Wendy’s ‘surge pricing’ mess looks like a case study in stakeholder conflict

This asymmetry makes sense and is well documented in academic research. On average, investors are motivated by a company’s profits. Moves to raise revenue, such as hiking prices, make them happy. That’s why companies often announce those increases well before they put them into effect – not for the customers’ sake, but for the investors’.

Of course, higher prices feel different if you’re the one paying them. And consumers tend to believe sellers aren’t being fair when they set prices: They think sale prices are set much higher than fair prices, underestimate the impact of inflation, overattribute the cause of price increase to profit-seeking, and fail to consider company costs. Their backlash is both economically rational and predictable.

What also makes sense is Burger King trying to act like a typical rival – aiming to benefit from the backlash Wendy’s received.

A needless food fight

In my opinion, Wendy’s early announcement of its dynamic pricing was a serious mistake. Remember that its CEO said that Wendy’s would introduce dynamic pricing “as early as 2025.” That means it announced the news at least nine months before customers needed to hear about it. I assume Wendy’s did this because it wanted to impress its shareholders and boost its stock price.

In fact, the cynic in me wonders whether this incident was “staged” – that is, Wendy’s was testing the waters to see whether they could preannounce the price hike to impress shareholders, and then not actually implement the changes.

Indeed, research has shown that companies often preannounce price increases a few days to several months in advance, and may withdraw some of these preannouncements if they realize that the price hike may cause more damage than increase in revenue.

But either way, announcing a decision nine months in advance seems premature. And I haven’t seen any evidence that Wendy’s planned for customers to hear the news along with investors.

My advice is for executives to be astute in communicating price increases so consumers take the company’s perspective and don’t view the hike as unfair. That may mean avoiding terms that elicit hostile reactions, or providing explanations for their decisions, such as an increase in the cost of ingredients or employee salaries. Consumers who understand the reasons for a price hike may be more accommodating.

Interestingly, even after the Wendy’s wobble, other restaurants are reportedly considering increasing menu prices during hours of high demand. I hope they learn from Wendy’s error and frame their price increases strategically.

Otherwise, they shouldn’t be surprised when competitors eat their lunch.

Vivek Astvansh does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.