In its 2023 Q4 conference call, Wendy’s President and Chief Executive Officer, Kirk Tanner, spoke about introducing dynamic pricing similar to Uber and Lyft. This has caused a big stir in the retail and fast food community on how it could be implemented, how is customer experience impacted, and are consumers willing pay a different price? Retail Mashup investigates.
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Wendy’s In A Nutshell
Founded in 1969, Wendy’s is an American fast-food chain known for its square hamburgers, seasalt fries, and Frosty desserts. As of November 2023, it boasts over 7,000 locations, mostly franchised, primarily in the United States, and is ranked in the top 12 of the biggest fast food chains in the world.
While the company sets standards for food quality, menu, and appearance, individual owners control pricing, staffing, and decor. The BaconatorTM and Frosty are the chain’s most well known products today. Also, who can forget the classic ad feeling the tagline “Where’s The Beef?”
Wendy’s 2023 Q4 Investor Call
In the 2023 Q4 and full-year investor call, Wendy’s President and CEO focused primarily on the company’s financial performance and growth. He also discussed its future investments in loyalty program upgrades, mobile application innovation, and digital menus.
While those topics were on par with other fast-food chains like McDonald’s, what surprised the retail community was the casual mention of introducing dynamic pricing at select United States-based restaurants in 2025. This is the FIRST time a fast-food chain disclosed the use of dynamic pricing as a method to charge for its products.
What Is Dynamic Pricing?
Dynamic pricing is a business strategy where prices fluctuate in real time based on various factors.
These factors can include:
- Demand: Prices can rise when demand is high (e.g., peak hours for utilities) and decrease when demand is low (e.g., off-season flights).
- Supply: If the supply of a product is limited, its price might be dynamically adjusted upwards.
- Competition: Businesses may adjust prices to match or undercut competitors’ offerings.
- Timing: Prices may differ based on the time of day, day of the week, or season (e.g., higher prices for hotel rooms during holidays).
- Customer: Some businesses might personalize pricing based on customer demographics, purchase history, and other factors.
Prices are set in a range by default and customers will only know how much a product or service would cost when they inquire on pricing in real time.
How Is Surge Pricing Different?
Many people think surge pricing and dynamic pricing are the same concept. While the former has the qualities of the latter, they should not be used interchangeably. Surge pricing is a specific type of dynamic pricing focused on temporary price increases during periods of high demand and limited supply.
It is often associated with services like ride-sharing apps like Uber or Lyft, where prices surge during peak hours or bad weather when there are more riders than available drivers. In this scenario, there is only regular pricing for non-peak times. After many years of negative media coverage on surge pricing with price gouging and community fairness, these two ride sharing companies reimagined how demand based pricing work to balance fee vs quality. Safeguards were placed to ensure the pricing algorithm stays within a specific price range.
What Industries Use Dynamic Pricing Today?
Many industries are embracing the use of dynamic pricing with some of the most prominent adopters including:
Travel and Hospitality
- Airlines: Airlines use dynamic pricing extensively, adjusting ticket prices based on factors like demand, season, booking time, and even the customer’s perceived willingness to pay. For onboard products, some airlines would lower their price on soon-to-be expired food to clear them away in the garbage.
- Hotels: Hotel room prices fluctuate based on factors like time of year, occupancy rates, and special events. Popular platforms like Airbnb also utilize dynamic pricing for their listings.
Retail
- E-commerce: Major online retailers like Amazon, Walmart, and Target leverage dynamic pricing algorithms to adjust prices based on factors like competitor pricing, inventory levels, and customer purchase history.
Transportation
- Ride-sharing: Companies like Uber and Lyft use dynamic pricing to adjust fares based on demand and supply. Prices surge during peak hours or when there are fewer available drivers, and decrease during off-peak times.
Entertainment
- Event ticketing: Event ticketing platforms like Ticketmaster may use dynamic pricing to adjust ticket prices (higher or lower) based on demand and seating availability.
Other Industries
- Utilities: Some utility companies (e.g., electricity, gas, or water) implement dynamic (peak/non-peak) pricing where prices fluctuate based on real-time demand, environmental conditions, and time of day.
- Gas: Many gas stations employ a range of dynamic prices based on supply, market conditions, and timing. Price changes are not always in real-time.
What Are The Customer Experience Impacts To Dynamic Pricing?
Dynamic pricing can have a double-edged sword effect on the customer experience, impacting it both positively and negatively:
Positive impacts:
- Deals and discounts: It can offer customers better deals and discounts during off-peak times or periods of low demand. This can be perceived positively, especially for price-sensitive consumers.
- Increased efficiency: By adjusting prices based on demand, businesses can optimize resource allocation and potentially improve service quality during peak periods. This can translate to faster service or shorter wait times for customers.
- Personalized experience: In some cases, it can create a more personalized experience by offering targeted deals based on customer behavior and preferences. This could lead to increased customer satisfaction and loyalty.
Negative impacts:
- Lack of transparency: If not implemented transparently, it can lead to confusion and frustration among customers. Unexpected price fluctuations can feel unfair and erode trust in the brand.
- Perception of unfairness: Customers may perceive the new prices as unfair, especially if they see others paying less for the same product or service. This can create a sense of anger and resentment towards the business.
- Price hunting: It can encourage excessive price hunting (i.e., unintended gamification using bots), where customers or bad actors constantly compare prices across different platforms and channels before making a purchase. This can lead to decision fatigue, IT resource deterioration, and a less enjoyable shopping experience.
Is Your Company Ripped For Dynamic Pricing?
Before considering and implementing dynamic pricing concepts, brands should consider the following:
- Industry specifics: Is it common in your industry? How have others fared with it?
- Target market: How price-sensitive are your customers? Will they understand, accept, and purchase your products and services with a dynamic pricing model?
- Resources: Do you have the technology and infrastructure to implement it effectively? Do you have safeguards to minimize overzealous price disruptions?
- Accountability/Transparency: Do you have a platform to educate and communicate pricing changes clearly and honestly to maintain customer trust?
Wendy’s has five core values:
Most people eating at traditional meal times would likely not the “surge pricing” discussion well. Using its value no.2 as a basis, Wendy’s has the responsibility to do the right thing by not seen by the marketplace as as a price gouger on loyal customers eating at a similar time.
The goal should be to use pricing (i.e., reduction) to induce more demand at off-peak times (e.g., in between breakfast and lunch, in between breakfast and dinner, and after 10pm).
Update February 28, 2024:
After significant backlashes and heavy media coverage over surge pricing, Wendy’s spokesperson, Heidi Schauer, provided a statement to The Verge on the matter:
Earlier this month we issued our fourth quarter and full year 2023 earnings results and included an update on investments we are making in our digital business. One initiative is digital menuboards, which are being added to U.S. Company-operated restaurants. We said these menuboards would give us more flexibility to change the display of featured items. This was misconstrued in some media reports as an intent to raise prices when demand is highest at our restaurants.
We have no plans to do that and would not raise prices when our customers are visiting us most. Any features we may test in the future would be designed to benefit our customers and restaurant crew members. 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. Wendy’s has always been about providing high-quality food at a great value, and customers can continue to expect that from our brand.
While this explanation may insite follow up media updates on this topic, the discussion will likely not disappear in future conversations with Wendy’s senior management until the system is fully announced. The consumer, marketplace, and investment communities never like a future surprise that is laced with a negative tone.
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