Well, the college system has existed since the early medieval period, and each college is an independent statutory foundation/educational charity, so I doubt they can change it just to make applicants feel less confused by it.
Of course the colleges know that most people don’t have loads of money - that’s why the bursaries are so generous. (Most academics these days are pretty penniless, too, and often live in rented college accommodation themselves.)
Many colleges have a lottery system for undergraduate room balloting because they all pay the same rent or banded rent. In fact the oldest and most grand / Hogwartsy colleges are the ones which are often likeliest to have more money available and charge lower rents overall. The colleges range from modern ones which make most of their income from room rents and conferences; to ones with big endowments and old rooms on draughty staircases. There’s a big variety, too, so applicants can choose to apply to a small friendly college, or a big sporty one, or a modern one, or a medium one with a big music scene and chapel, or whatever.
But the courses are complex and the students are expected to get going acclimatising themselves to a very fast paced confusing environment from day 1, and be self-starters — and that’s not to everyone’s taste or style, so if DC prefer a different kind of environment then that’s also fine!
Oxford get many more good applications than they can make offers to, so in that sense they don’t really have to “be appealing” as it were. Bear in mind that the colleges and the university will be cross-subsidising the fees the students brings by more than double — the average full cost of teaching a degree at Oxford or Cambridge is around £20-22,000 and less than half of that is paid from the fees the student brings (the rest is paid by college and university’s own funds as educational charities — how else do you think the tutorial system is funded? The student fees don’t cover anything remotely like the cost of 1-1 teaching.)
So in that sense they aren’t “customers” in quite the same way at Oxbridge as at other universities where the degree cost, depending on subject, may be much closer to the fee amount (though many other universities effectively subsidise the fees, too, just not to the same degree as Oxbridge.) Oxford, and the college, will be investing as much financially in your child’s degree as he is; so they are less trying to put bums on seats, and more trying to find the cleverest students they can who will benefit from the university’s investment in them, too. It’s not the system for everyone, but it would be silly to pretend it doesn’t confer benefits — the funds to teach in small groups by experts in the field, and provide excellent libraries and labs, are just some of them.