.
- “Focus” (offering a specialized service in a niche market) – If your product truly is unique in the market, you don’t have a point of reference in the market to set your prices. You can lose this competitive, or first movers, advantage by using the 2 above strategies as making comparisons to other products means it is no longer unique. There is also something known as the founder’s trap where a business will not adapt it’s product because that’s not what the founder created the product for. Limiting the uses for the customer also limits what the customer is willing to pay. Under this strategy, if you set your price at $1000 and the customer only wants to pay $500, the feedback the customer is giving you is “I can only use 50% of your product”.
The best way I’ve seen around point 3 is to find 5 early adopters (AKA foundation customers) that are in your potential market, and get them to trial the product. The ones that keep using your product after the trial are your ideal customer. But don’t ask them what they would pay, Ask them what they think their friends would pay for it.
How do you get them to dob in their mates? Early adopters want to be the first to use things, so tell the foundation customers they will be given the new updates for free as long as they keep helping you set a price that the market will accept. From there you can work out the features you can afford to add in when competitors do R&D (which is innovations cycles is normally “Rip-off and Duplicate).
A practical example of setting prices for the VET Sector
Porter then subdivided the Focus strategy into two parts: “Cost Focus” and “Differentiation Focus”, which is basically what RTOs are now divided into.
The RTOs with the Differentiation Focus is likely to survive by differentiation to the cost focus RTOs the RTOs that have taken the cheap seats on the TAEtanic have been locked away below deck. The whole industry is just waiting for the ship to sink, but in the meantime, in-formal Vet sector providers get cheap online skills training clients as they have lower costs than RTOs.
L&D picks up the corporate training given previously to RTOs. Not just because L&D is not RTOs, some do both. While training overcomes weaknesses, L&D focuses on strengths. While overcoming weaknesses is like doubling $10, doubling your strengths is like doubling $50, so then you can afford to pay someone to do the weaknesses for that person. Which strategy do you think businesses want right now?
If the 10893NAT Certificate IV in Learning Design and Facilitation as a new course was going to get someone a $100k p.a. job with a business, $10k investment for the course would be seen as good value as to what customers would be willing to pay. This works under “jobs to be done” theory of innovation (not the diffusion of innovation), or Sinek’s infinite game thinking if you are looking for comparisons,
Or under the rule of 72 used by investors, that $10k course is a better deal than for 4 Cartier watches as a bonus for high-performing staff!
In the marketing industry (from managing marketing trust funds) a $10k marketing spend would be expected to generate $100k sales in new business, but a $2k marketing spend would also be expected to generate $100k sales from existing customers.
So you may think based on this L&D would not be able to charge more for training with existing staff, but that’s not how this work in reality. So for the formal VET sector a qualification is the outcome that says they are competent to do many jobs. Where as L&D focuses on improving performance is specific jobs employers want people to do. So it’s not the qualification that has value to an employer, it is what people can do with the qualification that adds value to an organisation.
What about TAE40116 as the industry benchmark?
Compared to Certificate IV in Training and Assessment, where there are few full-time jobs as a trainer? likely only earn $30k p.a. after you complete that. The market rate the niche customers would be willing to pay is $3k for cert IV TAE, if the customer believes they will use everything they learn they need to use for the job.
But as it is common knowledge that you will only use 50% of what you are required to learn to get your Cert IV TAE when you work as a trainer and assessor. The price customers are willing to pay comes down to $1500.
If you get a job with a bigger RTO that buys in resources (or has a development team) you only use 25% of your TAE, which is why there is demand for CIV TAE for $750. However, there is now a demand to redo the training done in the Tae up grade to get the other 25% skills they now need to use to implement the new BSB qualifications. So essentially this is a 2nd hand market.
This also explains why TAFE is basically giving away the CIV TAE for $50 under the Government’s job training funding. That is how much of the $3000 course people looking for a job will be able to use of their CIV TAE in the next year to get a job. And as the funding targets under 25 year old’s, what course are graduates going to have more than 5 years’ experience in to meet the requirements to get a job as a trainers and assessor, even if they have another qualification in that field they are also required to have? You don’t get all that from TAE40116, do you?
Speaking of not getting what you paid for…
Next week we will talk about the concerns trainers of international students have with the government’s decisions to let them work more than 20 hours a week in certain industries. They pay 5 times as must as domestic students and are meant to get a proportionate amount of training. Next week we will discuss how if you were really competent in all the core units of Cert IV TAE, you would be able to integrate the student’s part-time work experience into their course, just like L&D facilitators do. If your RTO tells you you can’t do it, ask them why another can when it tells them in the standard how to.
That’s what everyone else does is how must compliance managers do what they do, but in a quality training market, you do things because you can and it benefits customers. just comes down to what you want to do, or not do. Your choice.