The volatility in the international demand for UK university education has been remarkable in recent years. This has been a major factor driving financial pressures in universities across all four UK nations.
Some commentators have characterised this as a structural demand shift away from the ‘big four’ (anglophone) student destinations – the US, the UK, Canada and Australia – to a more diverse group of destination countries. There have certainly been non-market factors at play here, including issues in relation to the visa regime in the ‘big four’. The latest UK education strategy also de-emphasises growing international student numbers studying in the UK.
But in part one of the issues facing UK universities (and institutions in the other original ‘big four’) is that market conditions in sender countries are changing rapidly. In two important recent contributions, Vincenzo Raimo and Patric Kirchner argue convincingly that some of the issues impacting on university sustainability are due to an absence of strategy in pricing.
They highlight a lack of understanding by universities of how prices should respond over the admissions cycle and a granular understanding of price elasticity and margin. They demonstrate how moving beyond the use of limited price points/bands and a full understanding of the ‘costs of acquisition’ is important to optimising prices and avoid pricing risk.
We argue that this should go further, and it depends crucially on having the right data on both economic variables and on the views of potential students – which can all change rapidly over time, creating rapid swings in student demand.
In the late 1960s, the economist Kevin Lancaster developed a model of consumer demand, which provides important insights on how one should consider the nature of complex goods or services such as higher education. In a nutshell, Lancaster suggested that the utility that consumers derive from certain goods and services does not depend directly on the good, as argued in conventional demand theory in economics. Instead, one should see a good or service as a bundle of underlying characteristics or attributes.
This approach to understanding consumer demand is more apt when one is dealing with sophisticated and multi-dimensional/ complex services such as higher education. If I am a student choosing between, say, a Masters in Management in University X in country Y and, say, a Masters in Business Data Analytics in University A in country B, I am not simply comparing the two courses when making my choice.
I will be looking at the underlying characteristics, and this will drive my choice. These characteristics have different dimensions, some of which are under the control of the university provider and others that are determined by the wider environment: visa costs, healthcare costs, student safety in each country; employability, the skills acquired on the course, student life; and many other characteristics.
The ‘price elasticity of demand’, which is so important in driving strategic pricing strategies, then becomes more complex to determine, because it requires the university to know much more about how each potential student values each of these characteristics, how they weigh them, and how each of these intrinsic features are tensioned against price.
A corollary of this is that if UK universities want to improve their international recruitment strategies, including pricing, then they need much better data. Economic conditions in sender countries can change rapidly, and this can impact on the price each student in key sender market will pay. Smarter pricing strategies as Raimo and Kirchner propose are necessary, but they require a better understanding of the interactions of economic, social, political and cultural variables in key markets.
To support HE providers, Public First is looking at ways in which we can understand the volatility and the complex interplay of these key variables, alongside potential student opinion.
There are also important intermediate indicators of student behaviour such as student withdrawal rates during visa application processes, and immigration policy indicators such as visa refusal rates
In the economic sphere we have seen currency crises in sender countries such as Nigeria, Ghana, Pakistan and Egypt – as well as more managed depreciations against the US Dollar and the UK Pound by countries like India. Indicators of wealth and graduate employability also matter.
Enhancements in the reputation and domestic HE capacity in sender countries also influence student demand. In addition, there are key social and cultural indicators on the propensity to study abroad. There are also important intermediate indicators of student behaviour such as student withdrawal rates during visa application processes, and immigration policy indicators such as visa refusal rates.
To conduct appropriate strategic pricing one needs to understand the relationship between these numerous indicators. We are developing models that will help universities make better, and timely, decisions. The post-2020 volatility in the international demand for UK higher education should not be surprising.
In a more turbulent world, sudden swings in key economic, social and policy variables in sender and receiving markets will impact in a sizeable way on the demand for a complex investment such as university education. But universities can get better at this with timely data and smarter analytical modelling
