First published in Fox News on June 12, 2018.
This thought piece was written in response to media reports that IHOP (International
House of Pancakes) is planning to re-position itself as IHOb (International
House of Burgers).
Repositioning a retail
brand is a tricky business fraught with risk. Sometimes it is a soaring success
and sometimes it is a flaming failure. In 2011, JC Penney tried to go through a
major repositioning – an exercise that could be instructive in evaluating
International House of Pancakes’ recent attempt to reposition itself from IHOP
to IHOb – from pancakes to burgers.
The JC Penney case study
shows that even seasoned executives make costly mistakes repositioning a retail
brand. JC Penney’s repositioning was led by Ron Johnson, an industry veteran
who had successfully positioned several retail stores. Johnson was a part of
the executive team that transformed Target from a discount store to a unique
brand that sells chic yet affordable products. Johnson used the same focus on
customer experience for Apple, to make their Apple Stores a runaway success and
one of the most profitable retail outlets.
However, when Johnson
tried to reposition JC Penney based on the same principles, it backfired. In
2011, Johnson tried to reposition JC Penney from a discount store to an upscale
store that sells chic yet affordable products. He expected the repositioning to
revitalize the brand. But as soon as JC Penney’s new positioning was announced,
sales precipitously declined. Sales fell by more than 25 percent, and the
losses were even steeper. Not surprisingly, the stock market’s notoriously
fickle investors responded and JC Penney share prices fell by 51 percent. On
April 1, 2013, after a little over a year at the helm, Johnson was fired from
JC Penney. What lessons can IHOP learn from Johnson’s failure at repositioning
JC Penney?
The JC Penney
repositioning was a disaster because it fell between two stools. By
repositioning JC Penney as a higher-end brand, Johnson was trying to move away
from value-conscious, discount seeking, coupon-cutting customers to customers
who care about shopping experience and ambience. Unfortunately, the
repositioned JC Penney appealed to neither customer segment. Value-conscious
customers stopped coming to JC Penney because the repositioned brand did not
offer them what they wanted. And the new customer segment that Johnson was
chasing was not convinced that the new JC Penney could offer the same
experience or ambience that other premium stores do.
If IHOP loses the
distinctive association as the best pancake place in customers’ minds, their
gustatory responses to IHOP pancakes will change. If IHOP is no longer seen as
the pancake specialists, then chances are that IHOP pancakes will not taste as
good as they used to.
There is a very good
chance that IHOP’s repositioning to IHOb will also be caught between two
stools. IHOP has been around for more than five decades and has developed a
reputation as the best restaurant chain for pancakes. When most American
customers think of pancakes, IHOP is the first brand name that pops up. The
immediate accessibility of this unique and distinctive association is at the
core of IHOP’s brand equity. Such high top-of-mind brand recall and the
distinctive brand identity of IHOP are probably the most valuable assets that
IHOP owns—the strongest “GO” signal for IHOP customers. But such a distinctive
positioning can sometimes be a constraint. Customers’ attitudes towards
pancakes are changing because of increasing health-consciousness and aversion
to carbohydrate-rich foods. Not surprisingly, IHOP’s revenues have plateaued in
the past few years. This lack of growth is probably the impetus for the current
repositioning attempt. But the JC Penney case study suggests that this approach
is fraught with risk. Very high risk.
If IHOP repositions
itself as IHOb, it would neither appeal to customers who like pancakes nor to
customers who like burgers. Although customers who love pancakes might also
frequently eat burgers, the associations evoked by burgers have little in
common with those evoked by pancakes. Burgers are savory, pancakes are sweet.
Burgers are meaty and hardy, pancakes are soft and fluffy. Burgers are eaten in
red and yellow restaurants, pancakes in white and blue ones. Burgers come with
fries, pancakes come with fruits.
If IHOP loses the
distinctive association as the best pancake place in customers’ minds, their
gustatory responses to IHOP pancakes will change. Taste is a top-down
perception. If IHOP is no longer seen as the pancake specialists, then chances
are that IHOP pancakes will not taste as good as they used to. Customers
will look elsewhere, possibly the local diners for their favorite breakfast
food. And when they want a burger, they will go to a place that’s best known
for burgers—McDonalds, Burger King, or the local burger place—not to a pancake
place that is pretending to be a burger place. If this happens, then the
decline in IHOP’s sales and profits would be precipitous and irreparable.
Manoj Thomas is the
co-author of the book, "Why People (Don't) Buy: The GO and STOP
Signals," and is the Breazzano Family Term Professor of Management at
Cornell University’s SC Johnson College of Business.