Wendy’s embrace of dynamic pricing a game changer
Dynamic pricing, which adjusts prices based on demand, is poised to become a more prominent feature in our daily transactions, particularly in the food industry.
It is not a novel idea. Dynamic pricing has long been employed in sectors such as airlines, theme parks, and hotels, where prices fluctuate to either entice customers during off-peak times or capitalize on high-demand periods. The acceptance and understanding of this model as a means to optimize sales are wellestablished in these non-food domains.
The food service and retail sectors are no strangers to dynamic pricing either. With the advent of digital price displays, many retailers have been quietly implementing this approach, adjusting prices multiple times a day as needed.
However, the sensitivities surrounding pricing in the food industry are distinct. Food is not just another commodity; it is a necessity, and the ethics of its pricing carry a different weight than selling tickets for a vacation to Honolulu.
The recent announcement by Wendy’s in the United States that it will adopt dynamic pricing during busy hours marks a significant moment in the food industry. This public declaration stands out in a sector where price changes are often made discreetly. Wendy’s is essentially advising its customers to visit during quieter hours to save money, which some might view as an inconvenience. It’s akin to transforming its operations into a stock exchange, where customers are encouraged to ‘buy low and avoid buying high.’
This move is particularly intriguing from a public relations perspective, given that Wendy’s competitors have not made any public announcements regarding dynamic pricing.
The power of dynamic pricing lies in its ability to bring predictability to the inherently unpredictable business of selling food. Factors such as weather, local events, or even celebrity comments can drive consumer behaviour in unpredictable and sometimes irrational ways. By implementing dynamic pricing, businesses can achieve a more optimal balance between supply and demand, thereby gaining more control over their operations, including inventory management, staffing, and other aspects of the business.
Moreover, dynamic pricing can potentially reduce food waste, a critical issue in an industry characterized by low margins. According to a study published in Marketing Science, dynamic pricing can reduce waste in food retailing by 21 percent.
But while this model can create a better equilibrium between supply and demand during operating hours, it is not without its challenges for consumers. For example, during the empty shelves phenomenon of March 2020, dynamic pricing could have led to immediate price spikes, pushing food inflation to unprecedented levels when many were seeking to stock up and stay safe.
The increasing availability of artificial intelligence and other technological tools has made dynamic pricing a more viable option for food executives. Wendy’s decision to publicly embrace this strategy could be seen as an attempt to demystify a practice that has already been in use, albeit quietly, within the industry. As consumers become more aware of timebased pricing, they may realize that many prices have already been affected by such an approach, even if it was not explicitly known.
The repercussions of Wendy’s announcement will be interesting to observe. Customers may choose to penalize the chain for its transparency on dynamic pricing and opt for competitors, unaware that these alternatives have likely been employing similar pricing strategies for years.
In the end, the public’s response to this shift towards more dynamic pricing in the food industry will provide valuable insights into consumer behaviour and the acceptability of such practices in the context of essential goods like food.
Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.
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