Advice for Wendy's

Or what I learned from my LinkedIn post about dynamic pricing and fast food

I recently had a viral post on LinkedIn (+35,000 impressions, +200 comments, +200 reactions). It was a first for me and very exciting to experience!

Here is the post for reference:

I'm not even sure how the viral-ness of it happened. All I remember is that one night, I decided to post some commentary connecting Wendy's and their “dynamic pricing” to its customer experience. Within minutes, I had dozens of reactions and comments. And the momentum didn’t stop.

Although I did feel joy having this extremely popular post, I was most excited to read all of the comments and opinions. I love listening and learning about other people’s thoughts. If you read the post, you'll notice that I replied to everyone and, yes, I read every comment. And extended debate.

In case you don’t want to read the post, here’s a summary.

I doubted that charging more during rush hours would attract more customers or maximize profits from regulars. I had a different point of view: charge less to encourage a greater volume of people to come in. Sure, you’d need to research and model the possibility with real data, but maybe, just maybe, there is a sweet spot where more customers pay a lower price and that yields greater profit margins.

By knowing the number of customers who purchase, the time of day they come, what they purchase, and the average purchase amount, an organization could determine when the dining room would need to be open or if the drive-through or pick-up only would be sufficient. Further, this customer demand data could inform Wendy’s of the best time to offer specific menu items.

We all know that the public didn’t approve of Wendy’s surge pricing, I mean, dynamic pricing idea. The CEO “massaged” the message the next day. Wendy’s seems to have interpreted the social media backlash as a result of the media portraying them as pursuing the Uber surge pricing model, which is the same model that the airlines and hotels use to profit from high demand.

Research shows that customers generally don’t like dynamic pricing models because they are unpredictable. Most people want to know costs upfront as a flat price to help with budgeting and planning.

However, in the comments of the post, I discovered a deeper concern happening among commenters related to the customer experience.

Most people felt that Wendy’s was missing the mark on its customer experience overall, especially regarding wait times, and strongly believed that Wendy’s should fix that first. The issue wasn’t what Wendy's charged; it was what Wendy's was charging for and whether that was fair.

Methodology for this analysis

I downloaded all 145 first-tier comments. I didn’t gather or review the conversations or responses that happened after the first comment; I didn’t need that level of detail for this activity.

Note that these responses provide unprompted insights; the comments are all original posts that do not answer specific questions.

Once I gathered the comments in a spreadsheet, I re-read them and started to categorize and tag them.

From the start, I noticed a few trends:

No one liked the idea (a universal sentiment).

• Further, ~30% of commenters mentioned that they would stop going to Wendy’s due to the "dynamic pricing" idea and start buying meals from competitors.

Commenters had a clear definition in their heads regarding what a fast food experience offered and its perceived value (~30%).

• In some way, they defined what they felt fast food represented and its value in the comments. I wish I were able to explore this idea further because the commenters’ perspectives contained some intriguing insights.
• A number of commenters didn’t like a company taking advantage of customers (3% attributed it to greed; 1.4% saw it as a corporation simply taking advantage of people.).
• The employee experience matters – and they should be paid properly (3%).
• Some addressed the commoditization of food in restaurants and markets (3%).
• Branding and marketing connect to the customer experience (another idea I’d love to explore more deeply in research).
• Dynamic pricing had an impact on operations and the customer experience.

Ideas for other innovations for fast food (17%).

Leaders are too focused on the bottom line, satisfying investors (8%).

Let’s review the details of their insights.

No one liked the idea.

Not one commenter wrote, “I can’t wait to see Wendy’s do this! This is a great idea to boost revenue and customer engagement!”

The most enthusiastic responses hovered around, “We’ll see,” and “How is this different than DoorDash, Instacart, Favor, or Uber?”

About 30% of the commenters mentioned that they wouldn’t go to Wendy’s again after this announcement or if Wendy’s decided that they would pursue a dynamic pricing model. That’s a lot of commenters who are no longer Wendy’s customers. A factor in that decision was that they didn’t want to go to a restaurant that price gouged and took advantage of customers. This is a reputational nightmare for Wendy’s.

About 17% of the commenters mentioned how this was an opportunity for the competition to advance. Other leading fast food brands from McDonald's to Burger King to A&W, as well as options like eating at home, proper sit-down restaurants, and local restaurants (or non-chain restaurants), were included in the idea of competition.

This leads to the next point–increasing prices during peak times will discourage people from purchasing and eating. A new pricing model may “inspire” new customer behaviors so that they purchase during slow times, but most likely, such a pricing model will encourage customers to visit competitors that have a more predictable experience, including the price. It also may make food unaffordable for those who can least afford it. Some commented that a fast food meal is the only meal that some could access due to proximity or cost and value.?

Defining fast food value and the experience offered

At least 30% of the comments described the value of fast food in people’s lives. I wish I were able to explore this topic further with a group discussion or interviews because it seemed that there was a consistent social definition of what fast food represents.

To the commenters, it appeared that fast food could be described as:

• Consistent,
• Convenient,
• Inexpensive,
• Decent quality food for the price, and ?
• Accessed quickly (or, no long lines).

The first point of this list explains why so many people intuitively saw Wendy’s plan for dynamic pricing as a horrible idea. Dynamic pricing introduces an inconsistent experience, which doesn’t align with the first point in the list of what consumers believe a fast food experience is - consistent.

“In my role as a data analytics and AI Executive, I'm interested to see if Wendy’s surge pricing approach succeeds. ‘Band loyalty is built on trust.’ While optimizing revenue is essential, the potential repercussions on consumer trust, stemming from perceived unfairness and inconsistencies in the customer experience, should not be underestimated. #DataAnalytics #AI #ConsumerTrust #PricingStrategies” - post commenter

What these implied fast food definitions mean for a consumer:

• No one wants to wait long for their food–before or after ordering. Long wait times at Wendy’s were explicitly mentioned in 10% of the comments; it was the largest complaint.
• Convenience seemed to be synonymous with speed, or customers want what they want right now. Nothing new.
• The speed of food production aligned with the perception that food was easy to access and affordable. This was validated by a few mentioning how Wendy’s should bring back value meals and combos.
• People want a consistent restaurant experience from the ordering process to the food to the price. Fast food customers don't like surprises. They want to know what to expect when ordering food, the amount they will be expected to pay, as well as what to expect during the dining experience. They aren’t prepared or willing to experience a surprise.

“A higher price during peak would deter me -- similar to our energy pricing model here in Ontario -- but you're right, lower pricing during high volume times would actually make more sense in a couple of ways. A) For the impatient and who don't like waiting, a discount might make that wait lighter, and b) discount? Great no matter the reason, and might be the difference between chain #1 and #2 for an otherwise indecisive eater.” - post commenter

Notice how price is a factor in decision-making for someone purchasing a fast food meal. Most fast food customers want to know what to expect during the ordering and menu experience, how much the meal will cost (affordable), and how fast their cravings can be satisfied. Some customers are going to Wendy's, excited to eat their favorite meals (note that specific meals were mentioned in at least 3 posts). Familiarity brings comfort.

“…The fast food industry is based partly on convenience, meaning the customer wants to eat when the customer wants to eat not when the restaurant wants him to. He doesn't want to come in earlier or wait later to save a buck. Customers also want familiarity, stability, and uniformity -- in quality, taste, and price. Variables become unsettling.” - post commenter

A number of responders didn’t like the idea that Wendy’s would be taking advantage of customers with dynamic pricing. These commenters described scenarios that illustrate what this could mean for people’s lives and how trying to change consumer behavior to eat during slower times would be ineffective.

• Many people have limited, and sometimes inflexible, lunch hours. Not everyone can move their lunchtime thirty minutes, or even an hour, earlier or later. With this in mind, making people find a new lunchtime spot can be challenging for them. They will go to a convenient competitor.
• People have limited budgets. Not having clearly defined food prices can prevent someone from getting a meal. An additional five or ten cent cost may make a difference regarding what someone eats that day.

This last point led to some threads regarding the commoditization of food and its social impacts. Some cannot afford food if the price is too high (it is the reason why some can’t access healthy food along with food desserts.). What would dynamic pricing mean to this type of consumer? In many ways, fast food provides an affordable service for many working adults and families: they get a decent meal and full bellies at a low price, allowing them to budget for other meals during the week.

“This is a bad call. As market research shows it takes one bad experience to lose a customer forever, and in a society with major issues like equality taking the key narratives in the country I don't see how this was signed off by execs. Seems like a VERY out of touch play as inflation and other economic issues that these business help escalate will leave customers confused plain and simple. And if people have a chance to get a discount by going before a lunch rush I think that will just shift the rush times. How are they going to standardize these daily prices? When is each locations rush? Do franchisees have a say?” - post commenter

Is food a commodity to be traded like oil and gas at a variable price? It seems we are moving in that direction, but is that fair, equitable, sustainable, or good business? A handful of commenters raised this concern in the threads. Some wondered if Wendy’s moving to dynamic pricing was a step in that direction.

“To be honest having "Market Price" next to a fast food burger is simply offensive to me. I think its a little misleading when I see it on my seafood but I do it because its the standard and frankly there’s a real reason.” - post commenter

“Curious how many others will adopt this without seeing Wendy's results.” - post commenter

Only about five posts raised points regarding the impact of dynamic pricing on operations and franchise ownership. Operations are tied to the customer experience. If a manager can’t properly manage inventory in a fast food restaurant, that store location may run out of food. And that means unhappy customers.

To many commenters, the customer experience included how employees were treated. A handful of them raised how they wanted to see employees paid fairly (3%), suggesting that employee compensation impacts the customer experience. (The perceived impact of employee pay on the customer experience merits further research. If consumers see that connection on their own, companies need to improve how they treat employees to have happier, repeat, loyal customers.)

“If the idea is to get people to come in when it is less busy, consumers will realize how drastically understaffed these times of day are and how much slower they will receive their food. Fast food restaurants survive by maxing out labor hours during busy times, overdelivering even with a maxed-out staff, and cutting labor drastically during off periods. Wendy's new idea will hurt a restaurant's ability to restock and get ready for rush periods, hurt consumers with longer wait times, and hurt employees by expecting more impossible volumes of work. And I can guarantee employees won't see a cent from this pricing in their paychecks.”?- post commenter

To many of the commenters, Wendy’s had a revenue problem because it had an experience problem.

Wendy’s didn’t need to raise prices. It needed to improve overall experience quality–from food to wait times to employee experiences.

“An A.I. take on variable pricing doesn't take into consideration the dynamic of human psychology. If the customer feels he's being manipulated he'll likely eat elsewhere out of principle. The fast food industry is based partly on convenience, meaning the customer wants to eat when the customer wants to eat not when the restaurant wants him to. He doesn't want to come in earlier or wait later to save a buck. Customers also want familiarity, stability, and uniformity -- in quality, taste, and price. Variables become unsettling.” - post commenter

If I were able to explore what fast food meant to people, I’d ask questions like: ??

• What is convenient food? What does that look like to you?
• How long is an acceptable wait time to get your meal at a fast food restaurant? How about the length of the line to order?
• Automation – Are you comfortable with self-service ordering? Or would you prefer to talk to a person? What about the experience of ordering with a person is preferable? What are your expectations when you are in a fast food restaurant?
• How do you define the value of fast food??

What is innovation?

According to the commenters, lower prices or a limited menu during slow times are not innovations. That’s happy hour.

Commenters also noted that charging more during busy times is not an innovation. That will discourage customers from coming (again, pushing them to the competition), or reverse happy hour.

Some of the 16% who commented about innovation called for customer-focused innovation like loyalty programs or personalized pricing via an app. There were some educational and informative comments about companies moving to personalized prices. And those commenters had a point: if a converted customer already has a relationship with Wendy’s and this customer used an app, Wendy’s has a lot of opportunity to pursue dynamic pricing without making a big deal about it. These commenters pointed out that most pricing is personalized for converted customers through special offers and discounts. In some cases, discounts are built in to the site price once the user has logged in. We are clearly moving towards a model where we have public, list pricing and personalized, private pricing based on your purchase and transaction history and your preferences.

With this in mind, it’s unclear if Wendy’s wants to leverage dynamic pricing to optimize the dining experience or encourage customers to visit and buy more frequently, ultimately spending more money.

I didn’t check out the Wendy’s app during the lively discussion, but I did download it afterward. It’s a helpful resource that allows Wendy’s to gather data about its customers.

The functionality and program offerings already in the app include:

• A loyalty program with special rewards and offers
• A way to order food to be picked up at a restaurant location (carry-out or drive-through), or the user can choose to dine in
• Nutritional value of the food

With this in mind, it’s puzzling why Wendy’s mentioned dynamic pricing during their earnings call. The app offers Wendy's many opportunities to integrate this pricing model into its innovations and brand relationship-building activities. The app is already aligned with the ideas of the commenters who discussed personalized pricing and most likely, should be an integral part of the dynamic pricing plan.

Maybe Wendy’s should instead promote the app and achieve their goals that way.

The innovation discussions included a conversation about the brand experience and what that should include. It appears that Wendy’s has forgotten that the brand experience includes the app, the dining rooms, the wait for food, the offers, drive-through, carry-out, the menu, the pricing (even dynamic pricing), the food itself, the employee interaction, and there is probably more that I am missing.

If Wendy’s wants to innovate the customer experience, there are many approaches beyond dynamic pricing to expand people’s perception of what fast food is. They have an opportunity (and potential) with the app to create a new market space for fast food.

As most of us in product development know, if you want to innovate, start by improving your product. And before you improve your product, talk to your customers.

(Spreadsheets with a bottom line won’t tell you what to do next except to cut costs.)

Another idea: if Wendy's empowered employees to innovate they could make each store a better place to work and improve the customer experience at the same time. Most likely, the employees and customers would try to find a way to reduce wait times while creating quality food. My bet is that dynamic pricing would be lower on the priority list if the employees were empowered to make improvements. They would find other new opportunities.

Leadership problem

The commenters saw Wendy's leadership as making decisions in the best interest of the company and shareholders, but not the employees, franchisees, or customers.

Again, some wondered if Wendy’s tested this dynamic pricing idea (through market testing or in another way). Everyone wondered where it came from.

These insights lead me to wonder if the commenters had a different view of the role of a CEO and where leaders should focus their energies. Neglecting customer and employee needs in favor of investors and profits may not be the best approach for long-term viability, sustainability, and customer relationship building (including loyalty). At least, that’s the commenter’s overall perspective.

Other businesses and industries that adopted dynamic pricing

Around 15% of the commenters made analogies between Wendy’s and fast food restaurants adopting dynamic pricing with various industries. These connections give us some insights into what people believe that this pricing method could mean for consumers.

The usual suspects of dynamic pricing were mentioned in the comments:

• Uber and Lyft – when these were mentioned, people referred to rides being overpriced and price gouging.
• Doordash, etc. – like Uber or Lyft, dynamic pricing for food delivery can get pricey during busy hours.
• Golf clubs – pricing is tiered to keep the course booked all day. Guests are aware that the club is doing this and some will golf at less busy times to get a better price for the same golf game.
• Hotels – charge more when they are busy to optimize profits.
• Airlines – same as hotels.
• Trains – same as airlines and hotels.

Interestingly, none of these industries or businesses are necessities and could be considered luxuries.

In the comments, no one considered fast food a luxury.

Commodities that use dynamic pricing:

• Gas and oil
• Electricity

It logically follows to put food into the commodity category for dynamic pricing because we need these items for modern life. However, the idea of food being dynamically priced was frightening to many because it is such a necessity. People budget for food to ensure they get the nutrition and sustenance needed each day. Dynamic pricing won’t always allow for that. People expressed displeasure over dynamic pricing for gas, oil, and electricity, but food was where they drew the line. It was raised that dynamic pricing seems to be happening in grocery stores already. The response to that notion was the same as dynamic pricing for fast food. Not well received.

Fast food is seen as satisfying a basic need. It's not a luxury and definitely not a nice to have.

An industry that was raised as a suitable candidate for dynamic pricing was car insurance. Car insurance does offer a form of dynamic pricing by allowing customers to use an app and get a better price based on their driving habits. However, this isn’t dynamic based on car usage. For example, consumers would like car insurance companies to charge them when they use the car. So if a car weren't used for the week, the consumer would like to not pay for car insurance that week.

Recommendations for Wendy’s

We learned from the responses that people generally felt that fast food is a staple of society for food access and there are clear characteristics of what it should be.

Based on the comments, there are some more impactful goals and innovations for Wendy’s besides pursuing a dynamic pricing model:

Reduce wait times and improve food quality. I used to frequent In-n-Out and they had this figured out–and made a lot of money from it. Finding a way to reduce wait times, offer variety, and maintain food quality would be a massive win for Wendy’s. And it is a win that doesn’t necessarily involve any pricing changes.

Empower employees to make improvements in the stores and empower them to share these improvements across stores. Rather than employees coming to work just to do a job, include them in the business and allow them to make recommendations based on their experiences and observations of customers.

These employees may find a way to reduce wait times on their own.

This recommendation should include paying them better, too.

Ensure that franchise owners and store managers are included in the decisions. An extension of the previous point. Make sure that store managers and franchise owners understand the impact of business decisions and that those decisions benefit them, too.

Leadership needs to listen to the people–not just profits. It was abundantly clear that no one agreed with this pricing approach. Did the executives or corporate types ask a consumer, employee, or franchise owner/manager their opinion of dynamic pricing? Most likely not.

Brand and product–what does the business want Wendy’s experience to be? What’s the end-to-end experience? How is everything connected? How can they build loyalty? The executives should spend more time talking to customers about their problems and how to solve them rather than what to charge them.

Build awareness of the app. A handful of commenters talked about offering personalized pricing from the app. Same with supporting loyalty programs, which already exist on the app, too.

Maybe Wendy’s needs to encourage people to use the app and gain benefits from it, like dynamic pricing and reducing wait times for food (for example, the customer could place an order and the app would tell them when to pick it up).