Status Update: How Do Organizations Respond to a Dip in Status?

Status has the potential to return concrete benefits for organizations, but status is subject to change over time, which begs the question, what happens when the status of a business changes? In their paper, “Status-Aspirational Pricing: The ‘Chivas Regal’ Strategy in U.S. Higher Education, 2006-2012,” published in Administrative Science Quarterly, authors Noah Askin of INSEAD and Matthew S. Bothner of ESMT European School of Management and Technology look to private colleges and universities to understand how organizations respond to changes in status.

The abstract from their paper:

This paper examines the effect of status loss on organizations’ price-setting behavior. We predict, counter to current status theory and aligned with performance feedback theory, that a status decline prompts certain organizations to charge higher prices and that there are two kinds of organizations most prone to make such price increases: those with broad appeal across disconnected types of customers and those whose most strategically similar rivals have charged high prices previously. Using panel data from U.S. News & World Report’s annual rankings of private colleges and universities from 2005 to 2012, we model the effect of drops in rank that take a school below an aspiration level. We find that schools set tuition higher after a sharp decline in rank, particularly those that appeal widely to college applicants and whose rivals are relatively more expensive. This study presents a dynamic conception of status that differs from the prevailing view of status as a stable asset that yields concrete benefits. In contrast to past work that has assumed that organizations passively experience negative effects when their status falls, our results show that organizations actively respond to status loss. Status is a performance-related goal for such producers, who may increase prices as they work to recover lost ground after a status decline.

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