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Three weeks after the International House of Pancakes (IHOP) launched a teaser campaign to call itself IHOB to draw diners to its burgers, marketing pundits are still debating the wisdom of the rebranding move. However, investors of Glendale, Calif.-based Dine Brands Global, Inc. — IHOP’s parent organization — should be happy to see their stock gaining 30% in that period to $80.
For nearly 60 years, IHOP has positioned itself as a breakfast destination for its pancakes. But it clearly saw hidden value in another, ignored item on its menu – its burgers – and with a single tweet, opened the doors to the lunch and dinner markets. IHOP’s tweet spawned a viral discussion on social media, drawing both praise for what many saw as a bold move, and criticism for what others saw as a flop.
According to experts at Wharton and the University of Maryland, IHOP could see big gains if it can invest in product improvement (read: better burgers) and ensure quality control at its 1,650 locations. It also has to find ways to overcome the declining popularity of sit-down casual food restaurants and compete more effectively with fast-casual and quick-service restaurant chains like Chipotle, Shake Shack and Five Guys Burgers, they said.
The Long View
Judging IHOP’s rebranding strategy calls for “a long term view,” according to Wharton marketing professor Americus Reed. “Remember the [consumer] purchase funnel — awareness, consideration, evaluation, liking, intent to buy, actual purchase, and post-purchase loyalty,” he said. He cautioned against rushing to write off the campaign as a flop. “There are many second- and third- and fourth-order effects — word of mouth — that may create lagged sales.”
“People are talking about it, and social media accounts of competitors are weighing in, so there is a lot of earned media for IHOP.”–Americus Reed
In order to work out well, repositioning of brands takes “time, effort, and message discipline,” said Reed. “Target did not become ‘Tar-jay’ overnight. Hyundai did not become a higher cached brand overnight.”
More immediately, the social media momentum IHOP has gained is of course a boon that money cannot often buy. “Just the sheer volume of talk about IHOP and IHOB is a fantastic win for that company,” said Wharton marketing lecturer Jason Riis. IHOP should find profit in the talk about it, even if what’s said is not always complimentary.
In the days before the “B” in IHOB was revealed to represent “burgers,” “it created all kinds of speculation, and the new social media environment thrives on that kind of thing,” Riis said. “They got people guessing, and lots of people making fun, but their campaign has been goofy and playful and lighthearted from the beginning. On the manipulation or playing with social media, they did that brilliantly. I don’t think there’s any way they could have predicted this level of success.”
Building on the Buzz
One worry for IHOP would be that the buzz in social media ends up becoming short-lived, according to Henry C. Boyd, clinical professor of marketing at the University of Maryland. “The buzz … is great for now. But what’s going to happen when all of the dust settles and we look up and say, ‘Well, what was that all about, and did it really move the needle as far as sales are concerned for the burgers?’”
Riis and Boyd discussed the IHOP campaign on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)
“People are talking about it, and social media accounts of competitors are weighing in, so there is a lot of earned media for IHOP,” Reed said. “The question is: Will all this hype trigger people wanting to try the IHOP burger offering that would not otherwise do so?” IHOP’s strategy may also include an attempt to get more people to come in during non-breakfast hours, promoting the idea that they could have pancakes for lunch or dinner or late night supper, he added.
Another worry for IHOP is that it is getting into the more challenging part of the burger market. “A lot of the headwind they’re facing is that broad category of fast-casual where you can go in and just pick up a burger or a meal without table service that’s reasonably high quality,” said Riis. That category is growing, he added, and cited Chipotle and Shake Shack among the chains in that space. “Casual dining is where you sit down and order, and that category is declining – that’s where IHOP sits.”
That said, it does make sense for IHOP to make a bid to enter that market and compete with the entrenched brands there, Riis said. “They don’t have to win. They just need a basic level of parity [with the other brands] that gives people another reason to go in there.”
Changing long-held perceptions among patrons is also an “uphill battle” for IHOP, said Boyd. “When you say IHOP, most people think pancakes,” he explained. “When it’s time for breakfast, I go IHOP. When it’s time for burgers, I go to In-N-Out Burger, or Shake Shack or Zinburger or some other establishment along those lines.”
“Just the sheer volume of talk about IHOP and IHOB is a fantastic win for IHOB.”–Jason Riis
Living Up to Expectations
Any meaningful impact on IHOP’s sales “is not going to happen unless there has been some kind of substantial change in the product,” said Riis. “All good rebranding programs, brand refreshes and rebrands start with a fundamental and also symbolic change in the product.”
Boyd said IHOP has to serve up burgers that compare well with competition, or else it could lose customer patronage. “That is the real concern,” he added. “It becomes a bit of a risky campaign where you’re saying, ‘We’re willing to change our name from pancakes to burgers and yet we didn’t live up to expectations.’” In order to avoid that situation, “the big stumbling block is quality control,” he added. It may be relatively easier to produce “a gourmet hamburger” at a few locations, but replicating that across a chain of 1,650 stores would be tough, he said.
“Maybe now that they’ve got enough momentum, they can start to put their marketing dollars into product development and find ways to get a better, more consistent burger than they’ve had in the past, and find ways to compete better on a product basis with some of these successful chains,” said Riis.
Reed noted that the company is trying to position its burgers as better than those of Wendy’s, McDonalds and Burger King, “but not quite a gourmet offering as Shake Shack or Five Guys or Bobby’s Burger Palace.”
Understanding IHOP’s Strategy
IHOP needed to do something to address declines in casual dining restaurants, pancake consumption and in revenues at its own chains, Riis said. Dine Brands Global, which also owns the Applebee’s chain, posted losses of $330 million for 2017 on sales of $605 million that were a big drop from $681 million in 2015. The company expects IHOP revenues to stay flat or grow 3% at most in 2018, but it has to contend with longer-term trends that aren’t exactly helpful. Riis noted that “pancakes are all about carbs, and the low-carb diets are up.” And for a chain that counts on families with kids, it isn’t promising when “people aren’t having kids as much as they were in previous [years].”
IHOP’s “Ultimate Steak Burger” is priced at $6.95, with unlimited fries. Rees found that pricing policy smart. In their “mental accounting, people may attribute the cost to endless fries.” He said it might be a smart idea to offer unlimited fries because margins on those may be small in any case, like with unlimited refills in sodas, and “there are only so many servings of fries a single person can eat, anyway.” The $6.95 price also sets higher expectations of quality on par with a Five Guys, so that it is not seen to be in the same space as quick-service restaurants like Wendy’s, Burger King and McDonald’s, he added. “Of course, now IHOP has to deliver on that value proposition in terms of how consumers perceive the actual quality of their burgers.”
“It becomes a bit of a risky campaign where you’re saying, ‘We’re willing to change our name from pancakes to burgers, and yet we didn’t live up to expectations.’”–Henry C. Boyd
Riis noted that a handful of others have attempted rebranding, such as Pizza Hut calling itself Pasta Hut a decade ago. With IHOP, “it really was a fundamental play on the name, and the part that they got right was creating a little bit of suspense and a teaser,” he said.
According to Riis, rebranding generally brings positive results. “Brands have to do some amount of refreshing on a regular basis to slightly change the meaning or tinker with what it is that consumers are coming in for and having new offerings,” he said. He recalled a case study about Red Lobster he wrote along with Harvard professor David E. Bell about a decade ago when the brand underwent a relaunch.
Riis recalled that at the time he did that study, Red Lobster was battling declining sales and negative customer satisfaction levels. The company changed its logo, changed the interiors at its restaurants, “but most fundamentally they improved the product,” he said. It brought in a new grilling system at all of its 800 locations, retrained its chefs and prepped its servers to pitch the menu to diners in a new way. “Those are big and expensive changes to make. But you have to get those in place before you start talking about it,” he added.
The experts agreed that IHOP’s core business of pancakes would stay unaffected if it fails to capitalize on the current social media buzz. At best, the chain’s patrons might shrug off the burger experiment as unwise, they felt. “They will be lauded for trying something different” and loyal IHOP customers will continue visiting its restaurants, Reed said.
“It’s not like the pancake narrative has been lost,” Riis said. “Lots of the social media discussions [about IHOP] still revolve around how great or how lousy the pancakes are, but a lot of people are having nostalgic feelings for the chain. And that’s all money in the bank, at least short term.”