Wendy’s “caught heck” last week, as consumer reporter David Lazarus described it on KTLA after news came out that the burger chain was considering a change in its pricing strategy.
Wendy’s, based in Ohio, announced a plan to invest in digital menu boards that would enable it to adjust prices up or down based on sales data as early as 2025.
The practice has several names, including “dynamic pricing” and “surge pricing.”
Wendy’s announcement came in a 2023 earnings call that took place Feb. 15. It took almost two weeks for the plan to get noticed. When it did, Wendy’s faced a backlash in news reports and social media. Aimee Cho, a reporter for NBC4 Washington, described the reception as “frosty” in a post on Instagram.
The plan was also likened to surge pricing by transportation company Uber.
Wendy’s quickly released a statement saying it would not raise prices “when customers are visiting us most” and that “any features we may test in the future would be designed to benefit our customers and restaurant crew members.”
Dynamic pricing is not new, but it’s not familiar to customers in food service, at least when it’s labeled as such. Happy hour discounts and market pricing in fish restaurants are widely accepted.
Price changes are a test of customer loyalty and companies that don’t get out in front of it take flak.
Matthew Selove, associate professor of marketing at Chapman University’s Argyros School of Business and Economics, recalled that in 1999 Coca Cola Co. tested a vending machine that could raise prices in hot weather through a temperature sensor and a computer chip. He said there was a huge customer backlash and the company quickly abandoned the idea.
A quarter of a century after Coke’s experiment, most people pay with credit cards and are less likely to notice minor price changes in fast food, according to Farnoush Reshadi, assistant professor of marketing at The Business School at Worcester Polytechnic Institute in Massachussetts.
“If a burger is sold for $8.01 at 11 and they sell it for $8.99 at 12, nobody’s going to notice that. But if they sell it for $9, then people will start noticing because most people focus on the digits before the decimal points,” she said in a phone interview.
But when customers notice price changes, they have more public ways of making their unhappiness known than complaining to cashiers.
“These days customers have a different way of complaining. They complain on social media.”
Businesses need to get ahead of the situation, according to Selove.
“If Wendy’s decides to use dynamic pricing, they should be transparent and let customers know in advance when surge pricing will take place,” he wrote in an email. “That way customers who consider this price policy unfair can shift their demand to other times of day and buy food at regular prices.”
Wendy’s news broke at a time when restaurant prices are rising faster than grocery prices, according to a CNN report on backlash McDonald’s has faced over its prices in recent weeks.
More price adjustments are likely on the way in California when a law raising the minimum wage for fast food workers to $20 kicks in next month.
Panera Bread landed in the spotlight last week over a possible exemption to the law it might receive as a bakery. Critics connected the exemption to Gov. Gavin Newsom and his friendship with Panera franchisee Greg Flynn. Both denied allegations of favoritism.
As changes arise, it’s important for businesses to reward loyalty and keep customers from feeling cheated, according to Doreen Shanahan, assistant professor of marketing at Pepperdine University’s Graziadio School of Business.
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“If you’re a regular customer going through a Wendy’s drive-thru and you start to see prices increase but you also realize that you’re living in a time when you’re seeing inflation in other goods that you’re consuming, you’re not necessarily going to be triggered by that. You’re not going to go, ‘Oh my gosh, I’m being gouged’ in the moment,” she said in a phone interview.
“If a firm needs to pass on rising costs to consumers, framing is critical. If consumers understand reasons to pass on those price increases across the board, dynamic pricing can actually be used to allow the firm to target discounts during non-peak periods.”
Being able to control the narrative behind pricing is one reason restaurant chains are pushing customers toward loyalty apps, she said. Apps let customers know when and how to get deals.
“I have to feel special to that brand for doing business. So encourage me, reward me, particularly if you’re taking a pricing action.”