Wendy’s Surge Pricing and The Free Market
On February 15th, the ‘Wendy’s (WEN) Q4 2023 Earnings Call Transcript’ revealed that the company is planning to enact dynamic pricing starting in the year 2025.
Kirk Tanner, the President and CEO, said this:
“We are planning to invest approximately $20 million to roll out digital menu boards to all U.S. company-operated restaurants by the end of 2025 and approximately $10 million over the next two years to support digital menu board enhancements for the global system.
We expect our digital menu boards will drive immediate benefits to order accuracy, improve crew experience and sales growth from upselling and consistent merchandising execution. Beginning as early as 2025, we will begin testing more enhanced features like dynamic pricing and day-part offerings along with AI-enabled menu changes and suggestive selling.”
Dynamic pricing, also known as surge pricing or demand-based pricing, is a pricing strategy where the price of a product or service fluctuates in response to changes in demand, supply, or other market conditions.
When everyone got wind of this comment, social media quickly dissolved into a fury:
In response to Wendy’s poor economic choice, Burger King posted:
With bk.com/terms stating:
“No urge to surge — Free Whopper or Impossible Whopper with $3 purchase”
But after much negative flack on social media, the fast-food chain Wendy’s took a few steps back announcing,
“We said these menu boards 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 at our restaurants. We have no plans to do that and would not raise prices when our customers are visiting us most.”
And as of recently, announced,
“From now through Wednesday, April 10, Wendy’s guests can claim a Dave’s Single burger for $1 or a Dave’s Double for $2 through the Wendy’s app.”
Now what does this all have to do with the idea of free markets?
Firstly, a market consists of two groups of individuals: the producers and the consumers.
- The producer wants to maximize their profits and minimize production.
- The consumer wants to maximize use of production and minimize use of their profits.
Since the consumer acts as the counterpart of the producer, both parties must agree upon a contract that benefits them both.
For example, the producer wants to sell a burger for $10. The consumer wants to purchase a burger for $0. In turn, they agree on the following conditions: the consumer will purchase a burger for $5 since it makes a reasonable profit for the producer and is sold at a reasonable price for the consumer.
When Wendy’s announced the idea of dynamic pricing, Burger Kings responded with a new deal, and a new flame was ignited in Twitter users, the market was acting.
- Company A (Wendy’s) announces their plan to raise prices.
- Buyers (anyone participating in the market) are upset which results in a loss of business for Company A (Wendy’s).
- Company B (Burger King) capitalizes on the bad reputation of Company A (Wendy’s).
- Company A’s (Wendy’s) buyers are deterred to Company B (Burger King) and other fast food chains (McDonalds, Taco Bell, etc.).
- Company A (Wendy’s) retracts their statements and discounts their items to uphold buyer likeness.
The beauty of the market is that the buyer is in charge. In other words, no company can exist if no buyers voluntarily purchase a good or service from said company. If one decides that Wendy’s chili cheese fries are simply too good and they do not mind the increase in cost, then they will continue to purchase goods from the restaurant. However, if one decides chili cheese fries cost too much, they will no longer purchase goods from the restaurant.
A free market presents a realm of competition. When one company makes a bad decision, other companies act accordingly.
Wendy’s plan to add dynamic pricing proved to be a significant enough catalyst for the market to say, “You know what, I disagree with the idea of fluctuating prices based on how busy the restaurant is, and because of this, I am not going to spend my money there.”
In turn, the market is effectively pricing the desired commodity.
Thank you for taking the time to read this article! I hope you found it informative and engaging.
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Stay curious!
