Wendy's says the new pricing plan is not surprise pricing

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A motorist places his order from the drive-thru lane at a Wendy's fast food restaurant in Alhambra, California on May 5, 2020.



CNN

Don't call Wendy's new pricing plan “surprise pricing.”

In a post on Tuesday, The fast food chain made this clear Tested for new listings With prices that change throughout the day it doesn't mean it costs customers more.

“This has been misinterpreted in some media reports as an intention to raise prices when demand is at its highest levels in our restaurants,” the company statement said. “Digital menu boards can allow us to change menu offerings at different times of the day and offer discounts and value offers to our customers more easily, especially at slower times of the day.”

In an email to CNN, Wendy's was more blunt: “Wendy's will not be implementing surge pricing, which is the practice of raising prices when demand is at its highest. This was not a change in plans. It was never our plan to raise prices when customers visit us often.”

But questions about what we might call the Wendy's experience — surge pricing? Dynamic pricing? another thing? – Highlighted the PR issue with a pricing system that has already been used for years in a range of industries, from ride-sharing to airlines to local happy hour.

Surprise pricing refers to dynamic pricing, which is a way for companies to charge more (or less) based on how many people want their products at any given time.

“Whoever called it high prices has made the worst marketing mistake you can think of,” said Juan Castillo, an assistant professor of economics at the University of Pennsylvania. “The price hike sent a message to everyone that it was mostly about increasing prices. That created a very negative reaction from the public.”

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Dynamic pricing uses real-time data to see where a company can set its prices.

That allows companies to earn the maximum they can earn at any given moment, Castillo said, but it depends on two critical factors: innovative technology and managing “consumer backlash” — as Wendy's learned this week, when memes about its unaffordable burgers started spreading. After their initial announcement.

Chuck Bell, advocacy director at Consumer Reports, told CNN that consumers are more familiar with high prices from high-fare experiences at companies like Uber and Lyft.

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Uber vehicles line up to transport passengers at Los Angeles International Airport (LAX) on February 8, 2023 in Los Angeles, California.

“Ridesharing prices are generally higher during rush hour,” Bell said. “Your options become more limited when there is peak demand from other customers, so you pay a higher price to get the thing you want.”

Despite the frustration with rising prices, dynamic pricing doesn't just mean higher prices, Castillo said. While consumers pay more during peak hours, this also means they pay less outside of peak hours. Think of those two-for-one appetizers or drink specials at your local happy hour.

“Dynamic pricing means sometimes a higher price, sometimes a lower price,” Castillo explained.

Dynamic pricing coming to Wendy's highlights a potential “tipping point” in technology for the fast-food industry, said Jonathan Mize, editor-in-chief of trade publication Restaurant Business.

“If Wendy's idea works, it might prompt others to do something similar, and I wouldn't be surprised to see another series or two test the idea themselves, given what Wendy is doing,” Maze said.

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Dynamic pricing has been around for decades for airline tickets, but the 2000s ushered in an era of greater applications, Castillo explained.

As technology improved, the ability to use real-time data in everyday transactions also improved. “With everyone having smartphones, it's much easier for companies to do this kind of pricing that is adjusted in real time,” Castillo said.

Castillo pointed out that e-commerce is very willing to change prices in this way. Selling tickets Platforms Like Ticketmaster and Stubhub already use dynamic pricing.

Instacart, an online grocery delivery service, also uses the pricing model. Uses Instacart Eversightan AI-powered pricing tool that tests the price people will pay for something.

As dynamic pricing and the use of artificial intelligence move into fast food, companies risk confusing consumers and even losing customers, Lindsay Owens, executive director of Groundwork Collaborative, a D.C.-based progressive policy group, wrote in an email to CNN.

“After significant public opposition, Wendy's is now framing its dynamic pricing strategy as discounts during off-peak times rather than price increases during peak times,” she wrote.

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