Dynamic Pricing Described as a "Devilish Hellscape"
Fyodor Ovchinnikov, founder of Dodo Brands, stated in a recent LinkedIn post:
"Dodo won’t have any “dynamic pricing,” either. I personally think that “dynamic pricing” is a devilish hellscape for the customer, and a black box open to manipulation: you can never know what your burger will really cost you."
I think it's important to have this conversation.
Ovchinnikov also states "Dodo Pizza will always have free delivery. Always. Dodo Pizza is a vertically integrated company, and by controlling every process, from ingredient purchase to pizza shop management, we are building a highly efficient delivery business, which lets us offer our guests free delivery."
While that is a very fortunate position to be in, not everyone has the luxury of the vertical integration that Dodo enjoys, so charging for delivery, or finding another mechanism to offset the cost is inevitable.
What about the practice of dynamic pricing though? Is it wrong? It's an interesting moral question to ponder. Should a burger always cost the same to the consumer regardless of how many people want it at any given time? An iPhone costs the same amount at any given time, although that varies per market. Here in Italy I would pay 50% more than I would in the US. I recently looked into buying a Sony PS5 for my kids but they're impossible to find. I could buy one on eBay for double the price. No thanks. As a consumer I exert my right not to pay an outrageous price, and will wait for the price and availability to stabilize. Anyway, neither of these examples have a 'fixed capacity'.
I would argue that restaurants have a fixed capacity of kitchen throughput, the way that airlines have a fixed number of seats to sell per plane, or hotels have a fixed number of rooms to sell per night. Is it ok for these businesses to charge more when demand is high? Do they really "need" to do it? Maybe not, but these are for-profit companies. Apple certainly doesn't need to charge over $1,000 for an iPhone but consumers pay it happily because they believe it's worth the money. If a restaurant can charge $11 for a burger instead of $10 because it's Saturday night, the game is on, and everybody's ordering food to their homes, should they do it? I think the answer will be dictated by consumer behavior. They will be the judge of whether it's worth it to pay $11 to have that burger in the comfort of their home while they watch the game, or not.
Or let's take a more extreme case. Two people walk into the same exact restaurant. One person walks in on Saturday night at 8pm and wants the table overlooking the Las Vegas strip. The other walks in on Tuesday at 3pm and has the table by the bathroom. Why should these people pay exactly the same price for two very different experiences? We are already paying a premium price for front row tickets at a concert or sports event, why would this logic not apply for a restaurant experience? Certainly evening broadway shows cost more than matinee shows, why are restaurants any different?
The reality is that in the restaurant industry the practice of dynamic pricing has already started, but by 3rd parties and not the restaurants. Should restaurants try to preserve their static prices so that customers always know how much a burger will cost?
1. As the PMQ Pizza Magazine article (page 35) pointed out, dynamic pricing has improved service levels because you don't have as many people waiting for their orders at peak demand periods.
2. Restaurants are a low margin business. They need a way to offset the cost of delivery and dynamic pricing is a good way to do it.
3. As long as reasonable parameters are set for dynamic pricing, it should help restaurants become significantly more profitable with a relatively low impact to the cost for the consumer.
Ultimately, the consumer will decide whether or not dynamic pricing can and should be applied to the restaurant industry. In my opinion, the consumer has already spoken... paying significantly higher delivery fees to the 3rd party delivery companies when demand is high, in exchange for receiving their meal within 30 minutes instead of 120 minutes. Consumers are willing to pay premium prices for convenience, even though the product is exactly the same, and restaurants should be rewarded for meeting their demands.