A sign is posted in front of a Wendy’s restaurant on Aug. 10, 2022, in Petaluma, Calif. The company said Tuesday that it’s planning to experiment with dynamic pricing.
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A sign is posted in front of a Wendy’s restaurant on Aug. 10, 2022, in Petaluma, Calif. The company said Tuesday that it’s planning to experiment with dynamic pricing.
Justin Sullivan/Getty Images
You may have seen news stories this week suggesting that Wendy’s was planning to implement a practice known as surge pricing, which is when companies increase the price of products and services in real-time as demand goes up.
In other words, if you found yourself standing in line at a Wendy’s during the busy lunchtime rush, you might be sold a more costly Frosty.
The hubbub came in response to comments made by Kirk Tanner, the fast food chain’s president and CEO, during a Feb. 15 earnings call.
“Beginning as early as 2025, we will begin testing more enhanced features like dynamic pricing and day-part offerings,” he said.
Tanner was talking about the company’s $20 million investment in new digital menu boards, and said the technology would empower Wendy’s to experiment with a few novel strategies, including so-called dynamic pricing.
But after news outlets ran stories warning that Wendy’s was planning to hike prices during the busier times of day, company executives tried to better explain what Tanner meant.
“To clarify, Wendy’s will not implement surge pricing, which is the practice of raising prices when demand is highest,” Wendy’s Vice President Heidi Schauer said in an email to NPR. “We didn’t use that phrase, nor do we plan to implement that practice.”
Wendy’s didn’t provide many additional details, but it said in a separate statement that the digital menus could allow the company to offer discounts to customers during slower times of day.
Rob Shumsky, a professor at the Tuck School of Business at Dartmouth, suggested it could actually mean lower prices for Wendy’s patrons.
“They talked about, for example, getting more breakfast customers in,” Shumsky said. “They might actually reduce breakfast prices at certain times in order to encourage people to come during what they currently have as relatively low-demand periods.”
Wendy’s said it wouldn’t begin to introduce dynamic pricing until 2025 at the earliest.
Wendy’s might not adopt surge pricing, but other industries are
Dynamic pricing — or surge pricing — isn’t a new idea.
Airlines began varying ticket prices in the 1980s, Shumsky said, noting that customers grumbled about it at first but eventually came to accept it.
Today, the practice of announcing price hikes during peak times is still commonplace. Think higher-priced theme park tickets on weekends.
More recently, though, technological advancements have made it easier for companies to make minute-to-minute price changes in real-time based on fluctuating demand.
The ride hailing app Uber famously uses surge pricing, hiking prices on rides when weather or other factors cause demand to skyrocket.
But Shumsky says these kinds of unpredictable price changes can confuse and annoy customers, who expect to pay a certain price for a good or service. It can erode the trust customers have with a company and drive them to competitors.
“The problem with that approach is that it’s very opaque to customers and very hard for them to plan,” Shumsky said. “If you can’t depend on a price being at a certain level, you’re going to hesitate to go back.”
Nonetheless, businesses in various sectors of the economy from hotels to movie theaters and more have been implementing surge pricing in recent years.
“If [the] price is the same throughout the entire day, they are actually losing revenue during those peak period times,” Shumsky said.
Still, he added that surge pricing has some benefits for consumers. It can result in lower prices during non-peak periods, and industries that rely on the relationship between a company and its customers — such as health care — likely won’t embrace surge pricing.
This story originally appeared on NPR
