Wendy's pricing debacle is a flashback to when Coca-Cola tried charging more on hot days
Published Date: 2/29/2024
Source: axios.com
Burger chain Wendy's is in damage-control mode following reports that it would be testing surge pricing — a mostly reviled strategy of raising prices during busy times made famous by Uber.
Why it matters: The whole debacle seems very of-the-moment, but actually mirrors another PR crisis from 25 years ago at the Coca-Cola Company.
Zoom in: Back then Coke considered raising vending machine prices when the temperature rose.
- People thirst for a cold drink on a hot day, "so it is fair that it should be more expensive," the company's then-chairman said.
- People hated the idea.
- The word "gouging" came up a lot, wrote the NYT's David Leonhardt more than five years later. Pepsi quickly took the opportunity to say it would never do such a thing — and Coke walked it back.
Between the lines: Coke framed dynamic pricing in a way that was certain to get backlash, says Vicki Morwitz, a professor at Columbia Business School who teaches the episode as a case study.
- The semantics make a big difference — you don't want to highlight the idea of raising prices. The best practice is to set your highest price as a base price in an algorithm and offer discounts from there.
- Many private colleges and universities employ this sticker-price strategy, as Ron Lieber details in his book "The Price You Pay for College" — though parents and kids trying to make choices don't love it.
The bottom line: People don't like when prices are high or seem unfair or capricious. Companies should tread carefully.