Customers still confusing 'dynamic pricing' with 'surge pricing'

Dynamic pricing is one way some restaurant owners are offsetting rising food and labor costs. Still, results from a recent HungerRush study proved that restaurants have a lot of work when it comes to teaching customers that surge pricing and dynamic pricing don't mean the same thing. It found that 64% of diners said they had a negative reaction to restaurants using surge and/or dynamic pricing. Additionally, 81% of diners said they would either stop going to a restaurant or alter their dining hours to avoid increased pricing during peak hours.

Although surge and dynamic pricing mean different things, most customers view them as the same. Surge pricing is when a business charges more for a product or service at a popular or peak time — such as Uber tripling fees after a big concert finishes. An example of dynamic pricing, however, is when a brand drops the standard price of a burger after the lunch rush is finished.

Wendy's learned the importance of communicating that difference several weeks ago when it announced it was using digital menu boards to change featured menu items and pricing. Customers ran with it, thinking they'd be paying $20 for a burger at dinnertime and fled to social media to complain and propose Wendy's bans.

The fiasco was a good reminder of the importance of careful marketing, according to Ryan Goff, CMO of marketing agency MGH, which has worked with a variety of fast casual brands, including Which Wich, bb.q Chicken, Mason's Famous Lobster Rolls and 16 Handles.

"The fast-food chain has failed in illustrating how such a strategy could actually benefit customers through specific examples," he said. "If Wendy's had come out and said, 'Imagine getting 50% off Frosty's between 2 to 4 p.m.' or 'Buy 1, Get 1 Baconator whenever it rains,' it would have provided clear, tangible cases of how dynamic pricing could benefit its customers."

Although customers still have difficulty understanding the difference between the two pricing structures, the HungerRush study found that nearly half of the respondents (48%) said they were more understanding of small chains and local restaurants needing to raise prices.

What about extra fees?

The study also reported that 56% of consumers surveyed said they would continue to order from restaurants with lower fees, but 63% said they were willing to pay a small fee to make up for increased operational costs. However, 21% of diners were only willing to pay a minimal fee of less than 3% of their total visit.

Coping with the recent $20 minimum wage in California alongside high national inflation poses significant challenges for restaurant owners," Bill Mitchell, executive chairman of HungerRush, and former president of global operations of Papa John's International, said in a company press release. "While raising prices may seem like a straightforward solution, it can negatively impact consumer loyalty. We've witnessed backlash against surge pricing models in the past, demonstrating the importance of preserving customer experience and loyalty. Our data highlights the critical role of customer satisfaction in a restaurant's profitability. Instead of solely relying on price hikes, we recommend leveraging technology and optimizing workforce planning to enhance operational efficiency and minimize expenses."

Survey Methodology

The survey was commissioned by HungerRush and conducted by Dynata, a first-party data company, in March 2024 of 1,000 U.S. consumers 18 years and older.