Why MBA test preparation is dearer by 10-15% this year

(Photo courtesy: neubie)

MBA applicants have more reason to worry this year. If the increasing costs of application, exam fees and tuition of business schools were not enough to break you into a sweat, get prepared to pay atleast 10-15% more for test preparation this year, no matter what part of the country.

At Career Launcher in Nagpur, the Common Aptitude Test (CAT) training program which used to range from Rs 18,000-24,000 has been increased to around Rs 25,000-30,000. IMS Mumbai which used to charge around Rs 27,900 for their Catapult program will now charge Rs 31,900 for the same program. Genesis Mentors, Pune will charge Rs 34,000 for the course which used to cost Rs 30,000 earlier. Endeavor Careers, Ahmedabad has hiked their fees from Rs 34,000 to Rs 39,000. Across the country in the east, TIME Guwahati has hiked the fees by Rs 2,000 and are offering their course at Rs 18,000 this year.

A well-placed source at IMS told PaGaLGuY that Delhi was currently the most expensive market for MBA entrance training in India. Delhi is also home to Tathagat, India’s most expensive MBA prep course which charges in the neighbourhood of Rs 50,000 for the program. “The cost of operation, rent, and other associated costs are different across cities which lead to different pricing of the same product across cities,” said the official from IMS Mumbai.

But Manish Harodia, founding director of Genesis Mentors, Pune offers that Delhi institutes charge more simply because the city has richer customers. “The increase in Delhi can be attributed to the purchasing power of the people in the city. Delhi is a very big market for CAT takers. In Maharashtra, people take a mix of the Common Management Aptitude Test (CMAT) and Symbiosis National Aptitude Test (SNAP) whereas Delhi is just focused on the CAT. The batch sizes in Mumbai are also larger, typically around 60 students whereas the batch sizes in Delhi tend to be around 30 students, probably because Delhites prefer the luxury and comfort. So, even if you assumed the infrastructural costs to be constant, you are servicing fewer students in Delhi which increases costs. Real estate prices in Mumbai and Pune are poles apart yet the price of coaching programs across both the cities are comparable. Real estate is booming in Chennai as well but the prices are very low there.”

Career Launcher Nagpur and IMS Mumbai have also attributed the increase in cost to the CAT going online. “The operating costs of such an exam are high. We need to have proctored tests at various labs across the city. Basically, the cost per student per exam has increased. We easily end up paying Rs 100-200 rupees per student in SIMCATs,” says the official from IMS Mumbai. According to estimates, printed prep material costs around Rs 800 per student whereas online material costs around Rs 400-500 per student.

Unlike what conventional wisdom would say, digitisation of the test has not lowered the costs of training for it, nor has the discontinuation of tests such as Joint Management Entrance Test (JMET), Faculty of Management Studies (FMS) and many state CETs which should result in fewer prep material and tests to be disbursed to students.

According to Avinash Naidu, centre head, Career Launcher Nagpur, the lowered cost of an online test has been offset by increased in price due to the shrunk market caused by the stagnated number of CAT takers since 2009. “During 2008, the last year when the CAT was paper based about 8,000 students appeared for the test from Nagpur. The next year when it moved online, the numbers fell by half. Right now, about 2,000 students from Nagpur take the CAT and they are mostly serious applicants. Since the market has reduced, institutes have raised their fees to match their revenues to previous levels. These serious exam takers are also willing to pay a higher price for the training,” he explained.

Some of the other factors which are in play are the cost of faculty procurement and the marketing costs which have also seen an increase over the years. Most of the institutes while speaking to PaGaLGuY stressed that faculty quality made a huge difference in a competitive market and that students were willing to pay more for better faculty.

Another Pune-based coaching institute head said, “An SMS which used to cost 3 paise earlier costs 10 paise now. Furthermore, marketing activities have also broken new ground on platforms such as social media which has expanded the budget for those activities.”

Discounts, anyone?

The only silver lining in the cloud for test takers is the various discounts on offer. At IMS Mumbai, TIME Guwahati and Genesis Mentors, Pune, you can typically take a group of friends along and grab a group discount of 15-30%. People who scored good percentiles last year are eligible for discounts at IMS Mumbai whereas TIME Guwahati offers festive season discounts ranging from 10-30% and scholarship tests where the meritorious can land discounts of upto 75%. IMS Mumbai and TIME Guwahati offer discounts for people from reserved categories and economically weaker sections respectively. To mop up the final batch of students in a season, heavy discounts are offered between June and July. For a regular classroom program, students can easily land a 10-30% discount whereas for the test series it can be as much as 70%.

These discounts are planned way ahead in time. The official from IMS explains, “In a city like Delhi, where the purchasing power is high, you can give a good discount because you can expect all the money to come as a bulk payment. In Kolkata, where people prefer to pay by instalments, you cannot discount much. At Bangalore and Pune, where the dominant population comprises working professionals or students, you have to offer discounts to lure them.”

Ultimately, the brand of the coaching institutes is built on the kind of results it delivers. “The increase in price is a function of the brand and not the cost. If you can deliver results, you can justify the increase in price,” says Harodia. And it is only in this endeavour that heavy discounts are doled out to aspirants who performed well in the last attempt and for merit holders in mocks. The probability of these students doing an encore or bettering their performance is higher for the next year’s attempt and can be used by the institute to justify the next year’s price hike.

Even though many institutes argued that the aspirant pool has not increased over the past few years and they are left fighting for a share of the same pie amidst rising inflation levels, there is no denying the fact that CAT test preparation is one of the few businesses unaffected by the economic slowdown. Our conversations with industry insiders reveal that profit margins for coaching classes generally hover between 30 and 50%. As far as the expenses go, institutes spend most on faculty procurement, ranging to around 20% of their revenue, infrastructural spend is around 8-12%, further dented by taxes. Marketing activities can range from 3-20% of the total income depending on how established the institute is. Material costs and staffing costs add up to around 10% of the revenue. The expenses total up to around 50-60% of the total revenue. So even if a test prep company offers you a 20% discount, it would still be a profitable deal for them.

For an industry which is not capital intensive and where the profit margins are clearly high, the justification for increase in price hike, even after factoring in the inflation, seems a little misplaced and unfair to applicants.