Why Price Changes Can Backfire
and How to Get It Right
The way we buy goods and services is constantly evolving, and companies are always looking for new ways to generate revenue. Dynamic pricing and the rise of membership fees are two strategies that can be beneficial, but can also backfire if customers feel misled or exploited.
Uber's Rain Tax: Dynamic Pricing with a Clear Purpose
Let's revisit Uber's surge pricing. While frustrating when you need a ride, most consumers understand the reasoning behind raising fares during a downpour. When demand for rides outstrips the supply of drivers, higher prices incentivize drivers to brave the weather and meet that demand. Here, customers grudgingly accept a temporary price increase because it addresses a real-time problem. Uber is also transparent about surge pricing, upfront in communicating the higher fares.
Wendy's Baconator Blunder: When Dynamic Pricing Feels Manipulative
Contrast that with Wendy's short-lived plan to adjust the price of its Baconator sandwich throughout the day. Consumers revolted, perceiving the change as unfair and lacking clear justification. Unlike Uber's situation, there was no immediate shortage of sandwiches to warrant a price increase. This highlights the importance of communicating the reasoning behind price changes, and how failing to do so makes customers feel manipulated.
Memberships: Rebranding Former Freebies as Perks
Another increasingly common pricing strategy is the subscription or membership model. For a monthly or annual fee, consumers receive perks like free delivery, discounts, or exclusive access to products. However, this is where the "masquerade" often comes into play.
Many of these memberships charge for benefits consumers once enjoyed for free. Free delivery is a prime example. After years of free or low-cost delivery from many retailers, tacking on a hefty membership fee to continue that service doesn't feel like a perk. Instead, it feels like an opportunity for corporations to extract more money from hard-working consumers who've become accustomed to a certain level of convenience.
The Key to Success: Don't Insult Customer Intelligence
Companies can navigate these pricing strategies successfully, but not by trying to disguise a price change as an added benefit. Here's where it goes wrong:
Lack of Transparency: Don't repackage a former freebie as a paid perk. Customers see through the illusion.
Focus on Real Value: If membership fees replace free services, provide additional value to justify the cost.
Know Your Audience: Understand how your customer base perceives value and what they're willing to pay for.
Dynamic pricing and memberships can help businesses thrive, but only if they prioritize honest communication, genuine value creation, and understanding their customers' needs. Otherwise, they risk being perceived as attempts to squeeze more money out of consumers, ultimately backfiring and damaging the brand's reputation.
Source: https://www.nytimes.com/2024/04/06/business/economy/wendys-company-price-discrimination.html