Pricing at Wendy’s: A Surge or a Discount?

The fast-food chain Wendy’s finds itself in a kerfuffle over comments by its chief executive officer Kirk Tanner that it may shift to digital menu boards, which would in turn allow the firm to adjust prices by time of day.

The usual suspects immediately asserted that Wendy’s was about to commit “surge pricing” by raising prices at peak meal hours; the company quickly responded that it was only going to use the mechanism for “discount pricing” at non-peak hours.

Of course, many restaurants have traditionally had “early bird” or “happy hour” specials for those eating in non-peak hours. Similarly, movies and shows often have matinee pricing, where tickets for shows in the afternoon are cheaper than those in the evening, or tickets for shows from Sunday through Thursday night are cheaper than on Friday or Saturday night. During the holiday shopping season, lots of retailers have cheaper prices for those who show up to buy during the opening hours of the store on certain dates, and more expensive prices for those who come later.

The trick for any seller, of course, is that it needs to brand all such time-of-day or time-of-week variation as a “discount” for the cheaper times, which is laudable, rather than as a “surge” during the more expensive times, which would be condemned. In a similar spirit, gas stations and other retailers often list a “discount price” for those who pay cash, but never a “surge price” for those who pay with credit cards. Public transit systems often have a price “discount” for those who travel at off-peak hours, but never a “surge” price for those who travel at peak times. The Wendy’s CEO committed executive malpractice by not immediately emphasizing how the company was going to offer price discounts, not price surges.

A few years back, I wrote about dynamic pricing in a number of contexts: some historical episodes when Coca-Cola talked about raising or lowering prices at soft drink machines on hot days; when Disneyland or certain ski resorts charges higher prices at peak times than off-peak times; when prices for rideshare services like Uber go up in situations where quantity demanded of rides is high; when the price of electricity is adjusted up during periods of high demand; and when toll roads charge more when traffic is especially congested. There are of course complex issues across these cases. But the knee-jerk claim that prices should generally be constant across a wide range of conditions, including time-of-day and day-of-week, except that “discounts” are socially beneficial while “surges” are socially harmful, substitutes outrage-of-the-day rhetoric for any attempt at making meaningful distinctions.