iStock.com/jetcityimage
Will Wendy’s Succeed or Fail With Its Upcoming Dynamic Menu Pricing?
Wendy’s is about to revolutionize the way we pay for our meals. The classic fast-food chain is rolling out a plan where the cost of your favorite burger might fluctuate depending on the time of day you decide to order it. This means that your usual order may increase in price during peak hours, but it would also offer savings during slower times of the day.
Wendy’s new CEO Kirk Tanner announced this dynamic pricing strategy on a recent earnings call with analysts, according to Nation’s Restaurant News. He stated that the company will be “testing more enhanced features like dynamic pricing” starting as early as 2025.
This innovative strategy will see Wendy’s investing a hefty $20 million into digital menu boards. These boards will allow the restaurants to change prices in real time with maximum efficiency. Under this system, the price of a Dave’s Single quarter pounder, for example, might vary from $5.99 to potentially a dollar more or less, based on the ebb and flow of demand throughout the day.
While airlines have long employed dynamic pricing, Wendy’s would be the first major fast-food chain to adopt this approach. Similarly, surge pricing has also been used by rideshare companies such as Uber and Lyft. Movie theaters have traditionally offered lower-priced matinee showtimes. Additionally, retail stores have always resorted to sales and clearance pricing to take advantage of consumer demand and respond to the desirability of a product.
The restaurant industry is also no stranger to dynamic pricing. Strategies include offering happy hours or “kids eat free” promotions during quieter times. The traditional fixed pricing model, like Subway’s $5 foot-long deal, may soon become outdated. With the rise of digital menus, many restaurant chains are considering adopting dynamic pricing more regularly, enabling them to adjust prices instantly based on demand. While the technology exists, businesses have been hesitant due to concerns about customer reactions to differential pricing.
John Dinsmore, a marketing professor, highlighted past controversies in a statement to USA Today, like Coca-Cola’s experiment with temperature-based vending machine pricing, where “the hotter the weather, the more expensive the soda.” This led to public outcry and abandonment of the idea. “Consumers hated it. They understandably felt exploited. It violated consumers’ sense of price fairness,” he stated. “I think you are going to see a similar response to Wendy’s dynamic pricing.”
Despite the potential benefits, widespread adoption of dynamic pricing in the restaurant industry may still face hurdles. “Consumers, by and large, understand that companies need to make a profit,” Dinsmore said. “But, when a company appears to be sticking it to a consumer in a moment of need, the customer resents it.”
In 2024, AI advancements are revolutionizing dynamic pricing, simplifying its integration for retailers. Notably, Amazon’s strategy showcases how pricing can be leveraged for a competitive edge. Utilizing advanced algorithms, Amazon adjusts prices for millions of products throughout the day, ensuring the best deals for shoppers.
The move could potentially boost sales and profits for Wendy’s. However, it’s not without risks. Economists warn that customers might feel they’re being taken advantage of with constantly fluctuating prices. According to a survey on dynamic pricing completed by Capterra last year, 52% of respondents viewed dynamic pricing in restaurants as price gouging. Repeat customers might not appreciate the uncertainty of varying prices and could seek out more predictable dining options.
“Dynamic pricing is here to stay but I believe only in certain contexts. Surge or dynamic pricing works for Uber because they are often the only option,” Dinsmore explained. “For consumer staples like food and clothing, I have a hard time seeing it take hold. There are too many options. Consumers will adjust and competitors will undercut prices.”
Wendy’s CEO Tanner, however, is optimistic, mentioning plans to test AI-enabled menu changes and suggestive selling alongside dynamic pricing. Dynamic pricing isn’t just a win for businesses; it can benefit consumers too. By adjusting prices based on demand, Wendy’s can ensure its restaurants are making sales during slow periods while offering discounts to benefit customers.
Despite potential pitfalls, dynamic pricing represents a significant shift in how we approach fast food. Dynamic pricing benefits retail buyers by enabling swift market responses, differentiation, and personalized pricing. However, it poses challenges such as increased complexity, potential customer dissatisfaction, and price wars. Implementing and monitoring dynamic pricing requires more data and technology, risking customer trust and loyalty as well as profit erosion. With advancements in technology making it easier to implement, it’s a trend that could shape the future of dining out.
Discussion Questions
How should CEOs navigate the ethical considerations surrounding dynamic pricing in fast food, balancing profit optimization with consumer trust and satisfaction?
How can retail businesses effectively employ AI-driven dynamic pricing to optimize pricing strategies while ensuring transparency and fairness, especially in industries sensitive to consumer perception?
What strategic measures should Wendy’s and other chains take to mitigate potential consumer backlash against fluctuating prices in the fast-food industry?
Poll
Loading …BrainTrust
Keith Anderson
Founder, Decarbonizing Commerce
Brian Numainville
Principal, The Feedback Group
A burger at peak hours costs $1 more. During quiet hours you can get $1 off the price of a burger. Essentially the same thing, but very different positioning. Ultimately, acceptance depends on how dynamic pricing is marketed and executed. It’s a sensitive change that can cause a lot of pushback.
What Wendy’s should not do is have a complex algorithm that makes prices bounce around all over the place. This works for travel and accommodation, but in retail and foodservice most consumers expect prices to be fixed. There is a very real risk of causing confusion and annoyance to those that notice price differences.
Ethical ? I supect the (only) ethical debate would center on whether/not making it harder to load up on more saturated fat might in fact be more ethical; no, this is just about a dumb idea: fast food is built around simple and consistent price points, this singlehandedly ruins that model. The best way to mitigate the negative reaction that would certainly follow is to not incite it in the first place.
Knowing how consumers behave, I promise that there is ZERO chance that they will accept this pricing structure. Wendy’s is likely to lose market share before they pull this plan off the market, which will happen in months, if not weeks, or days.
Consumers will not pay different prices for the same food, depending on time of day, and demand. It’s naïve for Wendy’s to think that a travel service like Uber and fast food have parallels.
There are a number of issues facing the fast food industry, including tremendous inflation since 2021, supply chain challenges, food costs, transportation, and logistics, and absurd salary demands that don’t make sense for the fast food business model. Db
Great points David! I have been annoyed by fast food chains when you are used to a price at one location and you try another location from the same chain a few miles away and the prices are noticeably different. One of the things that some fast food chains pride themselves on is consistency and if you have inconsistent prices, it may irritate or alienate some customers enough to try switching brands. As someone else said, “just because you can, doesn’t mean you should.”
Will customers love the idea of a burger that costs more at lunchtime than it does at 3:00 p.m.? Exceedingly doubtful. The kids are going to have a blast with this on TikTok.
I have been to a few restaurants that follow such pricing. I liked it the first time but later found it gimmicky. Even other customers on the table were not even looking at the prices while ordering. Customers won’t get drawn to or walk away from your outlet based on dynamic pricing especially if it’s near the $1 variance on either side, but if it’s, say, $3, then it could attract some strong reactions on both sides.
A 2020 study of over 240,000 orders in China’s Offline-to-Online (O2O) on-demand food service market demonstrated that dynamic pricing strategies performed better with significantly higher demand than static pricing strategies. While the circumstances are different in Wendy’s case, I can’t help but wonder if that’s what the company is counting on.
The economic argument that favors dynamic pricing relies on bringing supply and demand into equilibrium. The higher prices are necessary to balance supply and demand since lower prices lead to wasteful queuing. However, technology’s facilitation of BOPIS eliminates the cost of queuing. Today, companies aren’t hiding behind balancing supply and demand or solving long queues to justify dynamic pricing. However, abhorred but grudgingly accepted, dynamic pricing in air travel and hotel stays does not carry well into the food away from the home category.
Repercussions that range from perceived price gouging to unfair pricing for the same product at two different times (minutes apart) will outweigh any margin increases or price elasticity learnings by Wendy’s. Consumers love a deal and hate the perception of being overcharged; they understand a set price and a sale price. Paying a premium for the same meal due to time of day is a losing proposition when that consumer can walk or drive across the street to a competitor that has focused technology investments on simplifying rather than complicating the dining experience.
In search of margin opportunities and plugging supposed revenue leaks, Wendy’s is investing $20 million to bring digital menu boards to the dining experience (digital menu boards are fine; dynamic pricing is a different kettle of fish). Wendy’s is adding complexity to the transaction; some will call it innovative, but they’re standing on the wrong side of the counter.
My first reaction was “just because you can doesn’t mean you should.” But in this age of AI-based solutions, businesses will continue to push the envelope on how to optimize pricing based on actual and anticipated demand. Ride-share businesses have surge pricing. Airlines adjust prices based on peak demand. Other retailers do it drive demand or clear inventory. So while this will have negative reactions, and businesses must be careful how far they take it, it’s not surprising. But the pricing optimization should swing both ways, decreasing during slower periods just as it creeps up during higher traffic. And while they’re at it, perhaps they should also look at their employee hourly pay rates based on peak vs slow demand periods.
Well, personally I think this is innovative. As usual, success depends on the details of the rollout and the stakes are high with so many of us ready to jump at the first mistake with our cameras (I would not be happy for example if I paid more at peak times and got served cold french fries).
It will be very interesting to see what, exactly, is viewed as a peak time.
Good or bad idea, it will alter consumer behavior. Reminds me of a time I was in a conference in Las Vegas and it started to rain when I was quite a distance from the hotel. I checked Uber and we were into surge pricing (and a ridiculous level at that). I stopped in the nearby gift shop and bought a hooded sweatshirt and still saved money over the Uber. Shoppers looking for a meal might simply go elsewhere if the model doesn’t resonate with them.
Tomorrow I will choose to be hungry for lunch at 10 am so I can score a deal on my burger and fries.
I think most people understand and accept pricing spikes around things like flight times. However, I suspect most people feel like they have “some” power to control it by flying at different times of the day or on different days of the week. It’s not as easy to control this expense by eating lunch at a different time of the day so I believe people will just feel like it’s a price hike.
On the other hand, “somebody has to pay” and dynamic pricing may be a way to make customers pay by shifting the burden of increased wages onto them. It’s an interesting and bold idea but I’m not sure consumers are going to readily accept it. Maybe we’ll start seeing peak-hour surcharges at our favorite sit-down restaurants (and lose the gamification aspect of being The One to score the reservation).
But, do not despair. We’re throwing AI at it so I’m sure it will work. Maybe AI will recommend that Wendy’s keep the prices the same at peak hours and lower them during non-peak hours – an incentive for eating lunch at 10am or a cold lunch at your regularly scheduled, circadian time.
Wendy’s wants to shape consumer habits to smooth out demand. A key success factor is messaging that underscores how consumers benefit from changing their patterns.
Wendy’s can proactively anticipate a backlash. For instance, the return to the office means more consumers have less flexibility on when they eat lunch. Consumers may resent the surge pricing at lunchtime and go elsewhere. Will the higher prices cover the loss of traffic and loyalty?
Yes, they may be banking on the idea that 80% of their customers are ok with the idea, potentially only pissing off 20%. But what if it’s the other way around? I wouldn’t want to be in the C-Suite in the aftermath. Customer loyalty is something you’d better be careful messing with.
Dynamic pricing is evil.
I kinda sorta get why it makes sense for the Ubers of the world, but fast food, grocery or other staples? It’s one way to lose me as a customer fast. I’m not a fan of fast food, but this will spread like a weed
Let me see if I understand this. I walk into Wendy’s. Most of the seats are full. The lines are five or six customers long. I wait patiently. Now, just two people are ahead of me. Suddenly, the board changed, and my hamburger was going to cost $1 more for me than the people who were ahead of me in line.
I order and buy in any case and sit down. The crowd thins while I am at the table, and the price goes back to $1 less. Am I upset? I am crazed!
This is unlike a cheaper lunch menu or an early bird special, where customers know the price before they walk in. This is a “gotcha”.
It would not surprise me if it costs Mr. Tanner his job.
Given the possibilities to price unfairly, I’m not surprised at all the pushback Wendy’s received–or that it’s already backpedaled and reversed course.
I do think there’s great potential in dynamic markdowns to sell more and waste less. I’m not as confident that a premium during peak demand windows would be as effective.
I love that Wendy’s are trying this. Dynamic pricing can be controversial but has existed in forms for a while – Uber is the most obvious example – but they are clear about it when you order and explain why. Meal deals before 1100 in food outlets are another form – effectively moving the peak curve. But also one that is less obvious and has existed for years is fuel forecourts who change prices through the day – higher prices in the morning when people fill on the way to work.
Key to making it work and be accepted for me is about a transparency about why and how prices vary. Attempting to be fair – not exploiting anyone. It is also important for customer adoption that people perceive value and that the customer experience is improved overall.
It is an area that could well make front-page of tabloid press – thus creating a backlash so it needs to be handled carefully. Balancing profit and trust requires a careful approach that respects consumer perception and maintains brand loyalty. Brands and their CEOs must consider the potential backlash and ensure that any dynamic pricing model is perceived as fair and beneficial to the consumer.
The reporting on Wendy’s plans has created justifiable backlash. If Wendy’s uses the pricing strategy to drive more sales during off-peak hours (like a pizza chain offering special deals on Tuesdays, presumably the slowest day of the week), it represents an opportunity. However, if Wendy’s plans to jack up prices during the busiest dayparts — especially lunchtime at the drive-thru lane — it is making a serious mistake.
Wendy’s may be trying to think outside of the box, but its messaging about the change in plans has been totally bungled.
The punchline is Wendy’s announcement late Wednesday that its “dynamic pricing” is on hold, or at least was widely misinterpreted. It’s trying to clean up the pile of bad PR by claiming that the goal is offering better off-peak deals, not higher prices at peak hours.
In the immortal words of Emily Litella, “Never mind!”
Possibly the dumbest, craziest idea I have heard of in a long time. It’s almost as if somebody stumbled across a piece of AI that could slice and dice traffic patterns and suggest pricing accordingly. And AI is going to save retail, so……………
Sarcasm aside, it is deeply disappointing that this decision could survive what should have been several layers of scrutiny and review.
Can’t you just see Kimmel and Fallon having a ball with this?
Really interesting- this really depends on where they roll it out. A great example is REMA 1000, a top tier Nordic supermarket that has dynamic pricing for its food goods using ESL in the store and AI on the back end. What’s really interesting is how they’ve been able to manage pricing without any fixed points. The fact is that customers have acclimated to it pretty quickly. Customers who are seeking more value for their bucks are willing to go into the market a bit earlier in the day. It helps the market smooth out demand as well as allow for a better customer experience for folks at high demand times. Wendy’s experiment with dynamic pricing will be something to keep your eyes on. When customers are hungry, pricing becomes inelastic- meaning it won’t matter what the price actually is so long as it’s not exorbitant. We already have very different price points for the same items at transportation hubs like airports and entertainment locations like stadiums and movie theaters- this is just adjustment of price based on time instead of location. Will be interesting to see if they can succeed.
Here we go! The dynamic pricing floodgates are starting to open. Wendy’s may get dinged for jumping in early on the fast food front but the potential pay-offs are too tasty to sit on the sidelines. I expect some customers will complain or even demand refunds during the acclimation period. Hopefully, competitors will be fast followers so Wendy’s won’t be left twisting in the wind.
Wendy’s has been walking this back as the perception (real or not) is that this is the equivalent to Uber surge pricing and consumers are less than thrilled. With ride sharing, the choices are limited and it can be a necessity to get you from point A to B. Food may be a necessity, but there are a multitude of choices (particularly in the burger space) and if prices noticeably increase vs competitors, customers will vote with their wallets.
You think there will be announcements in the stores… “we know you have your choice of where to eat a burger. Thank you for buying with us today”? Wendy’s is dealing with a highly price sensitive market, low price elasticity customer. Feels like a bleeding edge kind of a thing to try.
As noted in the article & commented by other BrainTrust members, this is nothing new, simply “surge pricing” in high demand dining periods. It may even benefit Wendy’s & its customers by minimizing wait times during peak demand hours. As noted, it is an experiment. I see little downside risks.
Coming on the heels of three years of very visible price increases across the fast food sector, Wendy’s dynamic pricing experiment will put a bad taste in the mouths of many consumers. Its prices have reportedly grown by 35% over the past 3 years (https://foodtruckempire.com/menu-prices/wendys-menu/).
They may call it a “test” but this grab for extra margin risks furthering a negative consumer perception. The rest of the industry will be watching closely to see if this version of “alternative revenue” is ultimately accepted. Could “happy hour” pricing be around the corner?
(And yes, Cathy, the late night comics and TikTok trolls should have a field day with this.)
I Really Like Wendy’s and I think they do a great job however if they go through with Dynamic Pricing, then my answer to that is the fact that in my area alone I have SO Many Competitors vying for my dollar that I would likely not visit one of there restaurants for a long time.
While innovation in dynamic pricing is interesting, fun in the C-Suite, the risks can’t be overlooked. Unlike airfares, this is food, someones hungry stomach you’re messing with. And if a large % of the customers are aged 30 and younger, better be prepared for social media to warn everyone when prices go up or down to game a better outcome.
Does Wendy’s really want to be on the receiving end of strong opinions in social media around frequent price changes, when food and taste experiences is what they want everyone posting, talking about? The marketing department might want to bravely push back on this one. At minimum, test it for 1 year at 1 location to see what happens. Ask, poll customers about it before rolling out to more locations.
I’m jumping in late on this, but still want to comment. The hotel industry has their form of dynamic pricing, and there is always a “rack rate” that is posted. From there, they discount based on advance bookings, paid-in-full at the time of reservation, non-refundable, etc. For Burger King – or any other restaurant or retailer this applies to – why not post the “rack rate,” and discount from there based on busy times, time of day, etc.? If they want to change the flow, why not do what traditional restaurants do to get guests to come in early; happy hour prices? Or, maybe I’m wrong and customers won’t be upset if one day the sandwich is a dollar or two more expensive than day before.
Do Wendy’s products command the type of inelastic demand that allows Uber to charge dynamic peak hour pricing? I can only see this being successful in places where there is a captive audience such as airports or stadiums. Even then, only if there aren’t convenient competitors nearby.
I don’t see it working psychologically for in-store purchase. I can see doing discount for slow hours (Bars and restaurants have offered discount menu items in slow times forever) but to do “surge pricing” aka Uber I just don’t see consumers accepting it. I remember when digital shelf tags were first introduced there is talk of dynamic pricing during the day but no one uses it. The good thing is digital signboard investments is a good thing even if the surge pricing doesn’t work out.
Terrible positioning by Wendy’s of a capability that could help Wendy’s and their customers. As noted in other comments, discounts during slow times are common and used to drive traffic. Bundling or Meal Deals is another area where the buyer saves by adding more items to their order. The seller gains a higher transaction. that’s variable pricing. They just wisely don’t call it that.
Put the customer first. Do what makes sense for them and Wendy’s. There could be something interesting here.
Wendy’s is playing with a pricing concept that is a guaranteed loser. Dynamic pricing is not the same as a set matinee price, happy hour prices, etc. Dynamic pricing adjusts pricing according to multiple variables, of which the consumer is not priivy to, and changes these on the go.It is akin to pricing surprises, when a customer comes to a location expecting to pay one price for their order, and is surprised to find that their pricing has changed because of multiple factors. No one likes pricing surprises, and consumers everywhere will remind Wendy’s who determines pricing, and it is not a dynamic formula, using unknown variables! Dynamic pricing will die a quick, painful, death, if Wendy’s is lucky.