Wendy's surges behind

You’ve probably heard of “surge pricing” and “dynamic pricing”. And you’ve definitely heard of “Wendy’s”.

A few weeks ago, all of those words started appearing in news items when new Wendy’s CEO Kirk Tanner announced an investment in digital menu boards at US company-operated restaurants by the end of next year and added that the chain would be testing dynamic pricing. Big mistake! Cue outrage!

Mainstream media immediately misreported this as “surge pricing”, which is what rideshare app users encounter when it starts to rain and their Uber fare suddenly shoots up as demand increases. Although the difference is subtle, dynamic pricing is the raising and lowering of prices when there’s a limited supply of inventory such as airplane seats for a specific flight, or hotel room vacancies for a specific night.

What there is never a limited supply of in America is hamburgers.

You might find the real-world distinction between surge pricing and dynamic pricing debatable, and you wouldn’t be the only one. Customers were outraged and US Senator Elizabeth Warren called it “price gouging”.

CEO Tanner was left with a face as red as his corporate mascot’s hair and the Wendy’s Corporation had to clarify that prices would not be going up when demand was high but would decrease when store traffic was low. This might make some kind of economic sense. But where the company went wrong is that the strategy makes no psychological sense. Why? Because people hate negative unpredictability.

In fact, people crave predictability. A wide range of human behavior can be attributed to an instinctual avoidance of unpredictable situations. Predictability is an overarching factor in the development of neural networks, even in much simpler creatures than CEOs. Our brains are basically prediction organs that constantly model and remodel the world according to sensory input. Our emotions become unpleasant when that input fails to match the model. We feel stress, fear, and anger. We adjust our circumstances accordingly. We avoid the source of those emotions. None of this is what a brand wants.

The positive exception to unpredictability avoidance is what marketers call “surprise and delight”. Evolution has molded us to feel the positive emotion of excitement when we discover a new source of food in the forest or a deal at the store. (Unfortunately, this response also accounts for gambling addiction when we get hooked on the positive rush of dopamine from winning a turn.)

There are other contexts where we seek out unpredictability, such as thrill rides at amusement parks, but even then, their unpredictability is safely circumscribed and we laugh along with our companion about a sudden roller-coaster drop. Laughter is what we do to signal to ourselves and others that an unpredictable event did not turn out to be negative after all. Caveman version: “Lol, Grunk, that sudden movement in the tall grass wasn’t a tiger, it was a rabbit, and now you’ve pooped your loincloth!”

All this is to say that customers, who – unfortunately for CEOs and economists are human beings and not hyper-logical robots – react very badly to the idea that comfort food might become uncomfortably unpredictable where its price is concerned.

We are used to seeing dynamic pricing at online marketplaces such as Amazon. You might not be aware of it, but dynamic pricing even exists in supermarkets, with Canadian giant Loblaw rolling out the largest deployment of electronic sales tags (ESLs) in North America back in 2019. But potential gains in profits must be weighed against any impact on customer perceptions. Of course, this is where a brand can get into trouble.

Brand strategists often talk about trust. And I believe trust to be the number one factor in building brand equity. Ultimately, what trust comes down to is predictability. You trust someone when you can reliably predict their behavior in given situations. This is what makes corporations like Apple and Google risk-averse (and it’s what recently led Google to stop generating pictures of people in its AI image creation tool Gemini).

The flip side is that we tend to avoid people who behave unpredictably, and if we’re stuck with them we experience negative emotions. This is also true for brands. So in the lives of a whole bunch of fast food fans, that unpredictable person now goes by the name of Wendy.