Just two words created an promoting nightmare for fast food giant Wendy’s: dynamic pricing.
In late February 2024, news broke that the network was considering charging different prices at different times of the day – a tactic normally related to airlines and shipping firms. Like headlines like “Wendy’s will introduce Uber-style raises” flooded the news and #BoycottWendys trended on social media. Wendy’s rival Burger King was quick to capitalize on the news, slamming “No desire to grow” promotion.
This response put Wendy’s on the defensive.
Within days, Wendy’s said so it never intended to lift prices during times of peak demand, as a substitute aspiring to lower prices only when store traffic was slow. A monthly $1 burger deal was also announced and followers took up the offer quick connection to the pricing fiasco.
It looked like a classic PR disaster – and as professor of selling, I could not turn around. How did all of it go unsuitable?
Divergent stakeholder interests, with a side of fries
I believe that this burger fuss boiled all the way down to a classic case of a collision between the interests of investors and the interests of consumers.
It seems this whole mess began on February 15, 2024, when Wendy’s published its fourth quarter results and held it teleconference with investors.
That day, Wendy’s announced a multimillion-dollar investment to introduce digital menu boards in all of its U.S. stores. According to a slide from the conference call, this investment would support “dynamic pricing and menu offerings.” Wendy’s CEO in the course of the slide presentation he said“From 2025, we will begin testing more enhanced features such as dynamic pricing and offers at times of day, along with dynamic menu changes, AI-powered pricing and suggestive selling.”
While some say Wendy’s can have had no intention of raising prices in any respect, I’m skeptical. Of course, there’s nothing unsuitable with raising prices – firms would exit of business in the event that they didn’t. The problem is easy methods to account for the value increase. For example, Starbucks raised its prices thrice in just 4 months from October 2021 to February 2022. The increases were blamed on inflation and were met with little opposition.
But irrespective of how you chop it, raising prices is a corporate motion that advantages investors but not consumers. And while the entire thing has sparked outrage amongst restaurant diners, Wendy’s investors seem relatively indifferent. Wendy’s share price remained unchanged relatively stable since February 26, when the media picked up the story and calls for a boycott began.
This asymmetry is sensible and is well documented academic research. Investors are typically driven by company profits. They are made joyful by measures to extend income, similar to price increases. That’s why firms often announce these increases long before they take effect – not for the sake of shoppers, but for investors.
Of course, higher prices seem different if you happen to’re the one paying them. Consumers are likely to imagine that sellers will not be fair when setting prices: they imagine that sales prices are largely determined higher than fair pricesdownplay impact of inflation, they over-attribute the reason behind price increases to the need for profit and don’t take into consideration the prices of the corporate. Their response is mutual economically rational and predictable.
It also is sensible that Burger King is attempting to act like a typical rival – wanting to make the most of Wendy’s backlash.
Unnecessary fighting for food
In my opinion, Wendy’s early announcement of dynamic pricing was a serious mistake. Recall that its CEO said that Wendy’s will introduce dynamic pricing “as early as 2025.” That means it announced the news not less than nine months before customers needed to listen to about it. I assume Wendy’s did this because they desired to impress their shareholders and increase the stock price.
In fact, my cynic wonders whether this incident was “staged” – that’s, Wendy’s was testing the waters to see if it could announce a price increase in advance to impress shareholders after which not actually implement the changes.
Indeed, research has shown this firms often announce price increases several days or several months in advance and should withdraw a few of these announcements if it realizes that a price increase may cause more damage than a rise in revenues.
Either way, announcing a decision nine months in advance seems premature. I also saw no evidence that Wendy planned for patrons to listen to this message together with investors.
My advice is that management should rigorously communicate price increases so that buyers take the corporate’s viewpoint quite than consider the rise unfair. This may mean avoiding terms that trigger hostile reactions, or giving explanations for his or her decisions, similar to increases in ingredient costs or worker salaries. Consumers who understand the explanations for price increases could also be more favorable.
Interestingly, even after Wendy’s hesitation, there are apparently other restaurants considering the rise in menu prices during times of peak demand. I hope they learn from Wendy’s mistake and be strategic about price increases.
Otherwise, they should not be surprised when the players eat lunch.
