Should I try to make school fees fairer?

13th March, 2010

Dear Economist,
I’m a marketing manager at a British private boarding school. Fees start low and increase during a pupil’s education regardless of the fact that costs remain pretty constant before inflation. I want to reflect this “flat” cost and reward loyalty – but how can I without an ugly hike at reception class?

Dear Fairfeea,

You work in marketing, so I’ll explain this slowly. If your fees are currently designed to rise steadily, and you would like them instead to stay flat, and you would also like not to raise initial fees … well, there’s only one answer: slash final-year fees and lose money.

Let’s take a step back. You say that you’d like to reflect costs. Why? Most businesses set prices to attract customers and increase profits. Costs are not directly relevant. What makes you different? And then there’s this bizarre idea of rewarding loyalty. Most companies say they reward loyalty, but it is more traditional to gouge loyal customers while chasing new ones. Don’t fall for your own propaganda.

Your existing pricing scheme works well. Parents will be nervous about whether the school will suit their children, so a cheap price year in reception is sensible. As they grow more confident and the child settles in, they will be increasingly unwilling to switch. That is why rising fees make sense. If parents are dim enough not to notice them, even better.

The only reason to change your current pricing is if you can figure out a way of concealing some of the later fees. Perhaps you could offer overpriced school trips and exam revision classes in later years – or even put a surcharge on the larger sizes of school uniform.

The only reason to reward loyalty is to create it when it does not exist. A private school will have loyal customers without your fancy pricing schemes. You should take full advantage.

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