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 in periods of peak demand, as an alternative 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 promoting, I could not turn around. How did all of it go improper?
Divergent stakeholder interests, with a side of fries
I think 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 throughout 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 could have had no intention of raising prices in any respect, I’m skeptical. Of course, there’s nothing improper with raising prices – firms would exit of business in the event that they didn’t. The problem is learn how to account for the worth increase. For example, Starbucks raised its prices 3 times in just 4 months from October 2021 to February 2022. The increases were blamed on inflation and were met with little opposition.
But regardless 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 smart and is well documented academic research. Investors are typically driven by company profits. They are made glad by measures to extend income, reminiscent of price increases. That’s why firms often announce these increases long before they take effect – not for the sake of consumers, but for investors.
Of course, higher prices seem different when you’re the one paying them. Consumers are inclined to imagine that sellers aren’t 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 will for profit and don’t bear in mind the prices of the corporate. Their response is mutual economically rational and predictable.
It also is smart that Burger King is attempting to act like a typical rival – wanting to take advantage 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 at the least 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 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. And I have never seen any evidence that Wendy planned for patrons to listen to this message together with investors.
My advice is that management should fastidiously communicate price increases so that buyers take the corporate’s standpoint reasonably than consider the rise unfair. This may mean avoiding terms that trigger hostile reactions, or giving explanations for his or her decisions, reminiscent of 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 strategically determine price increases.
Otherwise, they should not be surprised when the players eat lunch.
