Surge Pricing and Customer Loyalty in Food Delivery

Ever since the pandemic forced people to stay home, the world of food delivery has changed completely. Apps like Uber Eats, Grubhub, and DoorDash saw a huge boost, allowing people to order from restaurants that previously didn’t offer delivery services. With this sudden change comes the possibility that restaurants can offer surge pricing for deliveries—but it’s controversial.

Recently, fast-food chain Wendy’s decided to increase menu prices during busy hours, claiming it was a “dynamic pricing” practice. In actuality, Wendy’s was employing surge pricing, which involves charging higher prices in peak demand periods based on supply and demand. The widespread criticism of Wendy’s decision is a prime example of the careful path your restaurant must take to balance competitive pricing while ensuring customer satisfaction and maintaining consumer loyalty. 

The Impact of Surge Pricing

Surge pricing is a concept originated by the ride-sharing industry and involves adjusting prices based on real-time demand. In food delivery, customers may pay higher prices for convenience. While consumers are accustomed to this pricing style in specific industries, such as airline flights and vacation rentals, the Wendy’s pricing backlash has made it clear that customers are not keen on surge pricing for food.

The variable costs associated with surge pricing can deter customers, particularly if they feel the product or service's value is diminished. Some consumers are willing to pay higher prices for convenience during busy times; others may view the practice as opportunistic, leading to potentially negative brand perceptions and decreased customer loyalty. This could lead to customers seeking out your competitors to avoid surge pricing.

First impressions matter for new customers ordering from a food delivery service. Customers typically consider the following factors when rating their shopping experiences:

• Service quality;

• Convenience;

• Fulfillment time;

• Personalization.

Your business is more likely to win a customer’s loyalty by excelling in these four areas. However, if any of those services are weak, a new customer may be discouraged by surge pricing, leaving them unlikely to order from you again.

The advent of digital platforms has raised customers’ expectations by offering a level of efficiency, convenience, and choice that wasn’t previously available. If you’re considering surge pricing, be aware that it can alienate a digitally literate customer base that values price fairness and transparency.

What is dynamic pricing?

Alternatives to Surge Pricing

Given the public response to Wendy’s pricing changes, some restaurants and food delivery services may be reluctant to try surge pricing. If you’re among those reluctant, here are some potential alternatives to increase profits while enhancing customer loyalty.

Subscription Services

One alternative method to surge pricing is to offer subscription services with consistent delivery fees. Regular fees allow customers to budget appropriately and enjoy the convenience of food delivery without worrying about unpredictable prices. This type of service prompts people to order from your establishment regularly and fosters continuing loyalty to your brand.

Flat Rate Delivery Fees

Offering flat-rate delivery fees is another option for building customer loyalty without potential alienation due to surge pricing. This method simplifies customer decision-making while ensuring a steady revenue stream for your business.

Dynamic Discounts

Leveraging data analytics, you can offer dynamic discounts during downtime rather than peak hours. This approach manages customer order flow and maintains product and delivery volume, benefiting your restaurant and customers.

How Food Delivery Services Can Maximize Customer Satisfaction

Technology as a Financial Stabilizer for Restaurants and Delivery Business

Technology, from restaurant management systems to new food delivery platforms, has significantly influenced a business’s success in the modern food service industry. With the right technology and training, your company can weather financial uncertainty and improve customer satisfaction.

Navigating Financial Uncertainty

Technology helps restaurants better predict customer demand, manage inventory, and optimize staffing while reducing or eliminating the need for surge pricing. Businesses that effectively and creatively adopt digital tech with their food delivery service can use it to navigate financial uncertainty while increasing profits. 

2024 U.S. Food Delivery Market: Growth, Trends, and Future Insights

Tools such as software integration and web traffic analysis can help your company optimize its website to reach as many customers as possible, enhancing your opportunities to attract new customers. Project management platforms, which promote collaboration between employees and lead to better, more educated decision-making, can help delivery services and restaurants successfully weather rapid industry changes.

Artificial Intelligence (AI) and Machine Learning Benefits

You can use AI and machine learning in a variety of different ways, including:

Intelligent Route Optimization

Delivery companies and restaurants are finding the benefits of using artificial intelligence (AI) in their delivery service. Intelligent route optimization is a popular AI tool that determines every order's most effective, shortest, and fastest delivery route. When creating the driver's route, AI uses algorithms to assess weather, traffic, and delivery history to master last-mile delivery and local delivery orders during peak times. 

Predictive Analytics and Personalized Recommendations

Predictive analytics uses AI and machine learning to forecast peak delivery demand using past order history, customer preferences, order frequencies, and popular delivery times.

AI can also provide personalized recommendations to customers as they order, a successful tool that is thought to be responsible for many orders people make on food delivery apps. In a study, one such machine learning method was able to achieve a success rate of over 90% when predicting customer preferences. 

Chatbots and Voice Ordering

AI chatbots and voice ordering programs offer additional convenience to offset any sticker shock customers may experience regarding food delivery pricing. Chatbots offer menu and order updates, answer customers' questions, and help process orders.

Voice ordering gives customers the convenience of hands-free ordering, which is particularly helpful for people ordering on mobile devices. This technology appeals to customers who prefer to order via speech rather than typing.

Tips for Enhancing the Delivery Experience Amidst Surge Pricing Changes

Regarding food delivery, customers appreciate the little things and appreciative touches that bring extra satisfaction. Whether careful packaging or sending real-time customer notifications, you can find ways to value consumers even when using surge pricing. 

Creating a Memorable Food Delivery Experience

Customers might be less annoyed by surge pricing if you focus on service quality, including everything from quality food to packaging to delivery. To enhance the customer experience, add personalized touches, such as occasional freebies, extras, or handwritten notes. These thoughtful little touches can encourage people to remain loyal to your brand despite pricing changes.

Enhanced Order Tracking and Quality Assurance

Whether you’re operating a restaurant or a food delivery service, you should consider using tech that ensures order accuracy and provides real-time tracking. If you’re using tech to get everything right and customers feel in the loop, it assures them that your food or service is valuable, even at higher prices.

The Customer Feedback Loop

Whether running a food delivery service or a restaurant, you must maintain open channels for customer reviews and feedback and respond quickly and constructively to their concerns. Listening carefully to customer feedback allows you to improve your service by adjusting strategies to cater to customer needs.

Peak Time Incentives

Another way to mitigate the negativity associated with surge pricing is to offer incentives during peak times. For example, you could offer discounts on future orders or allow people to earn loyalty points. These are popular methods for all sorts of food establishments to encourage loyalty, so it stands to reason that incentives could also help boost people’s acceptance of surge pricing.

Maintain Customer Loyalty in Food Delivery

Surge pricing requires a delicate balance in the restaurant and delivery space. People are picky about not only their food but also the prices they pay for it, so you must use strategic foresight to navigate a challenging market. By prioritizing customer satisfaction and using technology, you can sustain growth and foster loyalty.

If you can understand and empathize with customer needs and expectations, you’ll be able to consistently provide the quality and convenience that are the heart of the delivery experience.