Exploring the differentiated elderly service subsidies considering consumer word-of-mouth preferences

PurposeThe elderly service industry is emerging in China. The Chinese government introduced a series of policies to guide elderly service enterprises to improve their service quality. This study explores novel differentiated subsidy strategies that not only promote the improvement of service quality in elderly service enterprises but also alleviate the financial burden on the government.Design/methodology/approachEvolutionary game and Hotelling models are employed to investigate this issue. First, a Hotelling model that considers consumer word-of-mouth preferences is established. Subsequently, an evolutionary game model between local governments and enterprises is constructed, and the evolutionary stable strategies of both parties are analyzed. Finally, simulation experiments are conducted.FindingsThe findings indicate that local government decisions have a significant influence on the behavior of elderly service enterprises. Increasing the proportion of local governments opting for subsidy strategies helps incentivize elderly service enterprises to improve their service quality. Furthermore, providing differentiated subsidies based on the preferences of the customer base of elderly service enterprises can encourage service quality improvement while reducing government expenditure. The findings offer valuable insights into the design of government subsidy policies.Originality/valueCompared with previous research, this study examines the role of consumer preferences in a differentiated subsidy policy. This enriches the authors’ understanding of the field by incorporating neglected aspects of consumer preferences in the context of the emerging elderly service industry.