Price Elasticity of Demand

Price Elasticity of Demand featured image
27 January 2024

The team at MTM Consulting first wrote about the importance of fee elasticity in independent schools in 2022 and we have been delighted to see, over the last 12 months, that more and more schools are realising that fee elasticity is a crucial concept for the sector. As families weigh the benefits of private education against its costs, schools must carefully navigate their fee structures to maintain financial sustainability while attracting and retaining students.

Factors influencing Fee Elasticity include:

Perceived Value of Education

The perceived value of education plays a pivotal role in fee elasticity. Families are more likely to tolerate fee increases when they perceive a high-quality education that aligns with their expectations. It is therefore crucial for schools to effectively communicate the value they provide.

Economic Conditions

The economic landscape significantly influences fee elasticity. In times of economic downturns, families may become more price-sensitive, leading to a higher elasticity as they seek alternatives or consider state school options. However, what some of our work with individual schools has shown, is that the Veblen effect can also come into play, i.e. the more the price increases the more desirable it becomes.

Demographic Changes

Shifting demographics can impact fee elasticity as schools cater to a range of students. MTM Consulting highlights the importance of schools understanding the socio-economic backgrounds of their student population. A deep understanding of the demographic landscape enables schools to tailor fee structures to accommodate the financial capacities of their community, ultimately improving enrolment stability.

Competitive Landscape

The competitive environment among independent schools is a crucial factor affecting fee elasticity. MTM Consulting emphasises the need for schools to conduct regular benchmarking against peer institutions. Understanding the competitive landscape allows schools to position themselves strategically and adjust fees in a manner that reflects their unique offerings and advantages.

Fee elasticity is a dynamic aspect of independent schools that requires careful consideration, bespoke analysis and strategic planning. As part of our fee elasticity reports, we are able to accurately assess the fee elasticity of demand, enabling schools to make informed predictions about the impact of varying fee increases on pupil contractions. We utilise postcodes from current families to profile affluence levels, anticipating how these families will respond to price shocks.

By understanding the nuanced factors influencing their own individual fee elasticity, schools can implement informed strategies to foster long-term enrolment stability and success.

Our white paper on this topic, in conjunction with Dr Nick Rowe from the University of Essex, will be launched at the House of Commons on Wednesday 7 February.

For more information on our bespoke reports, please contact Daniel Cohen on 01502 722787.

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