Wendy’s, the second-largest fast food chain in the US, has announced that it will start testing a variable pricing model in 2025, in which the prices of its menu items will change depending on the time of day and the demand. The company said that this move is part of its $20 million investment in new digital menu boards, which will enable it to offer more personalized and value-driven options to its customers.

What is variable pricing and why is Wendy’s trying it?

Variable pricing, also known as dynamic pricing or surge pricing, is a strategy in which businesses adjust their prices based on various factors, such as supply and demand, customer behavior, weather, or seasonality. The goal of variable pricing is to optimize revenue and profit, as well as to manage customer traffic and satisfaction.

Wendy’s is not the first company to adopt variable pricing. Other industries, such as airlines, hotels, and e-commerce, have been using it for years. Some examples of variable pricing are:

Uber’s surge pricing, which increases the fares during peak hours or high-demand situations.
Amazon’s price changes, which can vary depending on the time of day, the availability of the product, or the browsing history of the customer.
Coca-Cola’s vending machines, which charge more for cold drinks on hot days.

Wendy’s said that it will test variable pricing as early as 2025, as part of its digital transformation and innovation efforts. The company said that it will use its new digital menu boards, which will be installed in all of its 6,000 locations in the US, to implement variable pricing. The digital menu boards will allow the company to change prices in real time, based on factors such as demand, time of day, or weather.

Wendy’s CEO Kirk Tanner said that variable pricing will help the company to provide more value and choice to its customers, as well as to improve its operational efficiency and profitability. He said that variable pricing will enable the company to offer “more enhanced features like dynamic pricing and day-part offerings along with AI-enabled menu changes and suggestive selling.”

How will variable pricing affect Wendy’s customers and competitors?

The impact of variable pricing on Wendy’s customers and competitors will depend on how the company implements it and how the customers react to it. Some possible scenarios are:

Variable pricing could benefit customers who are flexible and price-sensitive, as they could enjoy lower prices during off-peak hours or less-demanding situations. For example, a customer who wants to buy a burger at 10 a.m. or 3 p.m. could pay less than a customer who wants to buy the same burger at 12 p.m. or 6 p.m.
Variable pricing could also benefit customers who are looking for more personalized and customized options, as they could choose from a wider range of products and promotions that suit their preferences and needs. For example, a customer who wants a spicy chicken sandwich could be offered a special deal or a complimentary drink, depending on the weather or the availability of the product.
Variable pricing could, however, disadvantage customers who are inflexible and value-driven, as they could face higher prices during peak hours or high-demand situations. For example, a customer who wants to buy a salad at 12 p.m. or 6 p.m. could pay more than a customer who wants to buy the same salad at 10 a.m. or 3 p.m.
Variable pricing could also disadvantage customers who are loyal and habitual, as they could experience inconsistency and uncertainty in the prices of their favorite products. For example, a customer who always buys a frosty at 4 p.m. could pay a different price every day, depending on the demand or the weather.

Variable pricing could also affect Wendy’s competitors, such as McDonald’s, Burger King, or KFC, in different ways. Some possible scenarios are:

Variable pricing could give Wendy’s a competitive edge, as it could attract more customers who are looking for more value and variety, as well as differentiate itself from its rivals who offer fixed prices. For example, a customer who wants to buy a chicken nugget could choose Wendy’s over McDonald’s, if Wendy’s offers a lower price or a better deal at that time.
Variable pricing could also give Wendy’s a competitive challenge, as it could alienate some customers who are looking for more stability and simplicity, as well as lose market share to its rivals who offer fixed prices. For example, a customer who wants to buy a cheeseburger could choose McDonald’s over Wendy’s, if Wendy’s charges a higher price or a more complicated offer at that time.

What are the challenges and opportunities of variable pricing for Wendy’s?

Variable pricing is not a simple or risk-free strategy for Wendy’s. The company will face several challenges and opportunities in implementing and managing it. Some of them are:

Data and technology: Variable pricing requires a lot of data and technology to support it. Wendy’s will need to collect and analyze data on customer behavior, demand patterns, market conditions, and other factors that affect pricing. Wendy’s will also need to invest in technology that can enable dynamic and real-time pricing, such as digital menu boards, AI, and cloud computing.
Customer perception and satisfaction: Variable pricing also requires a lot of communication and education to customers. Wendy’s will need to explain and justify its pricing decisions to customers, and convince them that variable pricing is fair and beneficial. Wendy’s will also need to monitor and measure customer perception and satisfaction, and address any complaints or feedback that may arise.
Competition and regulation: Variable pricing also requires a lot of coordination and compliance with competitors and regulators. Wendy’s will need to keep an eye on its competitors’ pricing strategies, and respond accordingly. Wendy’s will also need to follow the rules and regulations of the markets where it operates, and avoid any legal or ethical issues that may arise.

Variable pricing is a bold and innovative move by Wendy’s, which could have significant implications for the fast food industry and the customers. Whether it will succeed or fail will depend on how well Wendy’s executes and manages it, and how well customers accept and adapt to it.