Hoo boy, another brilliant idea from the minds of those who Just.Don’t.Get.It
A popular international [fast-food chain] is planning to experiment with a new pricing model where the cost of menu items will vary depending on the level of demand, similar to the one used by the ride-hailing service Uber. The anticipated test is now causing concern over fluctuating fares amongst consumers and industry experts alike.
Wendy’s “[Uber]-style” surge-pricing model, where the cost of menu items will fluctuate throughout the day based on requests, suggests that, for instance, a Dave’s burger, the eatery’s signature burger, will cost more during lunchtime or dinner rush.
I have to laugh, because this is most lame in the positioning of the program. The CEO thinks it will be a swell idea to charge more during meal rush times. Well of course he does.
(This bad idea was tried by Coke, having the price of a soda rise with the temperature at beachfront vending machines.)
The truth is this idea already exists: Happy Hour at bars, “Early Dining discounts” at casual restaurants. But it’s positioned as “lower prices” for off peak times, not “higher prices for people stupid enough to want to eat at meal time.”
The idea of time-shifting some portion of the clientele isn’t new, it’s about how it’s presented. This CEO and/or whoever dreamed this up needs a course in “talking to ordinary people.”
I had not seen your post on this, when I posted this afternoon.
As noted in my post, recent trends in gouging customers remind me of the 80s. I saw a recent test of a low trim Toyota Corolla hatchback. The tester noted there are three different features of the car that require the periodic payment of a “subscription fee” to use, for the life of the car.
Folks who worked for the sort of “JCs” I did, know the answer to that one. The “JC” surrounds himself with an echo chamber that he fills with yes-men. No matter what sort of idiot thing that comes out of his pie-hole, everyone falls all over themselves praising the latest idea to “increase shareholder value”. iirc, Nardelli was vilified for staffing Home Depot stores with people who knew nothing about the building trades, but were cheap, but HD’s short term financial performance gained him praise from the financial sector.
Some years ago, the bank I used started charging a fee to use a human teller. Besides a checking account, I opened a savings account and put a few thousand in it, as an “emergency fund”, in case something expensive needed immediate remediation. One day, I tried to transfer money in or out of the savings account via the ATM. The ATM said the account was locked. The next time I was not working, when the bank lobby was open, I went in to see what was up. The banker said they froze the account due to inactivity. So, how do I unfreeze the account? Generate activity in the account. But I can’t access the account via the ATM. So, I had to use a human teller to unfreeze the account the bank had frozen, and I had to pay the human teller fee to resolve the problem the bank had created. That left a sour taste in my mouth for a good long time
As offered here before, folks like you and me are nothing to the “JCs”, but a ledger entry under “source of funds”.
It’s really kind of absurd. It doesn’t make sense economically. The purpose of surge pricing is to entice more supply to enter the market to meet excess demand (like Uberlyft, etc). In this case, surge pricing won’t increase supply, but it is likely to decrease demand. If Wendy’s burger is $12 at 12 noon, and McDonalds is $9, people will choose McDonalds rather quickly. And worse, they might get used to McDonalds and stop going to Wendy’s because they are pizzed at the higher lunchtime prices.
Auto industry honchos, addressing their discontinuation of lower priced models, as they push ATP and GP higher and higher, say they don’t care about market share anymore. Their objective is to take more from the people who do buy from them.
And what if Mickey D’s does the same thing?
Conversely, Arby’s has introduced a limited “happy hour” menu, offering reduced prices for customers during mid-afternoon. I can see why Wendy’s is going in the opposite direction. Arby’s plan hurts margins. Wendy’s takes more of people’s money. As long as management decides there is little elasticity of demand with regard to price, they will keep seeking ways to gouge customers.
Steve…who noticed the price of a Wendy’s COBB salad went up a few weeks ago, but they are still way better than a cold, dry, Big Mac
There are other things that people will do under such a system. For example, let’s say the surge pricing is 12 noon to 2:00 pm. People will scurry about and enter their order on the app at 11:55 pm, and the leisurely saunter to the store to pick it up. What’ll end up happening is that all the normal 12:00 - 12:20 orders will happen at 11:55 instead. That will end up exacerbating the surge between 12 noon and 12:30 or even 12:40 when they finally manage to complete all those orders. Similarly, few people will bother ordering at 1:30 or 1:45 and instead opt to wait to 2:01 to place their order and then rush to the store in hopes of getting it as quickly as possible. So there will be a mini-surge between 2 and 2:20 or 2:30.
And people are also clever enough to “arbitrage” one burger place to another burger place. Just like people “check the app” to see if Uber or Lyft is better priced, so too will they do so for burger places with surge pricing. And, of course, some independent burger places will advertise “no surge pricing here, and our burgers are better too”.
In the end, for fast food, surge pricing isn’t going to help them at all. It’s not like charging $12 instead of $9 for a burger will suddenly bring in an extra employee or two at those times! It’s different for drivers, some drivers aren’t willing to do an airport pickup for $45, but will jump at the chance to do it for $55, so a surge price that jumps from $45 to $55 will bring more drivers in immediately.
That’s one purpose of surge pricing. Another is to secure higher prices when demand is high, increasing your profit.
Generally speaking, you can have higher profits if you charge a higher price to customers with higher demand (in the economic sense - people that would be willing to pay more for the product than other customers), rather than charging everyone the same price. “Price discrimination,” in the argot of Econ 101. Once you get out of bazaar-type economies, though, there have traditionally been a lot of administrative costs to charging different prices to different customers based on their willingness to pay, so most goods in most contexts have a single fixed price. Haggling, negotiating, and offering different prices to different customers has instead been limited to very large-ticket items (cars and college tuitions) or broad categories of customers (early birds and matinees and senior discounts).
With emerging technologies, though, you can drill down and figure out exactly how much more you can charge for that Wendy’s combo meal at 12:11 p.m. without losing customers to McDonalds.
There’s no functional difference between the two pricing structures. Both charge more for peak, less for off-peak. This allows both Arby’s and Wendy’s to have higher prices during the peak without losing customers during the off-peak; or to gain customers during the off-peak without losing profits during the peak.
Either way, it’s the same thing. It’s just branded differently. And it’s easy to do things like that during a time of rising prices, when everyone’s prices at all times are higher than they were a year or two ago.
Of course not. When I was talking with the Wendy’s manager about this today, I commented that Radio Shack worked the opposite way: cutting the commission rate at Christmas, so salesmen worked their tail off, put huge stacks of money in the company’s pocket, without making any more themselves.
I’m sure the Wendy’s “JCs” can figure that out as easily as you did, and put up a roadblock. When the local news reported the scheme this noon, one of the anchors talked, hypothetically, about ordering his lunch on the app at one price, only to get to the store during the “surge”, and be charged more.
I would expect Wendy’s to have “surge” pricing from 11am to 2pm, or something like that. So, you put your order in at 10:55, get there at 12:10, and your order, sitting in a bag on an unheated shelf for over an hour, is cold, except for your Frosty, which is now completely melted. Complain to the manager about the condition of your order, and he shrugs “should have gotten in here sooner”.
Again, I think the greater possibility is that Wendy’s would tinker with the surge pricing until they hit the highest possible price that doesn’t change consumer behavior much.
Not a “cliff” of prices, where they shoot up from $9 to $12, but maybe a shift from $9 to $9.45 that doesn’t necessarily happen at a set time. Not enough to get many consumers to game their order timing, but enough to let them make more money during the lunch rush without losing too many non-peak orders.
Goofyhoofy, you seemed to overlook something in this story… The part of the plan that will also pay all the WORKERS more for their extra hustle during peak periods. I’m SURE that was in there somewhere.
No?
Hmmmm. That’s odd. It must of been in the PowerPoint shown to the exec steering committee. Maybe the “combat pay” slide got deleted at the last minute.
I know that the first time I walked into a restaurant adopting this strategy would be the LAST time I visited that chain. And I would walk out before ordering.
I did a post in 2020 “hero to zero”. Several stores that were allowed to stay open at the peak of the plague payed their staff extra to take the risk of showing up for work and dealing with the public. That lasted a couple months, before the “hero” pay was taken away…but the risk to the employees, and the escalated prices to customers, stayed.
If Wendy’s adopts the attitude the automakers have, they don’t care about the marginal customer. They expect to make so much loot off the escalated prices, they won’t miss your fiddling little order.
I have told the story before, of the unwise person who stood up at the RS annual store manager’s meeting, and said the unsayable: that RS’ prices were pathetically uncompetitive with big box discounters of the late 80s. Bernie Appel’s response was to thunder “we do people a favor when we sell them our stuff”. That manager’s comment must have hit a nerve, even though Bernie would not admit it. A few weeks after that meeting, my district manager called me up and asked “do you think our stuff is worth the price?” Of course, anyone who wanted to keep his job would say “why, yes sir, it’s worth every nickle”, because saying otherwise was professional suicide. The way he made that call and asked that question, after what transpired at the annual meeting, made me suspect that a directive had come up from Fort Worth to make sure everyone was toeing the line on the pricing question.
The apps state the price and charge you at the time of the order, not after pickup of the order. At least that’s how the apps I am familiar with work (Starbucks, Dunkin).
Didn’t work out very well for Radio Shack, did it?
Restaurant surge-pricing is nothing new. Happy hour and early-bird discounts are surge-pricing by another name. Back in the day, home from college, hot town, summer in the city, party until dawn, stop at any one of several diners with big discounts before the morning rush, then head out to a summer job, easily making enough to pay for a summer of fun and next year’s tuition.
The marketing stupidity is raising prices when demand is high rather than starting high and lowering them when demand is low. That’s why department stores almost always have sales. The rare days with no sales are savvy surge pricing.
I think many here are using a different definition of “surge pricing” than I use. Price Discrimination, time-of-day pricing, etc are not what I understand as “surge pricing”. I understand “surge pricing” to mean a temporary increase in demand, that has a temporary immediate response of higher prices. It is generally used to increase supply and/or decrease demand in real-time in order to bring them closer to balance so that your staff can more easily satisfy the demand in reasonable time. The classic example is uberlyft constantly adjusting prices for specific areas to either entice more drivers to enter the area and become available, or to dissuade some of the more price sensitive customers from using the service at that time.
I don’t think surge pricing includes things like airlines charging more for last minute flights, that’s more the effect of higher pricing as a resource becomes more scarce.
I think the real-time aspect of it is an important part. For example, let’s say Wendy’s says they will have surge pricing once orders per 5 minutes hits 30. Some days, let’s say a typical Monday would usually see surge pricing begin at 11:55 to 12:10 when people start ordering lunch en masse. But if the Monday is a minor holiday (say Presidents Day), and 30% of the employees in the area aren’t in the office, then surge pricing may not happen at all on that day. But if Wendy’s simply has higher prices every weekday between 12 and 2, then I don’t consider that to be surge pricing, I call that time-of-day pricing.
It’s the same thing. If you have an imbalance of supply and demand, the profit-maximizing thing to do is adjust the price until they match. If ten people want an airline seat and there’s only one left because it’s last minute and you’ve sold the rest, you raise the price. If ten people are waiting in the drive-through because it’s peak lunchtime, and your throughput capacity isn’t high enough, you raise the price.
Uberlyft have done a very nice job of branding this as “surge pricing,” and getting people to associate that term with something a little more positive than “peak pricing” or “price discrimination” or other descriptors. But it’s all the same thing. If you offer different prices to different customers/at different times in order to balance supply and demand, you can make more money than by offering an invariant price to all comers at all times (assuming you can avoid getting your customers mad at you for doing it).
