Last month, Wendy’s stirred up quite the hornet’s nest with its grand plans to dabble in dynamic pricing—only to swiftly backtrack when customers unleashed their fury. Despite the notable outcry from consumers wary of inflation, reports indicate that dynamic pricing methods, including surge pricing, are widespread across various sectors such as food and retail. Consequently, businesses employing these models are unlikely to abandon them anytime soon.
Dynamic pricing, or surge pricing, is a pricing tactic in which various price levels are established based on factors such as customer demographics, peak service hours, and time-sensitive consumption patterns. This strategy helps companies increase their revenue by setting higher prices when customers’ demands are higher or certain market conditions are met. By analyzing customer behavior patterns, companies can identify the best times to demand more for goods or services.
Dynamic pricing is highly sensitive to changes in demand. This pricing approach is widely used in various industries, including transportation, hospitality, and e-commerce, and has been proven to be an effective revenue-generation strategy. The prevalence of surge pricing in industries like travel—where airlines and hotels adjust fees during peak times—is well-established, albeit unpopular. Similarly, ride-sharing apps employ surge pricing to maximize earnings during periods of high demand.
As you can imagine, it is not very popular. Have you heard of the Great Bruce Springsteen Ticket Debacle? After six years without a Boss tour, tickets finally went on sale, but fans were shocked to find the prices as high as $4,000. An algorithm controls this supply-and-demand situation. It’s the same technology that causes your Uber ride or plane ticket to cost more during peak times, and it is at the heart of Dynamic pricing.
However, Wendy’s encountered vocal opposition when it hinted at implementing variable pricing for certain menu items at different times of the day. This suggested that consumers view staples like food as exempt from such practices.
Yet, as a recent report by the Wall Street Journal explains, dynamic pricing is already commonplace among countless eateries, retailers, and businesses across the United States. Some operators of independent restaurants and smaller chains have even embraced this technology-driven pricing strategy to bolster sales and profits amid escalating costs.
For instance, Cali BBQ in San Diego adjusts its prices, with a pulled-pork sandwich costing more on a Saturday night than on weekday afternoons—a tactic that significantly boosts monthly income. Other establishments, like upscale street-food chain Bartaco, have seen consistent sales growth since adopting dynamic pricing facilitated by specialized apps like Juicer and Tock.
Drew Patterson, co-founder of Juicer, suggests that effectively implementing dynamic pricing involves educating customers about the fluctuating nature of prices and emphasizing the benefits of waiting for opportune moments to make purchases. McKinsey advises smaller businesses to focus on items where demand or production factors justify price adjustments while cautioning against fluctuating prices on big-ticket items.
However, Wendy’s experience underscores the potential risk of negative customer reactions, particularly in an environment where out-of-home food prices are markedly higher. While major retailers like Amazon routinely adjust prices without significant backlash, smaller businesses may face greater scrutiny and resistance.
Neil Saunders, a managing director at GlobalData, emphasizes the importance of maintaining consumer trust and suggests that abrupt price changes may drive customers away. Consequently, some major restaurant chains, such as Applebee’s and IHOP, remain hesitant to introduce dynamic pricing, although public opinion may evolve over time.
Indeed, a poll by the National Restaurant Association indicates a growing acceptance of variable pricing among younger, tech-savvy consumers, suggesting that attitudes toward dynamic pricing may shift as it becomes more commonplace.
Wendy’s recent adoption of dynamic pricing highlights a growing trend in the market, indicating that this pricing strategy is becoming more commonplace. As more businesses adopt personalized pricing models, you can expect to pay more for dining during peak hours.
