Do acquisitions harm acquired brand? Identify conditions that reduce negative impact

by Samuel Pordengerg Nov 23, 2022 News
Do acquisitions harm acquired brand? Identify conditions that reduce negative impact

The new Journal of Marketing article was written by researchers from University of Pennsylvania, University of Vienna, and University ofLeeds.

The study titled "When and Why Consumers Reaction Negatively to Brand Acquisitions: A Values Authenticity Account" is forthcoming in the Journal of Marketing and is written by four people.

A newspaper poll found that 83% of consumers thought the acquisition was bad news. The ice cream maker's first store closed four years after the acquisition due to reduced consumer interest. Consumer ratings for The Body Shop plummeted after L'Oréal acquired it.

There is plenty of anecdotal evidence suggesting that brand acquisitions can potentially generate negative reactions among consumers, even though companies often engage in mergers and acquisitions to expand their portfolios and generate growth. It's not known when and why brand acquisitions can cause negative reactions.

The study explains why consumers react negatively to acquired brands. Consumers often see an acquired brand as compromising the authentic values upon which it was founded. This perception is triggered when the size of the acquired brand is similar to that of the smaller one. The negative effect is present in the case of partial acquisition.

Conditions that Attenuate the Negative Effect of Acquisitions

Researchers show that negative brand reactions can be explained by the loss of a brand's unique values. The negative effect of acquisitions depends on the acquired brand's values, brand age, leadership continuity, and alignment between acquiring and acquired brands. The negative effects of acquisitions can be mitigated by certain conditions.

  • Consumers develop a lower purchase intention when a previously acquired brand is acquired again by another company, as the original values may have already been diluted during the first takeover.
  • Consumers seem less concerned when the original leadership team remains in charge after the acquisition because this may act as a reassurance that the authentic values are retained.
  • Consumers react less negatively if the values of the acquirer brand align with those of the acquired brand. The negative effect is mitigated if a brand that produces sustainable products is acquired by a brand with sustainability as a core value.
  • Consumers react less negatively when the acquired brand has been established with a strategic orientation towards growth. In these cases, they don’t see the takeover as a loss of the brand’s authentic values. For instance, many start-ups are founded with the desire to get bigger and many communicate this in their statements (e.g., Bill Gates often mentioned his vision to have a “PC on every desk in every home”). Sometimes founders even invoke growth values as the reason for selling the company (e.g., the founder of Dot’s Pretzels explained the acquisition by Hershey’s in November 2021 by saying she had “built the business with the idea of sharing them with everyone.”)
  • Consumers react less negatively if a young brand is acquired. Consumers consider the acquisition of a younger company less disruptive of values authenticity. Conversely, for older companies with a set of values crystallized over decades – or even centuries – we find a more severe negative effect.

Managerial Implications

The acquisition took place before that.

  • “Managers should examine the target brand’s communications and identify whether the vision statement, advertising, social media accounts, and other forms of branding contain any references to growth or reaching a broader range of customers. Such cues may make the acquisition process more favorable in the eyes of consumers,” explains Maira. Targeting brands aligned with the acquiring company’s core values and making this alignment salient can benefit the acquisition process.
  • Similarly, scouting for young, promising brands could prove beneficial, potentially giving the acquirer an aura of patronage and a reputation for investing in nascent businesses.

The acquisition took place after.

  • “Managers should carefully plan how to effectively frame acquisition announcements. If the founders/original owners will not be involved after the acquisition, managers may want to consider retaining long-term employees and highlighting this in communications,” suggests Puntoni.
  • When the acquirer has values that align with those of the acquired brand, highlighting this can boost perceptions of the acquisition and nurture the acquired brand.
  • If there is no strong alignment of values between the acquirer and the acquired brand, the research team suggests that managers focus on other aspects that can benefit from the acquisition. For example, an acquirer could highlight an increase in R&D facilities or a potential increase in product quality.

The full article and author contact information can be found at the following link.

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