Optimal Admission and Scholarship Decisions: Choosing Customized Marketing Offers to Attract a Desirable Mix of Customers

Abstract

Each year in the post-secondary education industry schools offers admission to nearly 3 million new students and scholarships totalling nearly $100 billion. This problem represents a huge, previously understudied targeted marketing and price discrimination problem. This paper provides a solution tailored to this problem. This solution accounts for the key distinguishing feature of this industry-schools value the average features of the matriculating students such as percent female, percent from different regions of the world, average test scores, and average GPA. This goal to achieve a class with a desirable set of average characteristics greatly complicates the optimization problem and doesn't allow the application of standard approaches. We develop a new approach that solves this more complex optimization problem and also accounts for the Optimizer's Curse. In order to avoid the computationally untractable task of provably solving for the optimal policy, we calculate sharp upper bounds on the value of the optimal solution, which informs a heuristic search algorithm for feasible solutions. We then use conservative confidence intervals for the value of any policy to examine whether it is statistically distinguishable from the value of the optimal solution or other solutions. We test the approach in a field study of an MBA scholarship process and implement adjusted scholarship decisions. We demonstrate the methodology can generate statistically significant improvements over current management decisions and policies that are statistically indistinguishable from the true optimal solution. By comparing our solution to what management would do on its own, we provide insight into the nature of mistakes management made in this complex decision environment.

Homogeneous Contracts for Heterogeneous Agents: Aligning Sales Force Composition and Compensation

“…One area is joint choice of consumers and promotions. For instance, Belloni et al (2012) discuss an algorithm that enables a university to jointly choose a desirable mix of students and the level of scholarships required to attract them. The complication associated with sales force compensation relative to these situations is the presence of moral hazard.…”

First Degree Price Discrimination Goes to School

“…Finally, the most closely related study (which I encountered after finishing this paper) is Belloni et al . [], who conduct an extensive field study of the MBA scholarship‐setting process with focus on its impact on the composition of the class.…”