The comment was misconstrued, and the Internet blew up with the notion of Wendy’s charging consumers surge prices when demand is highest. The company quickly clarified that their new digital menu boards will allow them to dynamically “change their menu offerings at different times of the day and offer discounts and value offers to their customers more easily, particularly in the slower times of day.”
Dynamic pricing is omnipresent.
Did the press and consumers immediately react so strongly because they’re tired of being gouged by dynamic and surge pricing or because the concept was new to them and uniquely offensive? Certainly, those who use rideshare apps, such as Uber and Lyft, have run into surge pricing when they want a ride (e.g., due to rush hour, bad weather, etc.). Those who enjoy the convenience of delivery services, such as Instacart and DoorDash, have also likely encountered surge pricing. Anyone who has tried to book a vacation over Spring break for a specific destination knows they’ll pay more for their flight or hotel.
It’s easy to detect those price increases because you can look on an app or website, and either the surge is specifically called out via a red map or badge, or you can track the price difference between dates and times. And quite honestly, we’ve come to accept this as normal.
The reality is that dynamic pricing is happening even when, as a consumer, you can’t easily detect it. The vast majority of retailers employ similar tactics and have done so for decades. While the advancement of technology allows pricing decisions to be more surgical and price changes to become more frequent (e.g., the most sophisticated online retailers may change their prices every few minutes), the idea of trying to find the sweet spot between supply and demand is one of the most critical levers for organizations to optimize profitability.
For decades, retailers have used localized pricing. For example, big box retailers learned long ago that they could charge more for baby formula in low-income areas because consumers have less access to transportation and have little choice but to pay the premium.
Similarly, retailers adjust pricing from season to season or day to day in an effort to match supply and demand – more often than not, those adjustments are a reduction of prices because they have too much supply (e.g., unseasonably warm weather decreases demand for snowsuits or a late spring decreases demand for lawn and garden products). However, any sophisticated retailer will seize opportunities to increase prices if their supply is dwindling faster than expected – think of the rush for the Stanley Tumbler. Undoubtedly, nimble retailers quickly raised their prices to capitalize on the viral sensation as much as their supply would allow.
Digital menu boards is not the sufficient clickbait.
Technology enables companies to change prices faster with less cost. Historically, changing prices required replacing physical materials such as brochures, price tags, shelf tags, department signs, and menu boards. Replacing those print materials is costly and requires significant effort from staff.
Digital displays, websites, and mobile apps now provide ultimate flexibility to change prices as much or as often as the company wants with a few clicks. In fact, Wendy’s first introduced their digital menu boards in 2009. So, while the new menu boards they’re implementing will yield a better user experience (e.g., better product photography) and be easier for their crew to manage, there’s something special about the new technology that warrants Wendy’s making a $30 million investment and that has the CEO talking about the value they expect to realize.
In fact, Mr. Tanner transparently shared why this technology is different and something to be excited about. He said, “We will begin testing more enhanced features like dynamic pricing and daypart offerings along with AI-enabled menu changes and suggestive selling.”
Better targeting of consumer segments.
The piece that the media and the ensuing Internet tsunami missed is the part of the change that’s the more interesting part of his announcement. Rather than featuring breakfast from 6-10:30 at all stores, perhaps Wendy’s will discover that stores within a half mile of college campuses should sell breakfast until noon, or rather than featuring spicy chicken nuggets in the south and regular chicken nuggets in the Midwest, they’ll discover that stores nearest elementary schools should feature regular chicken nuggets combined with junior Frosties from 2-4:30 PM local time irrespective of geography.
The idea of tailoring content and offers to attract consumers is nothing new. For example, Pizza Hut made news back in 2021 for using weather to both predict demand and make offers to customers. The ability to execute at scale is what’s evolving. The volume of internal and external data and variables that impact consumers’ trip missions is daunting. The advances in data and analytics, including AI enablement, allow retailers to take action on the data at scale, creating more compelling consumer experiences and capturing new revenue streams.
Creating personalized offers at scale.
The third change is the ability to create content and offers at scale. Personalization has been the pursuit of many companies for more than a decade. While people may think the limiter is the data, the reality is that there’s a finite number of offer variations a company can support. For example, a big box retailer may carry over 100k items and have millions of customers – isolating what a middle-aged woman wants versus a 16-year-old boy isn’t difficult, but producing the perfect social post for each product + customer match is impossible.
For Wendy’s, managing unique menu board content across more than 7,000 stores with iterations to support at least three meal transitions per day in multiple languages combined with seasonal adjustments quickly becomes hundreds of thousands of iterations – more than what can be effectively managed even with a sizeable team. However, a menu board system with leading content management and master data capabilities, combined with automated processing and decisioning enabled by AI, suddenly makes a million+ iterations possible.
This combination of the ability to change menu boards on a dime, apply advanced and predictive analytics to know what should be changed where, and create and deploy the right content in an automated fashion is a game changer.
Technology at the core of driving value creation.
My experience tells me that this is a winning strategy and that consumers will ultimately respond positively. Surely, Wendy’s will need to test the capability, learning what drives consumer trips, what increases their transaction size, and what diverts them to higher-profit items.
They won’t get it 100% right out of the gate, but I expect they’ll realize some early wins. Plus, they’ll have a platform that will allow them to iterate, tune their algorithms, measure consumer sentiments and behaviors, and adapt.
Although Mr. Tanner is taking a beating in the press and on social media, Wendy’s Co. will likely realize an outstanding ROI with proper rollout of this technology. I applaud them for their visionary leadership and willingness to take on a massive effort for the good of their consumers, franchise customers, and corporate business.
