Question:
Dear Advice Guy,
I’ve been hearing a lot about “surge pricing” for restaurants. Is this something I should be looking at for my operation?
– Owner, fine dining restaurant
Answer:
Surge pricing in the restaurant industry has been in the news for the wrong reasons recently. Wendy’s CEO Kirk Tanner mentioned that the company would be exploring dynamic pricing using their digital menu boards.Competitors, pundits and consumers made what would otherwise been a snoozy bullet point on a quarterly earnings call into a social media morass, complete with memes and late night talk show jokes.
The confusion came from a poor understanding of the topic. Surge pricing is familiar to anyone who has experienced inflated prices at times of peak demand. We all know that the rideshare home at 1a.m. on New Year’s Eve is going to be more expensive than the same ride on a weekday afternoon. Tanner never said that Wendy’s would be testing surge pricing, but rather mentioned their interest in dynamic pricing. Surge pricing is a type of dynamic pricing but so is discounting.
While the company clarified their intention to advantage consumers rather than charge them more, as often happens in media, the damage was done. While much has been made of the PR and communications failure here, your question is a good one: Wendy’s is thinking about using dynamic pricing. Should you?
My advice is yes: I am a big fan of dynamic pricing —if it’s done thoughtfully. It’s likely you are already using a version of this pricing strategy in some fashion through promotions like happy hours, industry nights, or specials offered during off-peak periods such as early in the week as well as splurge-worthy higher-priced items on special occasions. While the surge part of dynamic pricing is unpopular, there are many benefits to a dynamic pricing model that offers discounts as long as you are still able to preserve some margin. These include welcoming guests who might otherwise be priced out of your operation; keeping staff busy, engaged and earning; finding opportunities to prevent or reduce wasted food; and enticing guests to try additional menu items, stay longer or return.
There is a good lesson here in not believing everything you read—but also in using the broader cultural conversation to think about your own operation and how it can be improved.
More on dynamic pricing here.