You could be paying more for your midnight McDonald’s order than your friend three blocks down the road.
Driving the news: A Reuters investigation found that McDonald’s has been using an AI algorithm to recommend vastly different prices for the same menu items at different locations in the U.S. and in some global markets.
In one case, a Big Mac at a location in Fresno, California, was priced at US$5.69, while the burger at a location just two miles away was $6.89 — more than 20% more expensive.
How it works: The algorithm is designed to find the “optimal price” for each product based on the customer base of a particular location. In Connecticut (where most residents aren’t particularly concerned about the price of a burger), McDonald’s suggested to one franchisee that they could charge US$18 for a Big Mac meal.
While McDonald’s franchisees can technically set their own prices, several store owners said the company pressures them to adhere to the AI-driven pricing.
Why it matters: This is a lot different from typical dynamic pricing, where high demand drives up costs for everyone. From fast food chains to airlines to grocery delivery services, companies are now calculating to the penny how much they can squeeze from each customer for the exact same product.
Bottom line: As consumer trend analyst Matt Britton told Fortune, “The era of 'fair' pricing is over. The price you see is the price the algorithm thinks you’ll accept.”—LA
