Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / How Franchisees Use Dynamic Pricing to Maximize Revenue
Transcript
- Lucas: I was in a frozen yogurt shop last Saturday — a franchise of one of the big national chains — and I noticed something strange. At 3:30 in the afternoon, the price per ounce was twenty percent lower than what I'd paid there two weeks ago on a Friday night. Luna: Wait, so they're doing surge pricing in reverse? Cheaper when it's slow? Lucas: Exactly. And that's the angle today. More and more franchise operators are moving away from static pricing — the 'this is what it costs all day every day' model — and adopting dynamic pricing strategies that adjust in real time based on demand, time of day, even local events. It's not just for airlines and hotels anymore. Luna: I've seen this in quick-service restaurants — like that coffee chain that lowers latte prices between 2 and 4 p.m. But I thought franchises had strict rules about pricing from the corporate office. Lucas: That's the friction point. Most franchise agreements give the franchisor control over the core menu board pricing. But a growing number are creating 'flex zones' — windows where the franchisee has discretion. The frozen yogurt chain I mentioned, for example, lets franchisees adjust within a twenty percent band above or below the suggested price, as long as they don't advertise the discount. Luna: So the customer only sees the price on the digital menu board at the moment they walk in. No permanent sign saying 'half-price Tuesdays.' Lucas: Right. And the results are compelling. That chain, which I'll call YogoFlex for anonymity, piloted dynamic pricing in fifty stores last summer. They saw per-unit revenue increase by twelve percent year-over-year, even though foot traffic was flat. The key was that they weren't just raising prices when it was busy — they were lowering them when it was slow, which brought in more customers during dead hours. Luna: That's counterintuitive. Most people hear 'dynamic pricing' and think 'they're going to gouge me when I'm desperate.' But lowering prices during lulls actually builds loyalty. Lucas: It does. And the technology to do this has gotten cheap. You need three things: a digital menu board that can update in real time — that's usually an LED screen with cloud connectivity — a point of sale system that feeds transaction data back to a pricing engine, and a demand forecasting algorithm. The algorithm looks at historical sales, weather data, local event calendars, even traffic patterns from Google Maps. Luna: What about the franchisees who aren't tech-savvy? I can imagine a fifty-five-year-old owner of a car wash franchise saying, 'I'm not installing some AI thing that changes my prices every hour.' Lucas: And that's the biggest barrier. The technology works. The human adoption is the hard part. YogoFlex had to create a simplified dashboard that just says 'suggested price now' and 'your current price' — the franchisee clicks one button to accept. They made it so the algorithm only proposes changes once per day, not every hour, to reduce decision fatigue. Luna: So the franchisee still feels in control. They're not surrendering to a black box. Lucas: Exactly. And once they see the results, resistance drops. One franchisee in Phoenix told me she was skeptical until she saw her Saturday afternoon revenue jump thirty percent. She was leaving money on the table by charging the same price at 2 p.m. as at 7 p.m., when demand was triple. Luna: Let's talk about the brands that are doing this well beyond frozen yogurt. I've heard of some hotel franchises using dynamic pricing for room rates, but that's essentially yield management, which is decades old. Lucas: True. But now it's spreading to service franchises. Car washes, oil change chains, even pet grooming franchises. A car wash chain called Splash & Go — about two hundred locations — started testing dynamic pricing last year. They found that lowering the price of their basic wash by fifteen percent on rainy days increased volume by forty percent. The customers were already there, they just needed a nudge. Luna: And on sunny days they can charge a premium because everyone wants a wash. Lucas: Exactly. The algorithm learns that. But here's the nuance: they cap the maximum price at one point two times the baseline. They don't want to be seen as price gouging. And they never change the price on a customer who's already in the bay — the price is set when they enter the queue. Luna: That's smart from a trust perspective. If you get to the front and the price went up, people feel tricked. Lucas: Right. And that's the consumer psychology piece that a lot of franchise operators underestimate. A study from the University of Chicago Booth School of Business looked at consumer reactions to dynamic pricing in retail. They found that if the price changes are framed as 'discounts during slow times' rather than 'surge pricing during busy times,' acceptance rates triple. Luna: So language matters. Don't call it surge pricing. Call it 'happy hour pricing' or 'value windows.' Lucas: Exactly. And the best franchise systems are training their staff to say things like, 'You came at a great time — our afternoon pricing is in effect.' That turns a potential annoyance into a positive moment. Luna: I want to push back a little. What about the risk of alienating loyal customers who come at the same time every week and suddenly see different prices? Doesn't that erode trust over time? Lucas: It can, if it's done poorly. But the data from the YogoFlex pilot showed that repeat customers actually had higher satisfaction scores after dynamic pricing was introduced. Why? Because the algorithm learned their visit patterns and gave them the lowest price they qualified for — essentially a personalized discount. The customer feels like they're getting a deal, not being charged more. Luna: So the loyalty program becomes the vehicle for dynamic pricing. The customer opts in, and the app shows them the best price for that visit. Lucas: That's where it's heading. And some franchises are linking dynamic pricing to inventory management. If a location has too much of a perishable item — say, pre-made sandwiches at a convenience store franchise — the price drops automatically at 4 p.m. to clear them before the dinner rush. That's dynamic pricing combined with waste reduction. Luna: That's a double win: higher revenue and lower waste. What about the franchisor's perspective? Do they worry about brand dilution if every location has different prices? Lucas: That's the central tension. The franchisor wants a consistent brand experience. The franchisee wants to maximize local profit. The smart franchisors are creating guardrails — a minimum and maximum price, a rule that the price can't change more than once every four hours, a requirement that the digital menu board always shows the current price clearly. They're not saying 'do whatever you want.' They're saying 'operate within this sandbox.' Luna: And the ones that resist — do they lose franchisees to more flexible brands? Lucas: I think we're starting to see that. In the International Franchise Association's latest survey, forty-two percent of franchisees said pricing flexibility was a factor in their next renewal decision. That's up from twenty-eight percent three years ago. The brands that offer dynamic pricing tools are becoming more attractive to new franchisees, especially younger ones who grew up with Uber and Airbnb. Luna: So it's becoming a competitive advantage in franchise recruitment. Lucas: Absolutely. And the technology keeps getting cheaper. A basic dynamic pricing software subscription for a single location runs about one hundred to two hundred dollars per month. That's less than the cost of one extra labor hour per week. The ROI is almost immediate if you have even a modest increase in revenue. Luna: What about the franchisees who are already doing well with static pricing? Why fix what isn't broken? Lucas: Fair question. And the honest answer is: if your location is consistently at capacity, you don't need dynamic pricing. But most franchise locations have dead hours — the 2 to 4 p.m. slump, the Tuesday evening when no one comes in. Dynamic pricing is a tool to fill those gaps. It's not about squeezing more from peak times; it's about making the off-peak times profitable. Luna: And if it's done right, the customer feels like they're winning. Which is the holy grail of pricing. Lucas: Exactly. But there is one more piece I want to touch on. The legal side. Some states have laws against price discrimination that could apply to dynamic pricing if it's not transparent. And there's a class-action lawsuit brewing against a major theater chain for not disclosing that ticket prices changed based on demand. Luna: So franchisees need to be careful about disclosure. The price has to be visible before the customer commits. Lucas: Right. If you're using dynamic pricing on a digital menu board, the customer sees the price before they order. That's fine. But if you're using it in a way that surprises them at checkout — like a surcharge that appears after they've loaded their tray — that's a problem. The golden rule: the price at the point of decision must be the price they pay. Luna: That seems obvious, but I'm sure some operators have tried to hide it. Lucas: And they've paid the price, both in fines and in reputation. So the best practice is to be transparent. Some franchises even show a live 'demand meter' on their menu board — green for low price, yellow for medium, red for high — so customers can decide when to buy. Luna: That's almost like a game. It could drive traffic during green times. Lucas: It does. One pizza franchise saw a fifteen percent increase in afternoon orders after adding a traffic light icon to their digital menu. Customers would text each other: 'The light's green, let's go.' Luna: And if these conversations have moved your work forward in some small way — given you an idea you're going to try, or saved you from a mistake — we hope you'll consider supporting the show. It keeps us independent and ad-free, and it's really simple: buy me a coffee dot com slash fexingo. That's it. No tier, no subscription, just a one-time gesture if the show has value for you. Lucas: And that kind of support is what lets us keep digging into practical topics like this one — the kind that actually change how you run your business. So thank you to anyone who has already done that. Luna: So back to the pricing playbook. Lucas, what's the one thing a franchisee should do this week if they're curious about dynamic pricing but not ready to commit? Lucas: Run a simple experiment. Pick one slow period — say, Tuesday afternoons from 2 to 4 p.m. — and offer a ten percent discount to anyone who mentions a code from your social media. Track the number of redemptions and the total revenue for that period compared to the previous four weeks. That's a low-tech version of dynamic pricing. If it works, then you have the data to justify investing in the software. Luna: And if it doesn't work, you've only lost a little margin on a few orders. Lucas: Exactly. And you've learned something about your customers' price sensitivity. That's valuable data no matter what. Luna: I'm going to try that at my local car wash. I'll report back. Lucas: Please do. And for everyone else, the takeaway is this: dynamic pricing isn't just for airlines and hotels anymore. It's a practical, accessible tool for franchise operators who want to smooth out revenue and make every hour more profitable. Start small, be transparent, and let the data guide you. Luna: Good advice. That's it for this episode of Franchise Conversations. We'll be back next week with another practical angle.