A membership pricing policy to facilitate service scale-expansion

Hui-Chih Hung, Chung-Yu Chung, Muh-Cherng Wu and Wan-Ling Shen

The Service Industries Journal, 2017, vol. 37, issue 3-4, 167-189

Abstract: This paper proposes a multi-year membership pricing policy for a service business like a gym chain. In the pricing policy, the equivalent membership price per year is relatively low to attract customers, and the multi-year membership fees must be prepaid in full. The prepaid cash provides resources for scale-expansion by opening new stores. We develop a nonlinear mixed integer programming model to formulate the pricing decisions. Numerical experiments reveal that the multi-year membership pricing policy, from a long-term perspective, is substantially better than the business-as-usual pricing policy (1-year membership) in cash balance, profit, and market share. Yet, the performances of the two pricing policies do not differ much from a short-term perspective. These findings indicate that the multi-year pricing policy may be a good strategy, because it initially attracts less attention of competitors; suddenly it emerges and substantially outperforms its competitors in cash balance, profit, and market share.

Date: 2017
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DOI: 10.1080/02642069.2017.1303048

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The Service Industries Journal is currently edited by Eileen Bridges, Professor Domingo Ribeiro, Ronald Goldsmith, Barry Howcroft and Youjae Yi

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