The price hike could come for ordering chili from Wendy's.
The fast food chain with a red-headed mascot is leaving some people blushing after news that it plans to test “dynamic pricing” starting next year.
After the questioning, Wendy's issued a blog post Tuesday saying it had no plans to raise prices during times of high demand.
In its blog post, Wendy's said adding digital menu boards at company-owned restaurants “will give us more flexibility to change the presentation of our signature items.”
“This has been misinterpreted in some media reports as an intention to raise prices when demand is at its highest in our restaurants. We have no plans to do so and will not raise prices when our customers visit us more often. Any features we may test in the future will be designed to benefit our customers,” the company said. And restaurant crew members.
However, Wendy's Wayne,
The announcement also raises questions about what “surge pricing,” also called “dynamic pricing,” is in the first place.
Answer: It's a pricing model that raises prices when consumer demand grows — and that's already happening with your concert tickets, rideshare flights, airline tickets, and even your groceries.
However, the move into fast food is a new area for pricing strategy. It comes at a time when food price inflation remains a sore point for many people – especially when it comes to fast food prices.
Wendy's broke the news on a recent earnings call.
“Beginning in 2025, we will begin testing more enhanced features such as dynamic pricing and daypart offerings, along with AI-powered menu changes and suggested selling,” Wendy's CEO Kirk Tanner told analysts during the call, according to an AlphaSense transcript.
“As we continue to demonstrate the benefit of this technology in our company-operated restaurants, franchisee interest in digital menu boards should increase, supporting sales and profit growth across the system,” he said.
As the phrase suggests, dynamic pricing means that prices change rather than staying at one fixed point.
“It describes real-time pricing that reflects changes in supply and demand,” said Kevin Williams, an economist at Yale University who studies how companies make pricing decisions. For Williams, “surge pricing” and “dynamic pricing” mean the same thing.
The cost depends on a range of data points such that higher prices exist due to high demand or dwindling supply. You've probably seen it in action when airfare prices go up while you're trying to book a plane ticket right before Thanksgiving.
Pricing strategy can also adjust prices based on when someone starts shopping, such as a fashion designer who is willing to pay more for a new collection, versus a hunter, said Vivek Farias, a professor at MIT Sloan School of Management who studies business management. Deals. Dynamic pricing.
In general, surge pricing can maximize economic efficiency, he said, because in theory, it matches the product to the person who values it most.
But companies need to do this carefully, especially if their customers are not used to it. “Otherwise, when people see sharp fluctuations, it is seen as price manipulation,” he added.
“Companies need to be careful when introducing dynamic pricing, “otherwise, when people see sharp fluctuations, it is seen as price gouging.” “
Airlines have pioneered dynamic pricing. Farias noted that they began adjusting prices based on demand in the 1980s. At the time, the strategy sparked angry reactions from the public.
Now the pricing model has spread. “This happens in all types of goods and services markets,” Williams said. But Wendy's news may strike a new chord.
“In other areas, we kind of accepted it,” Williams said.
But this acceptance came after uproar in some cases.
Bruce Springsteen fans were angered in 2022 by dynamic pricing via Ticketmaster for concert tickets, rising to $5,000. However, Live Nation Entertainment Inc. LYV,
Ticketmaster's parent company says it plans to offer more on-demand pricing after two years of a major concert recovery.
In a corporate earnings report last week, Live Nation CEO Michael Rapinoe said promoters and artists all want better prices to fill venues rather than leaving more tickets to scalpers.
“There is nothing comparable to algorithmic surge pricing for concert tickets,” a Live Nation spokesperson said. “Dynamic pricing in tickets is a largely manual process of adjusting a small portion of available inventory, usually the best seats in the house, to prices closer to the full market value revealed on resale markets. The vast majority of tickets are not priced Dynamically.
Will dynamic pricing work with food?
In fact, dynamic pricing is already part of the grocery shopping experience, according to Phil Lempert, editor of SupermarketGuru.com.
He told MarketWatch that coding on “shelf strips” — those labels underneath products on store shelves — could allow grocery companies to determine which products are selling, and which are not, and then adjust accordingly. This could allow stores to increase the price of avocados before Super Bowl Sunday, for example.
Dynamic pricing in grocery stores “has been talked about for years, but it didn't happen much until technology allowed it to become more immediate,” he said.
Wendy's says its new pricing strategies could help some customers get a deal.
The company said its technology investments will make it easier to change its menus “to provide discounts and value offers to our customers through innovations such as digital menu boards, which will be rolled out in some U.S. restaurants.”
“Wendy's has always been focused on providing high-quality food at a great value to our customers, and this latest investment will continue that by driving traffic and providing value during the slower parts of the day,” the company said in a follow-up email to Wendy's. Market monitoring.
The AI-powered menu adjustments and selling suggestions that Wendy's will test in 2025 “will be based on factors like weather that we believe will provide great value and an enhanced customer and crew experience.”
But it's possible that some people don't like the idea of scheduling a specific time to eat fast food.
“This can cause all kinds of weird things where you can make agents kind of strategic. It's a little weird,” Farias said.
Who are the winners and losers with dynamic pricing?
“Typically when companies implement dynamic pricing, there are some winners and some losers,” Williams said. It's the result of her lesson when it comes to airline tickets.
Dynamic pricing is a win for travelers with flexible schedules who pay long in advance, but a loss for business travelers with few options and late travel commitments.
How about someone looking for a Wendy's restaurant and its menu, including the Dave's Double and a stuffed double nacho cheeseburger?
“I think the person who wins is the person who eats fast food and is flexible and knowledgeable, because that person probably knows how the price moves,” Williams said.
On the other hand, “the person harmed is the person who is an inflexible consumer at lunchtime who really wants to go to a Wendy's and faces a higher price.”
