Wendy’s New Pricing Strategy: Clarifying the Misconception of “Surge Pricing”
In a recent blog post, Wendy’s announced its plans to test dynamic menus with changing prices throughout the day. However, there seems to be some confusion regarding the nature of this pricing strategy. The term “surge pricing” has been used in various media reports, but Wendy’s wants to clarify that it is not about increasing prices when demand is highest.
Setting the Record Straight: Digital Menus and Discounts
Wendy’s statement reads, “this was misconstrued in some media reports as an intent to raise prices when demand is highest at our restaurants. Digital menuboards could allow us to change the menu offerings at different times of day and offer discounts and value offers to our customers more easily, particularly in the slower times of day.” In an email to CNN, Wendy’s was even more explicit: “Wendy’s will not implement surge pricing, which is the practice of raising prices when demand is highest. This was not a change in plans. It was never our plan to raise prices when customers are visiting us the most.”
The PR Challenge: Labeling Dynamic Pricing
Questions about what to call Wendy’s experiment, whether it be surge pricing or dynamic pricing, reveal a PR challenge. This pricing strategy has already been used for years in various industries, from ride-sharing to airlines and local happy hours.
Understanding Dynamic Pricing: Charging Based on Demand
Dynamic pricing is a business strategy that charges more or less based on real-time market demands. Juan Castillo, an assistant professor of economics at the University of Pennsylvania, explains that “Whoever called it surge pricing made the worst marketing mistake you can think of. Surge pricing sent the message to everybody that this is mostly about increasing prices. That created a very negative reaction from the public.”
Innovative Technology and Managing Consumer Backlash
Dynamic pricing depends on two critical factors: innovative technology and managing consumer backlash. Castillo notes that, “It lets companies earn the maximum that they can at any given moment. But it depends on two critical factors: innovative technology and managing ‘backlash from consumers’ – as Wendy’s learned this week, when the memes about unaffordable burgers started flying after their initial announcement.”
Consumer Perception: Ride-Sharing as an Example
Chuck Bell, director of advocacy at Consumer Reports, explains that consumers are most familiar with dynamic pricing through experiences with high prices during peak demand from companies like Uber and Lyft. “The prices of ride-sharing services are generally higher at rush hour,” Bell said. “Your options are more limited when there is peak demand from other customers, so you pay a higher price to get the thing you want.”
Dynamic Pricing: Not Just About Higher Prices
Castillo emphasizes that dynamic pricing doesn’t mean higher prices all the time. While consumers pay more during peak hours, they also pay less during off-peak hours. Think of those two-for-one appetizer or drink specials at your neighborhood happy hour. “Dynamic pricing means higher price sometimes, lower price sometimes,” Castillo explained.
The Future of Fast-Food: Embracing Technology and Dynamic Pricing
Dynamic pricing coming to Wendy’s marks a potential turning point in technology for the fast-food industry. Jonathan Maze, editor-in-chief of trade publication Restaurant Business, explains that “If Wendy’s idea works it could get others to do something similar, and I wouldn’t be surprised to see another chain or two test the idea themselves, given what Wendy’s is doing.”
Decades of Dynamic Pricing: From Airlines to Fast-Food
Dynamic pricing has existed for decades in industries like airline tickets. However, the 2010s ushered in a new era of widespread applications with improved technology and the ability to use real-time data in everyday transactions. As technology continues to evolve, we can expect dynamic pricing to become more prevalent across industries.
