Hold the Fries

Prices May Fluctuate!

Author

The Déjà Digest
March 04, 2024

Background: Wendy's, the sassy social media darling known for its flame-grilled squares and snarky tweets, made headlines last month when they announced that menu prices are subject to change. CEO Kirk Tanner told investors on a call this month that starting as early as 2025, Wendy's would begin testing features including "dynamic pricing and daypart offerings."

Unlike traditional interpretations of dynamic pricing, which often involve raising prices during peak demand periods, Wendy's has clarified its approach will not increase prices during busy times. Instead, the company aims to leverage dynamic pricing as a means to adjust menu offerings at different times of the day and to provide discounts and value offers to customers during slower periods. This strategy intends to enhance customer value and improve the overall experience by utilizing AI-enabled menu changes and suggestive selling, influenced by various factors such as weather conditions.

Wendy's initiative represents a novel application of dynamic pricing in the fast-food industry, but ping-ponging prices are nothing new in other industries.

Deja Vu: Dynamic pricing isn't as modern as one might think. In fact, dynamic has been the default. Take an ancient bazaars, where the cost of goods was often negotiated on the spot, taking into account factors such as the time of day or the amount of stock left. In 19th century, railway companies charged different fares based on demand, time, and class of service.

If you plan to take a trip anytime soon, you’ll likely be booking a flight and a hotel based on a sophisticated pricing models that varies by occupancy, time of booking, and seasonal demand. When you land in your new city, you might need use a ride share service that’s experience “surge pricing.” If you’ve got time before dinner, maybe you’ll grab a cheap drink at a local watering hole’s Happy Hour.

It remains to be seen how exactly Wendy’s executes this idea, but you’ve seen it, and paid for it, before.

Fact

American Airlines was a pioneer in dynamic pricing. Its Super Saver fares started in the 1970s and revolutionized airline ticket sales. It was common then for commercial flight in the U.S. to take off with only 50-60% of its seats booked. The goal of the Super Saver fare, which could be up to 50% off, was to fill empty seats.

Bonus American Airlines Fact: American Airlines is respobnsible for one of the first frequent-flyer initiatives: AAdvantage. When it began in 1981, it was invitation-only and rewards included a first-class ticket to any destination American flew. Today, there are over 100 million AAdvantage members.

Definition: Price Elasticity

An economics concept that measures the sensitivity of the quantity demanded for a good or service to a change in its price.. Simply, how much the demand for something changes when its price goes up or down.

Investopedia has a more detailed breakdown if you want to dig in.

Number: 3.4 million

At the time that it became the most retweeted tweet, Carter Wilkerson’s tweet asking Wendy’s for free nuggets for a year, had over 3.4 million retweets.

Wendy’s ended up giving him $1,000 in gift cards (enough for a 4pc nugget per day at the time), plus donating $100,000 to the Dave Thomas Foundation for Adoption.1

Quote: “You know you’re priced right when your customers complain—but buy anyway.” - John Harrison

List: The Price is Right…at least for now

  • Gasoline: The price of gasoline frequently changes due to factors such as crude oil prices, geopolitical events, changes in supply and demand, and even weather conditions affecting refineries and supply chains.

  • Fruits and Vegetables: Produce prices often change with the seasons.2  And some grocers will offer discounts on produce nearing their expiration date

  • .

  • Electricity: In many markets, electricity prices vary throughout the day based on demand. During peak usage times, prices can increase, a practice known as time-of-use pricing. This approach encourages consumers to use electricity during off-peak hours to save money.

  • Car Insurance: Some car insurance companies utilize dynamic pricing models that consider a driver's location and driving habits in real-time to determine their insurance premiums. This allows for potentially lower costs for drivers who primarily operate their vehicles in lower-risk areas or demonstrate safe driving practices.

Profile: Alfred Marshall

Alfred Marshall, a towering figure in the field of economics, made significant contributions that laid the groundwork for much of modern economic theory, particularly in the areas of microeconomics and the principles of supply and demand.

Born in 1842, Marshall is perhaps best known for his seminal work, "Principles of Economics" (1890), which brought together concepts like supply and demand, marginal utility, and costs of production, forming a cohesive framework for economic analysis.

Marshall's theories emphasized the role of consumers in determining market prices, Furthermore, Marshall's concept of consumer surplus, which represents the difference between what consumers are willing to pay and what they actually pay, can be seen in the strategy behind dynamic pricing.

By offering discounts during off-peak hours, Wendy's aims to increase customer satisfaction by providing greater value, potentially expanding their consumer surplus.