A membership pricing policy to facilitate service scale-expansion

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

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

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.

Original languageEnglish
Pages (from-to)167-189
Number of pages23
JournalService Industries Journal
Volume37
Issue number3-4
DOIs
StatePublished - 12 Mar 2017

Keywords

  • Service pricing
  • gyms
  • membership pricing
  • scale-expansion

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