How would dynamic fast-food pricing affect customer trust?

Quick summary: Among 2,500+ verified buyers, negative reactions to the idea of dynamic pricing in fast food outnumbered positive reactions by 3 to 1. Two-thirds would trust restaurants less, and most would walk at surge prices.

Dynamic pricing—or letting the price of items move with demand, time of day, location or ordering method—is a hot topic in the QSR category.

Should it roll out, it’ll become a hot topic with customers too. At least, once it becomes more widely understood.

A Pogo quantitative study of 2500+ purchase-verified fast food buyers in the USA, fielded this October, indicates that:

• Two thirds are unfamiliar with the concept of dynamic pricing in a fast-food context.
• Once the concept is understood, negative reactions outweigh positive ones by 3 to 1.
• Two-thirds say they’ll go elsewhere, or not buy, in certain dynamic pricing scenarios.

Fast-food shoppers and dynamic pricing—what we asked:

We wanted our quantitative study to tell us:

• How familiar shoppers are were with dynamic pricing before anyone explains it.
• How shoppers react to the concept and anticipate it changing their behavior.
• Which dynamic pricing levers feel the most fair or unfair.
• What would mitigate shoppers’ discomfort with dynamic pricing.

Here’s what we learned.

1: Few fast-food consumers know the term. Most react negatively when it’s explained.

63.5% of fast-food diners in our study hadn’t heard the term used about fast-food restaurants.

After reading a definition of dynamic pricing, however, 57.0% (1,464) expressed a negative opinion and 15.9% (408) a positive one.

(The definition: “Dynamic pricing is when a restaurant changes the price of the same menu item based on factors such as location, time of day, demand, ordering method, or market conditions. Prices may go up or down.”

Note: the “prices can go down too” message did not prevent a lopsided reaction.

2: Two in three say dynamic pricing would reduce their trust.

Negative reactions to dynamic pricing run deeper than the idea of being annoyed about pricing itself.

66.7% of fast-food diners said dynamic pricing would decrease their trust in a restaurant. This includes 43.3% who chose the strongest option and said their trust would decrease “a lot.”

The data suggests, in other words, that diners hear “dynamic pricing” as a statement about the restaurant itself, not just the bill. If this is right, there’s far more at stake than the cost of a meal.

3: Most say they’d skip or go elsewhere if faced with a busy-time price increase.

Asked to imagine their preferred restaurant raising prices during a busy period, two-thirds said they’d either skip the purchase (35.6%) or go to another restaurant (31.2%). Another 14% said they’d wait for a lower-priced time.

Just 18.4% indicated they’d stay in the restaurant, with 12.6% saying they’d choose a less expensive item, and just 5.8% saying they’d pay the higher price and order as usual.

4: Perceived unfairness varies with the reason for dynamic pricing.

We asked shoppers to rate four different pricing scenarios separately, each on a seven-point fairness scale. The results revealed that the stated reason for dynamic pricing makes a big difference in shoppers’ perceived fairness of the practice.

The most unfair price change reason: ordering method (73.3%). This is closely followed by busy versus slow periods (70.7%) and location and estimated willingness to pay (69.5%).

The outlier: only 53.8% said that price changes in response to market conditions—such as ingredient costs—are unfair. Clearly, this is still not ideal.

5: Transparency is the key for QSR operators looking to keep their customers’ trust.

Operators need to be upfront about dynamic pricing to mitigate its effect on consumer trust, our data shows.

Asked what would make them more comfortable with the practice, our panel’s top answer (43.2%) is prices that are clearly shown before ordering, followed by the operator explaining when and why prices change (32%).

Other options included:

• Loyalty-based price protection and rewards (30.3%)
• A focus on discounts, rather than higher prices (28.3%)
• Applying changes equally to all customers. (26.3%)

Considering dynamic pricing as a QSR operator?

Right now, it’s unclear whether dynamic pricing in fast food will be a thing. Should we get there, however, QSR operators need to think carefully before putting up a menu board that changes at midday.

Notably, any test should assess more than immediate revenue or average check. Customer trust, perceived value and subsequent return behavior are more important factors to measure. In addition:

Be cautious about busy-time increases. Don’t assume that a surge pricing approach will move customers to quieter periods. Our data suggests you’re more likely to lose the purchase.

Finally, treat disclosure as essential, but don’t expect it to solve resistance. Customers should be able to see the applicable price before committing to an order.

If prices vary, test the effect of clear explanations, predictable rules, and limits on increases. Don’t assume, however that explaining an unpopular policy will make it acceptable to your customers.