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Untangled Web: Wendy’s pricing announcement could serve as case study

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Wendy’s pricing announcement could serve as case study

Wendy's may be testing out dynamic pricing in the near future. | SBJ file photo

Fast-food chain Wendy’s came under fire in February when media reported surge pricing would be introduced at the company’s restaurants.

Surge pricing, or peak pricing, is used by businesses such as Uber to charge customers more when demand is higher.

Reports of surge pricing at Wendy’s came out after CEO Kirk Tanner in an earnings call said, “Beginning as early as 2025, we will begin testing more enhanced features like dynamic pricing and day-part offerings along with AI-enabled menu changes and suggestive selling.”

Tanner did not use the term “surge pricing,” and Wendy’s was quick to point that out.

“We have no plans to do that and would not raise prices when our customers are visiting us most. Any features we may test in the future would be designed to benefit our customers and restaurant crew members,” Wendy’s officials said in a statement.

According to Wendy’s, Tanner’s comments were in reference to planned digital menu boards.

“Digital menu boards could allow us to change the menu offerings at different times of day and offer discounts and value offers to our customers more easily, particularly in the slower times of day. Wendy’s has always been about providing high-quality food at a great value, and customers can continue to expect that from our brand,” the statement reads.

A natural follow-up question is this: What is the difference between dynamic pricing and surge/peak pricing?

According to Investopedia, peak pricing is one element of a larger comprehensive pricing strategy called dynamic pricing. Under a dynamic pricing model, a company may set flexible prices that change based on market demand. A key point is that dynamic pricing does not necessarily mean higher prices. As Wendy’s statement suggests, it could be lower prices in an attempt to boost traffic during slower parts of the day.

The impact on Wendy’s bottom line from Tanner’s initial announcement, the media reports that followed and the clarification in response is certain to be watched closely.

You can bet it will also be used as a case study for the restaurant industry and other businesses.

In a piece for QSR Magazine, called “Where Wendy’s Went Wrong in its Communication of Dynamic Pricing,” Sherri Kimes writes that the Wendy’s announcement went awry due to something called prospect theory.

The gist is that companies’ changes should always be framed to customers in a way that benefits them.

If it’s framed as a loss for customers, the company loses.

“Rather than saying that you’re going to charge more at certain times, talk about the discounts or special promotions that customers can get,” writes Kimes, an emeritus professor of operations management at the School of Hotel Administration at Cornell University.

She gives an example of a company that decides to charge more on the weekends.

“You could either say that you’re charging 20% more on the weekends, or you could say that you’re charging 20% less during the week. They’re the same, but which would customers prefer? That’s prospect theory in action!” Kimes writes.

Kimes suggests that the negative press from the Wendy’s situation should not deter other companies from trying out new pricing strategies.

“It’s an opportunity to provide greater value to customers while effectively managing demand,” she says.

A pricing plan that considers the opportunities presented by peak and off-peak times is crucial, according to Kimes. And it all goes back to how the company frames it.

Wendy’s, which can arguably take a financial hit more easily due to its scale, may be an important case study for smaller restaurants and other businesses that can’t.

This certainly won’t be the last we hear about dynamic pricing.

Record Recap

Public records provide an unfiltered look into what’s coming to Springfield. For this edition, I’m taking a look at commercial building permits currently on file with the city. Check SBJ.net for future coverage.

Jordan Valley Community Health Center
1720 W. Grand St.
Description: Infill of exiting space for pharmacy

Mercy Whiteside
2115 S. Fremont Ave.
Description: Conversion of eight clinical exam rooms into two X-ray rooms and a shared control room

Drury University
900 N. Benton Ave.
Description: Creation of lyceum space at Olin Library

Big Dog Deli
3459 W. Kearney St.
Description: Infill for a new drive-thru/carryout deli

The Dale
1112 S. Grant Ave.
Description: New 42-unit apartment building

Springfield Public Schools
2000 N. Lyon Ave.
Description: New Reed Academy middle school

O’Reilly Automotive Inc.
455 S. Patterson Ave.

‘Upstream workforce development’ is working at Discovery Center

I have a core memory associated with Discovery Center of Springfield Inc.

On a visit to Springfield and the Discovery Center when I was a kid, I was enamored with a computer that allowed guests to print out a newspaper page with their name in the byline. I recall drafting up a story about the dangers of wasps in the simulation at the Discovery Center.

In fact, that’s probably the first time my name appeared in a byline. Who knew my name would appear hundreds, if not thousands, of times in real newspaper articles in the future? Although decades have passed and my memory isn’t foolproof, I’m certain that my kid self would not have perceived that I was practicing for a future career.

Turns out, this is all by design.

In a recent interview with new Discovery Center CEO Tyler Moles – see the article in the March 11 print edition or at SBJ.net – he told me that the downtown science center aims to inspire the future workforce in this way.

“I call it upstream workforce development,” he says. “If you get them interested young, they will follow that through to adulthood.”

Given my own story with the Discovery Center and the career I have chosen, I’d say upstream workforce development is working pretty well.

Contact Geoff Pickle
Phone: 417-616-5856
Email: gpickle@sbj.net
LinkedIn

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