Wendy’s, a renowned US hamburger franchise known for its quirky offerings such as square beef patties and a ‘Frosty’ milkshake – a mixture of soft ice cream and starches, according to Wikipedia – has recently been in the limelight for a different reason. This relates to the trend of ‘surge dining’, which was instigated following the company’s disclosure that it would utilise AI and digitised menus to modulate its prices during high demand periods.
‘Surge pricing’, however, is not an unfamiliar or even contentious concept. It is often connected with Uber, which is known for imposing higher charges for car bookings during busier periods without remorse. But, it is worth noting, the practice is largely rooted in the hospitality sector and is well recognised by anyone who has opted for airlines like Ryanair. The understanding is, booking late, flying over the weekends or opting for a ‘preferred’ seat will cost more. The principle of surge pricing is so common, it’s likely even your teenage babysitter is acquainted with it, especially if you’ve needed their services on New Year’s Eve.
Therefore, it’s not unusual to assume the decision of a food chain like Wendy’s opting for surge dining wouldn’t create much disagreeability. Given the current struggles pertaining to narrowing profit margins, escalated costs, the application of 13.5% VAT, impending compulsory pension schemes and proposed augmentation in sick leave benefits for workers plaguing the industry, surge dining could present solutions to some of these issues. Moving from affordable pre-theatre or early bird deals, or costly Valentine’s Day specials to charging higher for a rib-eye steak on a Saturday compared to the same steak on Tuesday doesn’t seem much of a stretch to most. The practice might even be appreciated by diners if it assures table availability on a bustling night.
However, Wendy’s promptly made it clear that it had no plans to introduce surge pricing. Their plan merely encompassed lowering prices during off-peak times, an explanation that seemed to dance around the subject like a jig on a skinny fry.
The decision by Wendy’s to invest $20 million into AI systems was not a popular move, prompting significant backlash and talk of a potential boycott led by US senator Elizabeth Warren, who accused the company of “price gouging”. Wendy’s attempted to explain that its new system was designed to allow for reduced prices during off-peak periods, not to introduce surge pricing. Nonetheless, the entire issue has raised questions among many.
Two main concerns seemed to drive the angry responses. Firstly, there is a shared belief that the price for fast food burgers should remain consistent, a notion so ingrained in our society that the Economist even based an entire economic metric, the Big Mac index, around this concept. If the price of a Big Mac began to fluctuate due to time of the day or what an algorithm determines a specific customer should pay, it would disrupt this outlook.
The second issue arose around the idea of such an algorithm setting prices based on an individual customer’s capacity to pay. This form of “personalised pricing” doesn’t sit well with the majority of consumers who wouldn’t appreciate being charged more simply because an algorithm analysed their income, shopping habits and even their health data to determine their level of hunger and price accordingly. This practice mirrors the unlisted pricing strategies of certain Italian restaurants which decide, on spot, what to charge customers. If such a concept were to be implemented globally with an algorithm acting as waiter, the general charm of dining out could well be lost.
The adoption of AI in pricing not only impacts the value of products but also hinges heavily on personal data, including search trends and booking history, to determine what a potential customer might pay.
As seen in various sectors, machine learning is now an integral part of accommodation search platforms, alleged to be used in providing discounted rates during off-peak periods. Observations have been made indicating fluctuating prices for the same rental property when accessed via different devices, accounts or browsers, leading to questions about the basis of pricing. Are the costs being determined by an algorithm’s understanding of a user’s willingness to pay, relying on trends in search and booking history, rather than the inherent value of the accommodation?
In his Atlantic article, “Welcome to Pricing Hell”, Christopher Beam contends that while most people are aware of data-driven targeted advertising, the application of user data in determining variable pricing based on estimated payment capabilities remains an unexplored territory. Citing experts on economics who view this personalised pricing model as potentially beneficial, specifically for lower earners, he also acknowledges the counterpoint that many consider this approach ethically problematic.
In the absence of specific regulations and somewhat lacking inclination towards curbing the tendencies of major tech corporations, this model presents the ultimate manifestation of a surveillance economy. Users are subjected to a convoluted system of cookies, data trackers, discounted schemes, individualised advertisements, and surveys which can be used to manipulate pricing in a favourable or unfavourable manner. While these schemes may offer occasional benefits like a discount or freebie for your birthday, the actual cost is uncertain, and can only be determined by the algorithm itself.