Why some brands lose their value after an acquisition Wednesday, 7 March 2018

Having a unique, recognisable identity is a brand’s greatest asset. Research by Elisa Maira of Rotterdam School of Management, Erasmus University (RSM) now shows that when a brand undergoes an acquisition, its identity can be undermined and it becomes less popular with consumers. Keeping the brand’s original founders on board after the acquisition can counter these negative effects, she also found.

Acquisitions are one of the most important ways companies use to grow, says researcher Maira, but they come with a lot of uncertainty. Earlier research shows that firms do not always manage to offset the extra costs of the acquisition and create extra value for the acquirer.

Even if acquisitions feature prominently in the news and are hotly debated online, there are few studies so far that look at how consumers  react to them. To reveal how and why an acquisition changes attitudes towards an acquired brand, the researcher set up a series of experiments.

Identity relevance

In her first study, Maira showed participants a set of products and services belonging to one of two categories: products that allow consumers to express their identity – such as jewellery, hairdressing services and beers – and products that are less relevant to a person’s identity, but satisfy a functional consumer need. This latter category includes printers, washing detergents, and electric screwdrivers. Participants in the study were then asked to state whether they would prefer to buy each of these products from either an acquired firm, or a firm that had not been acquired.

Results showed that for products that are highly relevant to someone’s identity, people tend to prefer not-acquired firms. For less identity relevant and more functional products, people prefer to buy products from acquired firms. This provided Maira with the first indication that companies should take into account that acquisitions might cause ‘identity loss’ to the acquired brands, depending on the relevance of the identity that characterises the product.

Chocolate

But what happens when the choice is between two similar products that are both identity-relevant? Maira invited a group of participants to choose between two fictional brands of chocolate, one of which was described as acquired and the other one as not acquired. Eighty percent of participants chose to taste the brand that had not been acquired. Simply knowing about the acquisition made the chocolate from the acquired brand less attractive.

Craft beer

To verify her results outside the laboratory, Maira then moved on to analyse 2,786 comments to seven articles published on The Guardian’s website, all related to craft beers. This is a prime example of a product that is strongly connected to consumers’ identity, she says. The craft beer industry has also seen many acquisitions in recent years.

Analysis of the sentiment in the online comments showed that comments under news items that described an acquisition were decidedly more negative in their tone. This demonstrates that in the real world, acquisitions can evoke negative feelings from consumers.

Founders

A further study revealed the reason behind a more negative attitude towards acquired brands; it could be about loss of identity. Maira discovered that participants rate the identity of the same brand as less strong when they know the brand is acquired.

So, are there ways to give an acquired brand a softer landing? In another experiment, the researcher found that continuity of leadership can help to maintain consumers’ attitudes post-acquisition to pre-acquisition levels. This makes a strong case for keeping the founders of the acquired brand involved, says Maira.

More generally, acquirers should be aware that a brand’s identity is not set in stone and that the acquisition can send a strong negative signal to consumers, weakening the brand identity. Maira points out that a strong brand identity was often the very reason the firm wanted to acquire the brand in the first place.

Download Elisa Maira's full PhD thesis here

Rotterdam School of Management, Erasmus University (RSM) is one of Europe’s top 10 business schools. RSM provides ground-breaking research and education furthering excellence in all aspects of management and is based in the international port city of Rotterdam – a vital nexus of business, logistics and trade. RSM’s primary focus is on developing business leaders with international careers who can become a force for positive change by carrying their innovative mindset into a sustainable future. Our first-class range of bachelor, master, MBA, PhD and executive programmes encourage them to become critical, creative, caring and collaborative thinkers and doers. Study information and activities for future students, executives and alumni are also organised from the RSM office in Chengdu, China. www.rsm.nl

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