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 The traditional fixed pricing model, like Subway’s $5 foot-long deal, may soon become outdated.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.