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Korean discounting hurting agency sector

A discounting war is underway in Korea’s competitive agency market which is threatening to squeeze out medium-size agencies and damage foreign educators’ brands, according to sources in market.

It significantly undercuts medium-size players which must cover costs for consultancy services and overheads

Driving the trend, say sources, is an increase in “sub agents” – one or two-man outfits which place students through the few large “wholesaler” chains that dominate the Korean market.

Due to their low overheads, small offices and limited consultancy services, sub agents are choosing to offer significant discounts on courses at foreign schools, sometimes as high as 20% say the sources. This is achieved by passing on some or much of the commission due to the agency as a discount; usually without the knowledge of education brands which expect everyone to work with the same gross price.

This discounting practice does not threaten the biggest agencies (which can charge the highest commission in the market due to the high volumes of students they provide foreign schools). However, it significantly undercuts medium-size players which must cover costs for consultancy services and overheads (and may not receive as high a commission as bigger agencies).

Jeesung Jang, managing director of Ukuhak.com, Seoul, said that medium size agencies such as his were struggling to compete. “Students come to me and take free consultation on areas such as orientation and the quality of schools. Then they go to small agencies with big discounts and book through the wholesaler.”

Usually without the knowledge of education brands which expect everyone to work with the same gross price

Jang said it was “killing” his market but he did not know how to solve the problem. “One solution might be that the schools would prohibit using agents who discount. They already try not to use them, but what can they do? They need students.”

Most foreign schools will not use agents who discount as policy, as it is seen as creating an unfair competitive advantage and can damage their brand.

St Giles International, a UK-based English language school chain, recruits a sizeable proportion of students a year from Korea and has a strict anti-discounting policy. However, sales coordinator Leigh McIntyre said it was common to find the school’s courses sold with unauthorised discounts of up to 20% through the Korean search engine Naver, or on popular blogs such as this one.

“Many sub-agents are a one man setup, offering online discounts which we do not allow such as 15%, 20% off,” she said, adding that this risked presenting the school as an economical option, damaging their brand positioning.

This risked presenting the school as an economical option, damaging their brand positioning

Despite foreign schools’ aversion to discounting, which has been reported as a problem in Korea for a number of years, most are said to prefer using wholesalers which provide higher student numbers, which leaves the onus on the wholesalers to crack down on discounters.

Heather Hwang of iAE Edu Net – which has 34 branches (including 16 outside Korea) – said iAE had little choice but to use sub agents which constitute the bulk of Korea’s estimated 2,000 agencies. However, she said the company would not work with anyone it found discounting.

“We know they want to do the discounts. But we try to give them benefits to stop this, like sharing our high commission. This is higher than what they would get from the discount.”

Despite the company’s policy, she said sub-agents continued to discount as a way of standing out in the market. “If somebody starts doing that, everybody starts doing that,” she said.

However, her outlook on the market was similarly pessimistic. “The market is dirtier, the population is getting lower in Korea meaning fewer students. Many small agents more aggressively seek students through discounts. It damages all of us,” she said.

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