Insider Views: Pricing Experts React to Wendy's Dynamic Pricing Announcement

By Zilliant

Mar 07, 2024

Fast food giant Wendy’s sent the pricing world into a tizzy with news it would try out dynamic pricing next year. On the company’s Q4 2023 earnings call, CEO Kirk Tanner said in 2025 the company would, “begin testing more enhanced features like dynamic pricing and day-part offerings along with AI-enabled menu changes and suggestive selling.”

Tanner’s statement then took on a life of its own as numerous news outlets, such as the Associated PressNY Post, and CBS News, reported that Wendy’s would begin using surge pricing. Surge pricing is a practice made famous by ride-share companies Uber and Lyft in which ride prices increase during high demand. Unsurprisingly, customers responded with anger, and some even called for a Wendy's boycott.

The problem was this: Publications were confusing surge pricing with dynamic pricing, which we have previously defined as, “ensuring your prices are relevant to market and channel conditions at any given point in time.” Since the Wendy’s news made waves online, the company has clarified in a statement to Reuters that the fast-food chain, "would not raise prices when our customers are visiting us most."

Still, the idea of dynamic pricing being used in the fast-food industry generated a variety of reactions from pricing experts and thought leaders across LinkedIn. Here are a few posts and comments that we thought were worth highlighting: 

Jean-Manuel Izaret, global pricing leader at Boston Consulting Group and one of our 24 Pricing People to Follow in 2024posted this insight on Wendy’s dynamic pricing move:

Wendy’s plan sounds more like a commitment to manage demand dynamically throughout the day. Ideally, they will balance prices across the portfolio – some higher, some lower – so that customers self-select and potentially spend more per visit without perceived or lingering unfairness. Perceived fairness in this case is essential, and it will depend on how much control consumers still feel they have.

Karan Sood, director of sales Operations at Rakuten Kobo and also one of our 24 Pricing People to Follow in 2024, focused on Wendy’s corporate messaging issues:

The pricing team was doing what they do best, optimizing margin. What failed that team was not the strategy but the communication. That communication failure was again at the exec and PR level. Pricing teams are generally far removed from communication teams…What they should have communicated was "We are always looking to optimize margin and investing in technology that assists in that" and not "we are doing surge pricing."

Matt Knaggs, account executive at Zilliant, kicked off the conversation among the Zilliant team when he responded to the NY Post article:

There are some meaningful takeaways for those outside of the fast-food segment here, though.

1.) Customer Perception - Understanding how the customer will view your "updates" to pricing (and consequently, how you position those updates) will have a significant impact on your company's success.

2.) Market Positioning - Does your pricing reflect your brand(s)' positioning in the market? (Admittedly, I read this and thought to myself, "Wendy's is good, but is it $10-per-burger-at-lunchtime good?) Are you changing your price to position your brand differently?

3.) Data-driven decisions - This type of change requires a dynamic pricing model with real-time decision-making abilities. AI and Big Data have been discussed for quite some time now, yet not everyone is ready for a significant shift until they've assessed data infrastructures to ensure they will support the analytical capabilities necessary for this or similar dynamic pricing approaches.

James Vaughn, principal pricing consultant at Zilliant, commented on Knaggs’ post to discuss good versus bad dynamic pricing:

Dynamic pricing is good if done well, dynamic isn’t good if it only consists of increases. It also isn’t good if the increases, as a percentage, are too big. 

The last thing is that ‘surges’ assume there is a compelling constraint in capacity in the eyes of the customer, such that they need it and must do without or pay the premium - this to me seems the most speculative. I’m not convinced this last piece will fall into place. I have many years of experience with this in non-retail but will be interested in the details.

Kyle Nations, sales director at Zilliant, also commented on Knagg’s post to touch on customer reaction:

My guess and it's just a guess not being a customer is there will be some initial backlash but over time loyal customers won’t be swayed. Could also position this as low-demand discounts to attract new and loyal customers and spread out demand over the day. I will be interested to see if other fast food follows.

After Wendy’s clarification that it meant dynamic, not surge, pricing, Matt Knaggs took the time to clear up his initial thoughts:

I have since read the entirety of the Wendy's earnings call where this news came from (which I should have done prior to sharing)...It was this one sentence and one slide that had so many jumping to conclusions - and in this case, unfortunately, the WRONG ones.

The Wendy's CEO actually didn't say or do anything wrong. Wendy's has since clarified that they will not be implementing "surge pricing" due to backlash resulting from this week's news, but truthfully this shows a gap in the overall market's understanding of the difference between dynamic pricing and surge pricing.

Have questions around dynamic pricing and what it could do for your business? Let’s chat.

Are you ready to learn how Zilliant can help you overcome your inflation challenges?

Reach out to us today to learn how we can help!