IHOP repositioning is fraught with risk -- why go to a pancake place pretending to be a burger place?

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.