In the future, the ideal time to eat a burger won’t be when you’re hungry and really hankering for one. It’ll be the oddest, most awkward hours — late mornings or afternoons, the middle of the night on a Tuesday — the slices of time when prices will be lowest. Not unlike your Uber ride, fast food prices will go up or down depending on demand.
At least, this is the world people imagined when fast food chain Wendy’s revealed it would be tinkering with “dynamic pricing,” a broad term that describes any strategy where prices fluctuate based on supply and demand — like flights and Uber rides. The uproar was swift and sonorous; Wendy’s tried to clarify that it would use the strategy to offer lower prices, not to raise them when traffic is highest, but the reputational damage was done. In countless headlines, Wendy’s was accused of using surge pricing on food at a time when steep food prices at both restaurants and grocery stores have left many people drastically tightening their belts.
Above all, the Wendy’s fiasco also highlights an uncomfortable truth: It feels impossible to know what to expect to pay for anything. There are a lot of reasons for this — inflation, hidden fees, tipping creep — but one simple one is that we’ve been in the trenches of dynamic pricing for a long time. Between flights, hotels, concerts, car insurance, electricity, gas, Ubers, and online retailers like Amazon, many sellers adjust their prices using the trove of data at their fingertips to predict what people might pay at any given moment. Restaurants are just dipping their toes in an arena that Amazon and Uber seem to have perfected.
A history of how prices are decided
For most of human history, buying or selling anything involved the dance of haggling. Americans abandoned the practice in part thanks to the Quakers, who thought it was immoral that some people paid more for the same thing than others. Fixed prices were transparent and fair. Then, as an episode of NPR’s Planet Money explains, the boom of huge department stores in the late 1800s made it cumbersome to individually parley over thousands of items — so the price tag was born.
Of course, prices on these tags still changed from time to time. But it was a laborious process; employees would spend their shift placing new price stickers on every item, the paper price labels on shelves would have to be manually replaced, and in the case of restaurants, menus would have to be reprinted.
Still, there has long been experimentation in adjusting prices for supply and demand, to capture gaps in profit that merchants suspected they might be missing out on. In 1999, for example, Coca-Cola tested (but did not roll out) vending machines whose prices would rise as the temperature did.
“In my classes, we call it ‘perfection pricing,’” says Stephen Zagor, a Columbia University business professor with expertise in the restaurant and food sectors. “It’s a model that obviously has been around for a while in lots of different forms.”
The age of Big Data put dynamic pricing into hyperdrive, unlocking more granular, speedier price changes. “It can be done on a very, very microscopic basis,” says Zagor. Different stores in different parts of a single city........