Truth About Dynamic Pricing
Wendy’s, dynamic pricing, and what the media gets wrong
The media recently took aim at Wendy's talk of dynamic pricing, conflating it with Uber “surge pricing,” saying it will result in higher prices.
What they didn’t know, or say…
Dynamic pricing and surge pricing are not synonymous. In fact, surge pricing is actually a subset of dynamic pricing. And both have been around forever - well before Uber was even an idea.
The guiding principle of dynamic pricing is maximizing revenue during periods of high demand, low demand and everything in between. We see it everywhere, but don’t call it by name. Ever see a nice restaurant offer a free bottle of wine with dinner on a Tuesday? That’s a form of dynamic pricing during a low demand period. Full price for a swimsuit in May? Half price for a swim suit in August? Again, dynamic pricing.
Working with Royal Caribbean International a little while back, the revenue planning folks had a goal of 100% occupancy (no disappearing inventory). Their strategy? Every cabin, on every ship, on every sailing date, has a price at which it will be occupied. They just had to find that price so we could market it. Today, with apps like Priceline, HotelTonight and Booking.com we see dynamic pricing in real time. And embrace it.
So what about “surge” pricing, especially with Uber? Truth is, I’d still rather have an on-demand option, knowing the price in advance compared to a cost per unit of a mile with the alternative. And what if the high demand periods for Uber were the regular rates, and all other times were discounted periods? We just might have a different point of view.
Something to ponder.