Surge pricing is something that anyone who takes a ride share on a regular basis has become used to. Try calling an Uber or Lyft on a rainy day during the dinner hour or around the school pick-up or drop-off time and you’ll be paying more than your usual rate — sometimes a lot more. Yet when consumers are confronted with common online business models like “dynamic pricing” in the bricks-and-mortar world, they may revolt. Consider the recent consumer backlash after Wendy’s, the American fast-food chain, announced on an earnings call that they were considering surge pricing for burgers during peak demand — and had invested $20mn in new AI systems to do so.
The first tweets following the announcement were amusing, as customers joked about arbitraging their lunch. But within a couple of weeks the social media comments became ugly and politicians such as Senator Elizabeth Warren started attacking the company for “price gouging”. Wendy’s quickly backtracked on the idea.
The same phenomenon has occurred at movie theatres that tried to raise the price of seats during high demand (though airlines and hotels do it online all the time and most entertainment venues have regular bargains on known slow days). What’s more, surge pricing isn’t the only algorithmic manoeuvre that’s come under fire when translated offline into non-digital businesses.