Wendy's Bold Move: Dynamic Pricing Strategy Set to Transform Fast-Food Industry
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Shifting to ridesharing's surge pricing is much different, especially if the user has to find out the pricing when they arrive at the restaurant. Ride sharing apps fundamentally sidestep this because you see the surge pricing without incurring a cost, and you can compare to competitors easily.
But with all the restaurants wanting more mobile orders, this may split the customer base in weird ways.
Somewhat, but if your plan was to ride share home your choice might just be incur the cost or gamble that waiting will make it better and not worse.
But your idea is actually really interesting, maybe even innovative. Instead of the constant price changes from a digital menu, a fast food restaurant embracing "happy hour" in the context of their own menu offerings. I think this could maybe play.
Many, many restaurants have "happy hour" menu pricing to encourage people to come at off-peak times, without necessarily having any correlation with alcohol. I don't think anyone would question the naming.
Wendys has raised prices already, and they will raise prices again at the time this launches for whatever they consider their premium hours.
It’s always in and out or chick fil a that is busy…
But customers need to know what they'll pay before they decide to walk into Wendy's, and it needs to be obvious. Otherwise:
A) you might waste time waiting in line only to discover that the price is higher than you're willing to pay, or
B) You might pay a higher price than you consider reasonable, but not even realize it, as you rely on Wendy's doing the math, or
C) The pricing scheme might not be effective at attracting customers at quiet times.
The way McDonald's does price discrimination (app users vs. others) works well:
- even naive customers never pay more than the 'regular' price, and
- app users can check for current offers before they leave home or just before they walk in.
It would be nice if you could use an app and see the projected pricing at different times.
I think it's good if some people can be encouraged to go to lunch a little earlier or later and the staff doesn't get slammed by a huge lunch rush.
It sounds like the Wendy's thing is based more on time of day and historical analysis of sales, so we will have to see how it plays out. But I think and the end of the day people will become more annoyed when their favored menu item is more expensive simply because they arrived at the restaurant sooner than they expected, or whatever other criteria Wendy's starts basing their pricing on. Having price tracking on their app does seem like the next logical step, but ultimately an annoying gamification (and vaguely dystopian) in my opinion.
Perhaps their customer base feels different and they've done their research on that - I'm not in that group so I'm more of a bystander here.
Do you expect people to sell their labor for the same price, regardless if it is daytime, evening, weekend, overnight, or holidays? How would you incentivize people to mess up their bodies by going against the circadian rhythm or skip meals and weekend outings with their friends and families?
If it were about wages then the plan would raise prices when wages increase overnight, not lower them. In general, prices are always about demand, not cost.
People don’t cancel their weekend plans because Uber isn’t surging, they avoid or delay Uber when it is surging. It’s about spreading out the surge.
Acting like the opposite is untenable is ridiculous, it’s the way the whole world works and has worked forever, except for one industry that gets away with everybody hating them because people have no alternative.
It’s solely about increasing profits at the expense of customers, let’s not pretend anything else.
Which is what happens, many restaurants now close earlier, open later, close during the afternoon, or otherwise reduce hours.
> In general, prices are always about demand, not cost.
Prices are the intersection of supply and demand, with a lower limit being the cost of goods sold.
> Acting like the opposite is untenable is ridiculous, it’s the way the whole world works and has worked forever, except for one industry that gets away with everybody hating them because people have no alternative.
This is not true, spot pricing exists in many, many businesses. Obviously, the volatility of price changes is usually eaten by merchants at the retail stage in many businesses, but there is no need for it to always be the case. Many restaurants have "lunch menus" for this very reason. Even in theme parks, they effectively engage in a hybrid of spot prices by allowing people to pay extra to cut in line.
> It’s solely about increasing profits at the expense of customers, let’s not pretend anything else.
Yes, that is called business. No one accepts $20 per hour if they think they can get $30 per hour.
Supply and demand curves are constantly in flux, regardless of how often Wendy’s changes the prices on its menu. The only question is how much utility the merchant thinks they will get from eating the cost of the volatility versus letting customers be exposed to it.
A kitchen surely has a fixed limit to how much food it can serve up, so the supply has a cap, which a higher price can be obtained, which means the merchant can better compete with other businesses along other lines, such as investing in the facility, paying employees more, building more restaurants, etc.
And obviously, the barrier to entry in the food business is extremely low, and the prices people are willing to pay are relatively low, so even if Wendy’s managed to extract a few extra percentage points of profit margin from more accurate pricing, it is not going to turn into a trillion dollar business.
And the hours that they remain open are not being subsidized, so your initial assertion that off peak customers are being subsidized was not true.
> Yes, that is called business.
Since you so accept acting purely in your own self interest, then surely you feel the same righteousness on behalf of customers responding inline with their own self interest, right?
You continue to conflate this announcement of time of day pricing with just about every other influence on pricing, even those working in the opposite direction. Prices already change all the time, the new thing is just the surge pricing. There are many ways to deal with surges, from dynamic staffing to streamlined kitchens to additional locations to what’s presumably the current strategy, all of those plus sometimes making people wait. Wendy’s seems to believe surge pricing might sometimes be the most profitable option, whether that’s true depends entirely on specifics that we don’t have and customer response.
Some off peak customers may be subsidized, for example those who want food at 2AM when volume is low and labor costs are high. Some off peak customers may not be, for example 2PM when the staff still needs to be there and have downtime.
>Since you so accept acting purely in your own self interest, then surely you feel the same righteousness on behalf of customers responding inline with their own self interest, right?
I cannot parse this statement. Everyone should do what is best for them, and try to avoid getting the short end of the stick. Obviously, the seller is going to try to sell to each individual at the highest price they are willing to pay, and the buyer is going to want to buy at the lowest price the seller is willing to accept.
>You continue to conflate this announcement of time of day pricing with just about every other influence on pricing, even those working in the opposite direction. Prices already change all the time, the new thing is just the surge pricing.
My point was that spot pricing can allow costs to be allocated more accurately to ensure the most efficient allocation of resources, including money to hire workers.
>There are many ways to deal with surges, from dynamic staffing to streamlined kitchens to additional locations to what’s presumably the current strategy, all of those plus sometimes making people wait.
I agree.
>Wendy’s seems to believe surge pricing might sometimes be the most profitable option, whether that’s true depends entirely on specifics that we don’t have and customer response.
Yes, it is certainly a gamble like every business decision. The pricing experiment could turn sufficient people off that it costs them more than it benefits them. The difference these days is that technology allows variable pricing to be implemented in a much more granular and economical way than in previous decades.
Which is fine. That's predictable. The problem with dynamic pricing is that it means you never really know what something is going to cost until you're at the point of purchase.
> Even in theme parks, they effectively engage in a hybrid of spot prices by allowing people to pay extra to cut in line.
Right, which is a practice that I consider to be egregiously terrible and avoid those places that pull that kind of crap.
In the end, I recognize that my opinion of these practices doesn't matter. I'll avoid patronizing businesses that do this sort of thing, but it won't change anything. It just means that as time moves forward there are fewer and fewer establishments that I will give my money to.
Now, this might not apply to McDonalds, but McDonalds is also not in the restaurant business.
https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/prof...
McDonalds is in the real estate and branding business, which has much more scalability and higher barriers to entry, hence they are probably able to increase profit margins. The actual restaurant operators' (franchisees') profit margins, however, are probably not anywhere near as hot since they operate the non scalable and higher liability part of the business. But their financials are not public, so I cannot link you to them.
They have a typo in “increase profits”
I fear we that won't happen, though. I'll do my part by avoiding Wendy's or any other place that does this sort of thing. Although this is a minor example, it is yet another thing that makes me very worried that the dystopia we're building will just continue to get built.