Wendy's plans to use AI to change prices dynamically starting in 2025
posted Sunday Mar 3, 2024 by Scott Ertz
This week, a piece from Food & Wine brought to the internet's attention Wendy's future pricing plans. The company stated that they are investing $20 million to install new digital menu boards across the company. These boards would give the company the ability to dynamically change prices throughout the day. The move was immediately compared to the much-maligned Surge pricing from Uber, but the company claims that it has been misrepresented.
What is Surge pricing?
Surge pricing, also known as dynamic pricing, is a pricing strategy that businesses use to adjust the price of their product or service based on market demand. When demand is high, prices increase to balance the high demand with the limited supply. Conversely, when demand is low, prices decrease to encourage more usage. This strategy is commonly used in industries where the supply is somewhat fixed, such as ride-sharing services, hotel rooms, and airline seats.
For example, ride-sharing companies like Uber and Lyft use surge pricing to incentivize more drivers to get on the road during times of high demand. When there are more riders than available drivers, prices go up. This price increase encourages more drivers to work during these busy times, which increases supply and helps to balance out the demand. Similarly, it encourages riders to wait until the demand decreases if they want to pay less. This dynamic pricing model helps to ensure that the service is always available for those who need it and are willing to pay more during peak times.
Dynamic prices at Wendy's
For Wendy's, the concept would be similar. Prices would be higher during peak times, such as the lunch rush and dinner rush, and lower during slow times, such as after midnight. The company plans to use AI to determine, based on past sales histories, weather, and other factors, when these customer surges and slumpsare happening and adjust the prices accordingly. Theoretically, like rideshare apps, fast food restaurants have limited capacity. There is a finite number of people working, a finite amount of cooking space, and a finite amount of space in and around the store.
But, the company says that they don't plan to implement dynamic pricing in the same way that companies like Uber have done it. In fact, they say they have been misrepresented in news reports since the announcement was made. According to a spokesperson speaking to Reuters,
We said these menuboards would give us more flexibility to change the display of featured items. This was misconstrued in some media reports as an intent to raise prices when demand is highest. We have no plans to do that.
The spokesperson added that the company "would not raise prices when our customers are visiting us most" but instead would use the technology to lower prices during slower times. The problem with this explanation, of course, is that once the system lowers the prices dynamically, they will inevitably raise once again - even if it is just to normal pricing. So, the avoid the appearance of Uber-style Surge pricing, the regular menu prices could just be raised permanently with dynamic pricing keeping the prices lower during most of the day.
A very negative reaction
The company's response claiming that they had been misrepresented came because of backlash online. Customers absolutely hate Uber's Surge pricing, so it was no surprise when the reactions online to this announcement were negative. Well, it was no surprise to anyone except the team at Wendy's, who seemed shocked that customers were unhappy about the pitch.
Social media was awash with comments on articles about how they were going to stop going to Wendy's all together. Similar statements were made when Uber made its announcement, but with limited competition, and Lyft's announcement that they would implement something similar, there were a lot of hollow threats. However, in fast food, there is a lot of choice, so these threats might become a reality if Wendy's doesn't backtrack entirely on this plan.
