Corporations Learned The Maximum Amount They Can Charge For a Product

Tracy Alloway (0:02)

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Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:23)

And I'm Tracy Alloway.

Joe Weisenthal (0:24)

Tracy, you know what I feel has become a common Twitter conversation that I've seen happen a bunch of times?

Tracy Alloway (0:34)

This could be anything, but go on.

Joe Weisenthal (0:36)

Someone tweets, like, oh my God, I just paid $14 for a hamburger and fries at this McDonald's. And then someone else goes, well, actually, you can get it for $3.99 right now if you just use the app.

Tracy Alloway (0:50)

Yes.

Joe Weisenthal (0:51)

I've seen this many times.

Tracy Alloway (0:53)

Both of them are not wrong, but it is crazy.

First of all, I'm so thrilled that we're finally gonna do a price pack architecture episode. That's basically what this is, right? All these different strategies when it comes to how companies are actually pricing their goods. But I feel like McDonald's has become a very, very good example of this particular behavior. And at this point, as you pointed out, it is well known that if you just roll up to a McDonald's and order at the drive-thru or in the store, you are going to be paying a higher price than if you used the app and ordered on there. And they have tons of discounts. The discounts are almost gamified at this point. Like you check in on different days and you can get different things and they're constantly changing. Oh, and also they have an actual game that if you play, you get loyalty points that turn into discounts. But the thing that I think is so fascinating about all of this is it throws up really interesting questions around fairness. So is it fair that people are paying two different prices depending on the way that they are actually buying the thing? I think the other thing that's remarkable in all the price conversations is people seem to think that one person paying a higher price is really unfair, but on the other hand, everyone likes discounts. Like, if the lower price comes in the form of a coupon, people get really excited. It also throws up interesting questions about data privacy. So the reason McDonald's wants you on the app is so that it can collect your data and it gives you a lower price in return for that.

And then thirdly, it raises all sorts of interesting macroeconomic questions, right?

If companies are becoming more strategic, more differentiated in the way they're pricing, their goods, what does that mean for things like inflation? What does it mean for traditional interpretations of the way inflation works? Is it just unemployment, supply, demand, that sort of thing?

Joe Weisenthal (2:52)

Right, like companies basically just getting better at figuring out the maximum price they can charge for something. Wait, I have a personal question for you, Tracy. I've never asked you this before.

Are you like a points person, like when it comes to hotels and airlines and stuff like that?

Tracy Alloway (3:06)

No, I'm not. And I feel like I'm basically too lazy to sign up for a lot of things, but I will say McDonald's got me. I do have the app. And I have, as a result of the app, ended up ordering like insane amounts of junk food because I'm just like, oh, I can buy two things of French fries instead of one. So why don't I go ahead and do that?

Joe Weisenthal (3:27)

Yeah, I'm so lazy. I am not a points person. I'm not an app person. I've never like been a miles person.

It seems like I probably should. I don't travel that much, but probably enough that I should like track this stuff and have a favorite hotel that I go to in every town or have a favorite airline. All airlines seem the same to me. They all seem sort of various versions of kind of unpleasant, but I'm not like optimized for that at all. But it feels like to some extent, what we're talking about is the sort of widespreadness across many industries of what the airlines have figured out for decades.

Tracy Alloway (4:01)

Absolutely. And also Uber is the classic example with dynamic surge pricing. And you can remember earlier this year when Wendy's mentioned dynamic pricing in its earnings call, the world absolutely went nuts. And then they kind of back walked on it.

But I mean, my argument is like surge pricing and fast food is kind of already there, right? You know, the difference in how you're ordering at McDonald's is a variable of how much value you place on your time and your convenience.