Pricing Decisions in Educational Institutions: An Activity based Approach

Abstract

The number of private high schools is significantly growing due to recent increase in the demand for private schools. Therefore, it has been crucial for the administration of private schools to be able to gain competitive advantage and to make strategic decisions including pricing decisions. Private schools have to determine appropriate annual fees in an intensely competitive environment in order to attract new students or not to lose current students. Many factors such as customer demand, attitudes of competing educational institutions, public image of the school, political environment, legal regulations, country's economic conditions and other factors are effective in pricing decisions. An educational institution determines the education fee using either market based or cost based approaches. In this study we will focus on cost-plus pricing approach. A private school may determine the fee by adding a sufficient profit margin on the cost of resources consumed to provide educational services in cost plus pricing approach. Therefore in this approach accurately calculating the cost of services is significantly important. Activity based costing (ABC) method is a new approach in allocating indirect costs to cost objects and determining the unit costs by producing the most accurate data needed by the administrators and as an alternative to traditional costing methods. In this study we will implement the activity based costing method in a private school and determine the annual fees using activity based approach. In the study, we provide application of strategic pricing decisions in an example of a Turkish private high school.