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A membership pricing policy to facilitate service scale-expansion

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

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.

Suggested Citation

  • Hui-Chih Hung & Chung-Yu Chung & Muh-Cherng Wu & Wan-Ling Shen, 2017. "A membership pricing policy to facilitate service scale-expansion," The Service Industries Journal, Taylor & Francis Journals, vol. 37(3-4), pages 167-189, March.
    • Handle: RePEc:taf:servic:v:37:y:2017:i:3-4:p:167-189
    DOI: 10.1080/02642069.2017.1303048
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    Cited by:

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