Optimal pricing of subscription services in the restaurant industry

Abstract

Currently, the hospitality industry is experiencing an increase in the adoption of subscription-based business models among restaurants. Pricing is a critical factor to consider when deploying the subscription models. However, only a few studies in the literature talk of pricing the new subscriptions and even in these studies no algorithm is given for setting the prices. Consequently, this study aims to derive an optimal pricing strategy for subscription services in the restaurant industry through a two-step implementable framework. In the first step, we try to understand the preferences of the consumers and accordingly curate different subscription packages for them. In the second step, we propose a linear programming-based optimization model to price these packages in an optimal manner. The linear programming model is solved by CPLEX 12.7 solver software. Finally, the authors discuss the theoretical and managerial implications of their findings.