A membership pricing policy to facilitate service scale-expansion

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...

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Bibliographic Details
Published in:The Service industries journal 2017-03, Vol.37 (3-4), p.167-189
Main Authors: Hung, Hui-Chih, Chung, Chung-Yu, Wu, Muh-Cherng, Shen, Wan-Ling
Format: Article
Language:English
Subjects:
Expansion
gyms
Integer programming
Market shares
membership pricing
Memberships
Numerical analysis
Profits
scale-expansion
Service pricing
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Summary: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.
ISSN:0264-2069
1743-9507
DOI:10.1080/02642069.2017.1303048