Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / How Wendy’s Tried Surge Pricing Then Backtracked
Transcript
- Lucas: In February 2024, Wendy's CEO Kirk Tanner mentioned the phrase 'dynamic pricing' on an earnings call, and within forty-eight hours the company was in full damage control. Customers were furious because they assumed Wendy's wanted to charge more for a burger at lunchtime. Luna: And honestly, who wouldn't be furious? The idea of paying more for a Frosty just because it's noon feels like a betrayal. Lucas: Exactly. But here's the weird part: Wendy's wasn't actually planning to raise prices during peak hours. The technology they were testing — digital menu boards that can update in real time — was designed to lower prices during slow periods. They wanted to offer discounts to fill the 2 p.m. lull. Luna: So the backlash was based on a misunderstanding. But it's a really telling misunderstanding, because it reveals something deep about how people think about pricing fairness. Lucas: Right. And before we dig into that, if these conversations have moved your work forward in some small way, just know that listener support is what keeps this show ad-free and independent. You can find us at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a simple way to help us keep digging into stories like this one. No pressure, just if it's useful to you. Lucas: So back to Wendy's. The company spent millions installing these digital menu boards, and the idea was to use them for what the industry calls 'daypart pricing' — cheaper burgers at 2 p.m., normal prices at noon. But the word 'dynamic' triggered every negative association consumers have with surge pricing. Luna: And that association comes straight from Uber and airlines, where prices definitely do go up when demand spikes. Lucas: Exactly. So let's unpack why the same logic works for a ride to the airport but fails for a hamburger. First, there's a fundamental difference in how consumers perceive necessity versus indulgence. An Uber surge feels like a tax on urgency — you need to get somewhere. A burger surge feels like a penalty for being hungry at a normal hour. Luna: And fast food has always been positioned as the affordable, predictable option. It's the one thing you can count on to cost the same whether you're in Manhattan or Montana. Lucas: That's the second factor: price consistency is part of the brand promise. McDonald's built an empire partly on the idea that a Big Mac costs roughly the same anywhere. When you break that promise, you break trust. Luna: So what should Wendy's have done differently? Because the idea of filling the 2 p.m. lull with discounts is actually smart economics. Lucas: It is smart, but they made a classic framing error. They should have called it 'Happy Hour pricing' or 'Afternoon specials' — something that signals a discount, not a potential price hike. The word 'dynamic' is too close to 'surge'. Luna: And consumers hate the idea of paying more for the exact same product. With Uber, you're paying for shorter wait time — a different product essentially. With a burger, it's the same burger. Lucas: That's a crucial distinction. Airlines and hotels sell perishable inventory — an empty seat or an empty room generates zero revenue, so discounting late is rational. Fast food also has perishable inventory — unsold burgers get thrown away — but consumers don't see it that way. They see a standardized good. Luna: So how much did this backlash actually cost Wendy's? I mean, beyond the PR headache. Lucas: Hard to quantify exactly, but the stock dipped about three percent in the days after the call, and they had to issue a public statement clarifying that they would never raise prices during busy times. That clarification effectively killed the strategy before it even launched. Luna: And it probably made other fast-food chains rethink any public discussion of dynamic pricing. Lucas: That's the broader lesson here. We're seeing more digital menu boards roll out across the industry — McDonald's has them in thousands of locations — but you won't hear any CEO mention 'dynamic' anything on an earnings call anytime soon. Luna: So what's the alternative? If you can't call it dynamic pricing, how do you actually implement time-based discounts? Lucas: You frame it as a loyalty play. For instance, 'members get lower prices between 2 and 4 p.m.' That's what Taco Bell did with their 'Taco Bell Rewards' program. They offer exclusive discounts during slow hours, and members feel special rather than penalized. Luna: So the same economic mechanism — lower prices at off-peak times — but wrapped in a loyalty program feels completely different. Lucas: Exactly. And it works because it's opt-in. You choose to join the program. With surge pricing, you have no choice — you just pay more. Luna: Wendy's learned that lesson the hard way. But do you think the underlying logic is still sound? I mean, should fast food be priced dynamically? Lucas: I think the logic is sound for the business, but the consumer psychology is brutal. People have a strong sense of what a burger 'should' cost, and any deviation feels unfair. The key is to frame deviations as discounts, not surcharges. Luna: So never say 'dynamic pricing' out loud. Lucas: Never. Call it 'surprise savings' or 'daily deals' or anything that puts the emphasis on the customer winning. Because at the end of the day, the customer wants to feel like they got a good deal, not that they got caught in a pricing algorithm. Luna: And what about the digital menu boards themselves? Are they still a good investment even without dynamic pricing? Lucas: Absolutely. They can still be used for things like promoting higher-margin items, testing new products, or showing different ads based on time of day. The technology is valuable. It's just the pricing application that's toxic. Luna: So the takeaway for any business thinking about variable pricing: the mechanism matters less than the framing. Lucas: That's the headline. Wendy's tried to introduce a rational economic tool and forgot that pricing is deeply emotional. Consumers aren't spreadsheets. They want to feel like they're winning. Luna: And that's a lesson that applies way beyond fast food.