Wendy's Bungles Pricing Announcement

During an earnings call, Wendy’s CEO announced a new “dynamic pricing” strategy. The media spun it as “surge pricing” and riled up consumers.

Sherri Kimes, a former Cornell colleague analyzed the communication issue in a blog post and referred to the initial statement as “pretty innocuous.” In addition to the brief mention during the earnings call, the strategy is a small part of the earnings visuals—just a few words on one slide about several ways to use technology for higher margins.

Kimes describes prospect theory and suggests companies frame these decisions as benefits to consumers—in this case, saving during certain times of the day rather than paying more at peak times. Her advice is consistent with corporate communication strategies.

We have an issue of audience, as we typically see in business and corporate communication. The earnings call was intended for investors, and the language was appropriate for that audience. But Wendy’s leadership failed to consider how the media might retell the story.

Here’s the earnings call text:

We expect our digital menu boards will drive immediate benefits to order accuracy, improve crew experience and sales growth from upselling and consistent merchandising execution. Beginning as early as 2025, we will begin testing more enhanced features like dynamic pricing and day-part offerings along with AI-enabled menu changes and suggestive selling. As we continue to show the benefit of this technology in our company-operated restaurants, franchisee interest in digital menu boards should increase further supporting sales and profit growth across the system. We will continue setting the pace in generative AI and now have rolled out Wendy’s Fresh Ai in several restaurants where we see ongoing improvement in speed and accuracy.

Good Morning America offers one of many examples of the media spin. The story opens with the headline, “Wendy's announces Uber-like surge pricing model,” and ends with, “Some experts say customers could see more menu pricing changes ahead at other fast food chains, including McDonald’s and Burger King, especially if Wendy’s sees a boost in its bottom line after implementing dynamic pricing.” This sounds like a slippery slope fallacy, as though Wendy’s will start an inevitable sequence of events. Of course, this may be true, but the conclusion also supports the media’s hysteria.

Context matters. Inflation is high, and people are particularly price sensitive, an important topic for the upcoming election. The media draws attention by inciting fear about yet higher prices, even at fast-food restaurants, where we expect prices to be low.

In a statement, Wendy’s is doing damage control. They focus on menu display and discounts, which may follow the prospect theory, but will the impact on consumers still be higher prices? They promise, “We have no plans to do that and would not raise prices when our customers are visiting us most.” But will they raise all prices, and then provide a discount during low-demand times? If that’s the case, the media reports are not entirely wrong. Reports used inflammatory language, but the result is the same for consumers. Or, on average, will customers pay less, as comments on Kimes’ LinkedIn post suggest, with increased volume bringing more revenue to the company?

Still, I’m curious about the impact on different demographics, for example, for those with a less-flexible schedule. Low-wage workers have fixed times for lunch and dinner and might not be able to choose when they go to Wendy’s. Many workers eat between two jobs and grab something quickly for themselves or their families. Although this impact might not be the company’s concern, it could cause media—and consumer—backlash.

Regardless of the pricing impact, from a corporate communication perspective, Wendy’s should have been more careful and followed Kimes’ good advice.