Surge Pricing: Yea or Nay?

Something to think about, but today's price sensitivity makes it challenging.
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When I'm traveling, I try to book my departing flight on a Tuesday. Why? Because flights are usually cheaper then. I also do my best to avoid traveling over holidays, such as the Fourth of July or Thanksgiving weekend. Avoiding crowds is one reason, but I also know that I'll be paying a premium for flights, hotels, car rental, etc., if I travel during those busier times.

If you are someone who uses Uber or Lyft, you're probably familiar with the rideshare industry's use of surge pricing — when the cost of a pickup soars because the number of people seeking a ride exceeds the number of drivers trying to meet the demand.

[Read more: INSIDE THE CONSUMER MIND: Value Seekers]

What's got me thinking about those things is a recent report that Wendy's, the third-largest burger chain in the United States, plans to test new digital menu technology that would allow it to introduce "dynamic pricing" at its restaurants. Simply put, this would mean that its menu prices would fluctuate during the day. Customers would see higher prices during busy dayparts and lower prices during slower dayparts.

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Paul Servais, retail foodservice director for La Crosse, Wis.-based Kwik Trip Inc., told me that he thinks consumer price sensitivity is very high right now. "I think when their guests figure out what they are doing, it will hurt them," he said, adding that Kwik Trip has not talked about surge pricing, but has discussed pricing food by market, as it does with gasoline.

Ryan Krebs, another veteran foodservice leader at Savannah, Ga.-based Enmarket, is not a fan of surge pricing either. "I don't see it being something that most c-store operators will risk doing," he said. "With the massive competition and customer awareness of pricing these days (which I think will continue as costs remain unbearable to the average customer), most customers will seek out the competitor that isn't participating in surge pricing. If I know Wendy's is on surge pricing but Burger King (BK) is a half block away not participating in it, customers will line up at BK, even if for making a statement alone."

That doesn't mean no one will test it. Ed Burcher, a leading convenience store foodservice consultant, thinks surge pricing is worth trying, especially since Wendy's digital menuboard project would give them the ability to do it. "Many corporate chains with touchscreen ordering (like Wawa, QuikTrip, Sheetz, QuickChek) already have that ability," he noted. "This is a technology advantage for them."

Initial public reaction to Wendy's idea was so negative that the fast-feeder issued a statement saying that the media had misconstrued the intent of its dynamic pricing plans. The chain said the new menuboards would simply allow it to offer discounts and value offers more easily, particularly at slower times of the day.

However, the reality is that buying a hamburger or chicken sandwich is not the same as booking an airline flight. While Wendy's might pick up some customers during slow hours, traffic will likely decline during the high-priced time periods. I agree with Krebs, who said: "With a million choices and consumer price sensitivity, I don't see a standard operator getting buy-in from the general public that would benefit their bottom line."

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