February 29, 2024

๐Ÿ—“ Happy leap day! Did you know if we didn't have this magical extra day, in 425 years spring would start in July?

  • ๐ŸปAlert: Anheuser-Busch and the union representing some 5,000 workers across 12 breweries announced a deal late yesterday โ€”ย averting that strike we warned about.

Today we're nonalcoholic, it's all about burgers and Cokes โ€” in 890 words, 3.5 minutes.

1 big thing: The great Wendy's burger flip-out

Illustration: Aรฏda Amer/Axios

Fast-food fans were aghast when news broke this week that burger chain Wendy's would be testing out surge pricing โ€” a mostly reviled strategy of raising prices during busy times made famous by Uber, Emily writes.

Why it matters: It's getting easier to use technology to monkey around with prices, but that doesn't mean customers will like it.

State of play: In an earnings call earlier this month, Wendy's CEO Kirk Tanner said the company was planning to test "dynamic pricing." That's a commonly used practice of changing prices more frequently using algorithms, machine learning and AI.

  • His remarks went unnoticed at first but then were picked up Monday by a few big news outlets. They used the term "surge pricing." The backlash was quick.
  • Late on Tuesday, the company put out a statement clarifying that it didn't plan to raise prices during busy hours โ€”ย but would use digital menus to change offerings during the day and offer discounts during slower times.
  • That of course means that prices would be higher at high-demand times, but typically consumers don't view that as price-gouging โ€” happy hours and early bird specials are seen as good deals.

The big picture: People are accustomed to dynamic pricing in certain areas. Flights are more expensive on Dec. 23 than on the 25th. An Outer Banks beach house costs more to rent in July than in February.

  • These kinds of price adjustments are more common than folks might realize, and they're growing in popularity as more companies pop up to help retailers try it out.
  • Dozens of restaurants have quietly implemented surge pricing, including barbecue chain Tony Roma's, the New York Post reports. As more menus move to tablets, the process has gotten easier to implement.
  • Retailers like Kohl's, Best Buy and grocery chains have used digital price tags that make it easy to change prices.

Follow the money: If done right, there are nice profits here. "Technology has enabled firms to deepen their relationships with customers and, in parallel, become more efficient and proficient in extracting money from them," write the authors of a Harvard Business Review piece on the pitfalls of dynamic pricing.

  • Restaurants have the "opportunity to increase item prices by 10% to 20% during the lunch rush," write the authors of a blog post at a company that runs this kind of tech for restaurants.

The bottom line: Wendy's didn't handle this well, says Vicki Morwitz, a professor at Columbia Business School. It seems executives didn't think sufficiently about how consumers would react or about the best way to use dynamic pricing.

  • That's crucial. There has to be a human overseeing the rollout and watching the algorithm, she says.
  • Changing prices a lot can be "unsettling," the HBR professors write. Just look at how vexing the recent period of inflation has been.

2. Flashback: When Coke tried dynamic pricing

Illustration: Victoria Ellis/Axios

The Wendy's dust-up mirrors one of the Coca-Cola Company's worst PR debacles, in 1999, says Morwitz, the Columbia professor.

  • 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, and 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 โ€” and Coke walked it back.

Between the lines: Coke framed dynamic pricing in a way that was certain to get backlash, says Morwitz, who teaches the episode as a case study.

  • The semantics make a big difference โ€” 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 strategy, as Ron Lieber details in his book "The Price You Pay for College" โ€” 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.

3. Job jitters

Share of U.S. workers expecting loss of income in the next month, by income level
Data: Morning Consult Axios Inequality Index; Chart: Axios Visuals

Americans' fears about their job security rose this month, even as the labor market remains historically strong, according to polling by Morning Consult, Axios' Kate Marino writes.

Why it matters: The uptick in anxiety comes on the heels of a string of headlines about high-profile companies laying off workers โ€” headlines that often get outsized attention and help shape Americans' views of the economy.

  • Flashback: The same thing happened last year. A series of conspicuous layoff announcements in late 2022 and early 2023 was followed by a big jump in job loss jitters (see the chart above).

Yes, but: Anecdotes aside, the U.S. labor market as a whole is in great shape. Unemployment is near record lows, and laid-off workers โ€” many of them are in tech โ€” tend to find new jobs fairly quickly.

What they're saying: "There's a disconnect here. I think people, in general, are on high alert," says John Leer, chief economist at Morning Consult, noting that the firm's polling shows actual losses of pay or jobs at pretty low and stable levels.

  • "So many folks in the business economics profession have been forecasting a recession ... people are on edge."

The bottom line: Companies don't make headlines for not doing layoffs.

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Axios Markets is edited by Kate Marino and copy edited by Mickey Meece.