{"id":36815,"date":"2024-03-14T02:34:00","date_gmt":"2024-03-14T02:34:00","guid":{"rendered":"https:\/\/www.lifeandnews.com\/articles\/?p=36815"},"modified":"2024-03-20T19:59:25","modified_gmt":"2024-03-20T19:59:25","slug":"wendys-surge-pricing-mess-looks-like-a-case-study-in-stakeholder-conflict","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/wendys-surge-pricing-mess-looks-like-a-case-study-in-stakeholder-conflict\/","title":{"rendered":"Wendy\u2019s \u2018surge pricing\u2019 mess looks like a case study in stakeholder conflict"},"content":{"rendered":"\n

Vivek Astvansh<\/a>, McGill University<\/a><\/em><\/h1>\n\n\n\n

Just two words created a publicity nightmare for fast-food giant Wendy\u2019s: dynamic pricing<\/a>.<\/p>\n\n\n\n

In late February 2024, news broke that the chain was considering charging different prices at different times of day \u2014 a tactic usually associated with airlines and ride-hailing companies. As headlines like \u201cWendy\u2019s to roll out Uber-style surge-pricing<\/a>\u201d flooded the news, #BoycottWendys trended on social media. Wendy\u2019s rival Burger King quickly took advantage of the news with a \u201cNo urge to surge<\/a>\u201d promotion.<\/p>\n\n\n\n

The backlash put Wendy\u2019s on the defensive.<\/p>\n\n\n\n

Within days, Wendy\u2019s said that it never intended to raise prices<\/a> at times of peak demand, Instead, it only intended to lower prices when store traffic was slow. It also announced a monthlong $1 burger deal that observers were quick to connect<\/a> to the pricing fiasco.<\/p>\n\n\n\n

It looked like a classic PR disaster \u2013 and as a professor of marketing<\/a>, I couldn\u2019t turn away. How did this all go wrong?<\/p>\n\n\n\n

Divergent stakeholder interests, with a side of fries<\/h2>\n\n\n\n

I suspect this burger brouhaha came down to a classic case of investors\u2019 interests colliding with those of consumers.<\/p>\n\n\n\n

The whole mess seems to have started on Feb. 15, 2024, when Wendy\u2019s released its fourth-quarter earnings<\/a> and held a conference call with investors<\/a>.<\/p>\n\n\n\n

That day, Wendy\u2019s announced a multimillion-dollar investment to roll out digital menu boards across all its U.S. stores. This investment would support \u201cdynamic pricing and menu offerings,\u201d according to a slide from the conference call. While presenting the slides, Wendy\u2019s chief executive officer said<\/a>, \u201cBeginning as early as 2025, we will begin testing more enhanced features like dynamic pricing and day-part offerings along with AI-enabled dynamic pricing menu changes and suggestive selling.\u201d<\/p>\n\n\n\n

While some people argue that Wendy\u2019s may have never meant to hike prices at all, I\u2019m skeptical. Of course there\u2019s nothing wrong with raising prices \u2013 companies would go out of business if they didn\u2019t. The issue is how to frame the price hike. For example, Starbucks increased prices three times<\/a> in just four months between October 2021 and February 2022. It blamed the hikes on inflation and didn\u2019t face much of a backlash.<\/p>\n\n\n\n

But no matter how you frame it, raising prices is a company action that benefits investors but not consumers. And while the dining public has been outraged by the whole affair, Wendy\u2019s investors seem relatively unconcerned. Wendy\u2019s stock price has remained relatively stable<\/a> since Feb. 26, when the media picked up the story and boycott calls commenced. https:\/\/www.youtube.com\/embed\/NlmKBsjj-30?wmode=transparent&start=0 It\u2019s a bad sign when your company\u2019s pricing controversy makes it onto \u201cGood Morning America.\u201d<\/p>\n\n\n\n

This asymmetry makes sense and is well documented in academic research<\/a>. On average, investors are motivated by a company\u2019s profits. Moves to raise revenue, such as hiking prices, make them happy. That\u2019s why companies often announce those increases well before they put them into effect \u2013 not for the customers\u2019 sake, but for the investors\u2019<\/a>.<\/p>\n\n\n\n

Of course, higher prices feel different if you\u2019re the one paying them. And consumers tend to believe sellers aren\u2019t being fair when they set prices: They think sale prices are set much higher than fair prices<\/a>, underestimate the impact of inflation<\/a>, overattribute the cause of price increase to profit-seeking, and fail to consider company costs. Their backlash is both economically rational and predictable<\/a>.<\/p>\n\n\n\n

What also makes sense is Burger King trying to act like a typical rival \u2013 aiming to benefit from the backlash Wendy\u2019s received.<\/p>\n\n\n\n

A needless food fight<\/h2>\n\n\n\n

In my opinion, Wendy\u2019s early announcement of its dynamic pricing was a serious mistake. Remember that its CEO said that Wendy\u2019s would introduce dynamic pricing \u201cas early as 2025.\u201d That means it announced the news at least nine months before customers needed to hear about it. I assume Wendy\u2019s did this because it wanted to impress its shareholders and boost its stock price.<\/p>\n\n\n\n

In fact, the cynic in me wonders whether this incident was \u201cstaged\u201d \u2013 that is, Wendy\u2019s was testing the waters to see whether they could preannounce the price hike to impress shareholders, and then not actually implement the changes.<\/p>\n\n\n\n

Indeed, research has shown that companies often preannounce price increases<\/a> a few days to several months in advance, and may withdraw some of these preannouncements if they realize that the price hike may cause more damage than increase in revenue.<\/p>\n\n\n\n

But either way, announcing a decision nine months in advance seems premature. And I haven\u2019t seen any evidence that Wendy\u2019s planned for customers to hear the news along with investors.<\/p>\n\n\n\n

My advice is for executives to be astute in communicating price increases so consumers take the company\u2019s perspective and don\u2019t view the hike as unfair<\/a>. That may mean avoiding terms that elicit hostile reactions, or providing explanations<\/a> for their decisions, such as an increase in the cost of ingredients or employee salaries. Consumers who understand the reasons for a price hike may be more accommodating.<\/p>\n\n\n\n

Interestingly, even after the Wendy\u2019s wobble, other restaurants are reportedly considering increasing menu prices<\/a> during hours of high demand. I hope they learn from Wendy\u2019s error and frame their price increases strategically.<\/p>\n\n\n\n

Otherwise, they shouldn\u2019t be surprised when competitors eat their lunch.<\/p>\n\n\n\n

Vivek Astvansh<\/a>, Associate Professor of Quantitative Marketing and Analytics, McGill University<\/a><\/em><\/p>\n\n\n\n

This article is republished from The Conversation<\/a> under a Creative Commons license. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Vivek Astvansh, McGill University Just two words created a publicity nightmare for fast-food giant Wendy\u2019s: dynamic pricing. In late February 2024, news broke that the chain was considering charging different prices at different times of day \u2014 a tactic usually associated with airlines and ride-hailing companies. As headlines like \u201cWendy\u2019s to roll out Uber-style surge-pricing\u201d […]<\/p>\n","protected":false},"author":44,"featured_media":36816,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5,277],"tags":[6505,832,12795,172,2525,1837,6494,14357,15370,15369,14931],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/36815"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=36815"}],"version-history":[{"count":1,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/36815\/revisions"}],"predecessor-version":[{"id":36817,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/36815\/revisions\/36817"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/36816"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=36815"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=36815"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=36815"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}