How much for fries? Why Wendy’s dynamic pricing could be a bad move

American fast food chain Wendy’s has sparked a number of X spats after its CEO announced the company would begin testing dynamic pricing in 2025.

As part of a $20 million investment in new digital menu boards, CEO Kirk Tanner noted this would provide enhanced features like day-part offerings along an AI-enabled menu that changes based on selling suggestions.

The move has proved controversial as Cheeseburger Deluxe eaters have interpreted this as an Uber-like surge pricing strategy that will drive up the price of food items based on demand.

In response to criticism, the CEO clarified “ we have no plans to do that and would not raise prices when our customers are visiting us most.”

The outrage triggered begs the question of what dynamic pricing is and who benefits from it?

What is dynamic pricing?

One of its most avid critics, US Senator Elizabeth Warren, tweeted that “Wendy’s is planning to try out ‘surge pricing – that means you could pay more for your lunch, even if the cost to Wendy’s stays exactly the same.”

The scathing critique, however, misses the nuance that differentiates surge pricing from dynamic pricing. Both are models that continuously adjust prices based on a range of factors. The key difference is that dynamic pricing can involve both increasing and decreasing prices whereas surge pricing is a subset of dynamic pricing that only involves increasing prices.

Whether dynamic pricing is seen as a punishment on the customer for demanding items at peak hours or as a way to access discounts depends on the messaging the brand communicates and the sensitivity of the factors that govern price changes.

In fact, dynamic pricing can change within a range of minutes, and can vary according to the season, demand, and even the weather.

Who does dynamic pricing work for?

Although dynamic pricing isn’t new, the grief Wendy’s got shows how sensitive consumers can be to price variations.

It also is important to note that dynamic pricing is not common for restaurants. Experts say it is hard to change public attitudes towards dynamic pricing, especially in fast-food restaurants.

Some other industries, however, have normalised surge and dynamic pricing to the point that customers know to expect it. Airlines regularly raise and lower fares depending on the time of year, expected customer surges and projections of how many seats they can fill at various times. It’s well-known and accepted that Uber raises the prices of fares based on complicated pricing algorithms that change minute by minute, based on demand.

Dynamic pricing, while synonymous with wider pricing margins, is difficult to implement. Restaurants have shied away from using this strategy because of the labour it takes employees to change menus.

While Wendy’s digital menu AI-powered strategy was a means of circumventing that issue, the food and beverage industry isn’t known for its success on this front.

For instance, McDonald’s dabbled with dynamic pricing and new order suggestions capabilities at some of its upgraded drive-thrus and on its app. The varied and inconsistent prices at its franchises ignited outrage recently for affecting the affordability of its food.

This brings another important aspect to the issue – price elasticity. While customers might be prepared to pay more for airline tickets because vacations are not a necessity and are a luxury, fast food is seen as cheap and more essential. Any small price in change, therefore, can severely affect demand – and anger people on X.

Still want that Frosty?

Dynamic pricing is not for every industry, particularly for those that sell inelastic goods – in other words, a small change in price will significantly hurt demand and drive customers to a competitor.

But as with a lot of things in business, a lot of strategies are crowned in success if the sales pitch lands well. Wendy’s has continued to insist its dynamic pricing strategy will be a way of offering discounts to customers at off-peak times and that the move is guided by customer centricity.

Whether this becomes another lesson in why dynamic pricing doesn’t work for everyone or becomes an example for other fast-food chains to replicate remains to be seen.