Surge Pricing Is Going Real-Time at Wendy's

[gleem]

Surge pricing aka dynamic pricing is the process of adjusting the price based on demand. This is used generally when the demand exceeds the supply to let the market determine the price of goods and services. It is used in the airline, hospitality, transportation, and entertainment industries.

Wendy's announced that it will experiment with this by raising prices at peak demand times. Unlike airlines or theater seats which are limited, clearly, burger and fries supply is not a problem. Other companies have experimented with this like Coca-Cola which has vending machines that increase the price as the temperature rises. Wendy's system will adjust menu prices in real-time at stores that are seeing unusual buying activity. As you stand in line and wait to place your order you may see the price rise. What do you do, wait, leave, not do business with Wendy's? If successful how many other enterprises will follow suit?

https://www.wcvb.com/article/wendys-dynamic-pricing-fast-food-ai-digital-menu-surge-pricing/46987810

 

[Vanadium 50]

Why not?

If they spun it differently, "Our off-peak prices will be lower" would that be better?

There are costs - you mentioned lines. Thus is one way to reduce them. But the way to think about it is that a store has to be sized and staffed for peak capacity, not average capacity. If they can incentive customers to spread their visits in time, the disparity between "peak" and "average" becomes less important.

As far as vending machines. again, why not? If demand goes up and supply and prices are constant, you get shortages.

Full disclosure: I own stock in one of Wendy's competitors.

 

[berkeman]

As you stand in line and wait to place your order you may see the price rise.

I wonder how long it will be before somebody figures out how to hack into a store's system and lower the price of their meal right before they order it (and restore it after they pay).

 

[Borg]

More likely, they'll move the seats closer together and start charging if you have more than one carry-on bag.

 

[russ_watters]

Unlike airlines or theater seats which are limited, clearly, burger and fries supply is not a problem.

That's no exactly true. I have turned around in the parking lot of fast food places and left after seeing the line.

I'll be interested to see how it works though, in particular how they can get a realtime view of their demand. Maybe they will put sensors in the parking lot to measure the drive-through line?

 

[Baluncore]

That's no exactly true. I have turned around in the parking lot of fast food places and left after seeing the line.

Your life will be longer and happier, if you can first avoid driving in.
Walk to a garden, or ride to a wholefood store.

 

[pines-demon]

That's no exactly true. I have turned around in the parking lot of fast food places and left after seeing the line.

I'll be interested to see how it works though, in particular how they can get a realtime view of their demand. Maybe they will put sensors in the parking lot to measure the drive-through line?

Wouldn't it be just easier to track the orders? More orders at a given hour with respect to average, means the price goes up. Less orders, then the price goes down.

 

[russ_watters]

Wouldn't it be just easier to track the orders? More orders at a given hour with respect to average, means the price goes up. Less orders, then the price goes down.

Yes, but that's reactive and also doesn't tell you the real shape of the demand vs time curve. Someone in the drive-through line is a future order, and orders are being throttled. That said, since it is experimental I'm sure they'll be measuring and playing with a lot of factors. Also, "surge pricing" isn't completely "real time". Much of it is predicted in advance. They'll measure this Tuesday's curve and then apply it to next Tuesday, at least as a starting point.

 

[Baluncore]

Demand pricing. So if you block the entry gate with your car, the price will continue to fall.

 

[Vanadium 50]

I am certain that they have a historical record for the stores in question, and I am sure they have an equally well-monitored control group.

Wendy's makes $200M on $4B of sales - 5%. So a 1% average increase in prices means a 20% increase in profits. They are highly motivated.

They also have the opportunity to do a very targeted suggestive sell. If the fries are nearing where they need to be dumped, the register can tell the associate to suggest "Biggie Fries for only a quarter more". Better to sell them for less than to toss them.

Just like the airlines.

 

[JT Smith]

Why would you even go to Wendy's in the first place when KFC has pizza made out of chicken?

 

[Vanadium 50]

Whatever happened to the KFC Double Down? Bacon and cheese between two pieces of fried chicken. Did all their customers expire?

 

[256bits]

Wendy's makes $200M on $4B of sales - 5%. So a 1% average increase in prices means a 20% increase in profits. They are highly motivated.

If demand and revenue move in the same direction, which is not apparent.
Some customers will walk out. The assumption that since one is there they will order a Wendy's treat may fall flat on the face of the Keynesian economics burger style.

I just can't wait for the Wendy burger futures market.
And the bid and ask at the counter.
Once they are in they might as well go whole hog.
( ie move aside pork belly futures )

 

[jtbell]

That's no exactly true. I have turned around in the parking lot of fast food places and left after seeing the line.

Based on a later comment in that post, you're referring to the drive-through line, right?

I've never used a drive-through, myself. I always park, and go inside. Usually, when I stop at a fast-food place, I'm on a day-trip or road trip. I can't eat my food while driving onward, at least not safely, and I want to stretch my legs a bit anyway.

 

[gmax137]

Just like the airlines.

Just like the thing about the airlines that I hate the most.

I actually liked Wendy's, especially back when Dave did the commercials. With this new ploy they're moving closer to the bottom of my list.

 

[symbolipoint]

Why would you even go to Wendy's in the first place when KFC has pizza made out of chicken?

Good french-fries!

 

[Borg]

About 10 years ago, someone got the brilliant idea to do this on the toll roads in Northern Virginia. We now have multiple toll roads with this 'feature'. Early on, there was no limit during rush hour and there were incidents where people were paying $40+ to go just a few miles.

I think that they've put a limit on it since then but the signs constantly change according to traffic. According to the toll authority, you pay what it says when you enter the road and aren't affected by the change (good or bad). I doubt that it actually works that way since nobody is writing down what they should be getting charged as they enter the highway. However, I can just see some customer counting out their money to see if they have enough change to buy a meal and then the order costs more when they actually place the order. At what point would a customer be hit by an increase or decrease?

I wonder if Wendy's will think about any of this when they're building their software? I think that the only surge they'll get is the stream of customers leaving the restaurant. IMHO, this is going to fail but they'll get a lot of press coverage. Maybe that's their real goal?

Note: I do understand that many, many people don't pay a bit of attention to what they're spending when they use a credit card so many people won't notice anything.

 

[Vanadium 50]

I just can't wait for the Wendy burger futures market.

I will gladly pay you Tuesday for a hamburger today.

 

[Vanadium 50]

Before people get too outraged, how do you know it isn't happening now? If you go to a McWhopper's, is the drive-through price the same as the in-store price? Is the price on Tuesday the same as Saturday? At 3PM the same as noon?

 

[PeroK]

He who lives by the free market dies by the free market!

 

[Vanadium 50]

He who lives by the free market dies by the free market!

I'm okay with this.

Airlines were brought up as an example of why this is horrible. I remember pre-deregulation, when nobody worried about this. Because normal people couldn't afford to fly anywhere, Today we have Spirit and Frontier charging $5 for a can of pop, but we don't have fares of $1000 in 1970 dollars.

 

[gmax137]

"Our off-peak prices will be lower"

Apparently that's exactly what the CEO said earlier today.

edit: Oops, it was a spokesperson, not the CEO, that walked it back.

 

[Borg]

I've seen that trick before at the grocery store when they run weekly "two for one" sales. If you compare the price for one during the sale, it's often twice the price that it was the previous week. If they implement it as an off-peak reduction, I expect that they're planning to raise their standard price first. Eventually the off-peak pricing will be taken away as they slow roll across the board price increases.

 

[Vanadium 50]

Apparently that's exactly what the CEO said earlier today.

edit: Oops, it was a spokesperson, not the CEO, that walked it back.

This is why you don't your CEO near a microphone if you can possibly help it.