Acquisitions Harmful to the Acquired Brand How to reduce the negative effect of acquisitions

Updated November 24, 2022
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Acquisitions Harmful to the Acquired Brand How to reduce the negative effect of acquisitions

Unilever bought GROM, an Italian gelato business, and 83% of respondents to a poll said it was “bad news.” The result was that several GROM retail outlets were closed, including the first GROM store four years later. The Body Shop, a cosmetics brand, saw its consumer ratings plummet after L’Oreal bought it.

Companies frequently engage in mergers or acquisitions to increase their portfolio and grow. According to JP Morgan, the global value for acquisitions was $2.3 trillion in 2019. However, there are plenty of examples that show that brand acquisitions can cause negative reactions in consumers. It is not clear why and when brand acquisitions could trigger such negative reactions.

We present a new Journal of Marketing study that shows how consumers react to acquired brands. This includes lower brand choices and less likely purchase. Consumers often perceive an acquired brand as having lost its authentic values, regardless of product category. This perception can be triggered when a large company acquires another smaller one. It also happens when the size of the acquirer is similar to the acquired brand. The negative effect can also be seen in partial acquisitions (e.g 15% ownership).


Conditions That Attenuate Negative Effects of Acquisitions

We have compiled ten studies that examined a variety of research methods, brands, product categories and brands. Our findings show that negative brand reactions can be attributed to the perception of a brand’s unique value. Based on this authenticity account of values, we found that acquisitions have a negative impact on brand values, brand age and leadership continuity. We also find that alignment between acquired and acquiring brands is a key factor in reducing the negative effects. These are the conditions that reduce the negative effects of acquisitions:

  • A company may acquire a brand that was previously acquired by consumers again, resulting in a decrease in purchase intent. This is because the original values might have been diminished during the previous takeover.
  • The original leadership team may remain in charge of the company after the acquisition, which could be a sign that consumers are less worried.
  • If the values of the acquirer and the acquired brand are aligned, consumers will react less negatively. If a brand produces sustainable products and is acquired by a company with sustainability as its core value, this will mitigate the negative effects.
  • When the brand acquired has a strategic focus towards growth, consumers react less negatively. These consumers don’t view the acquisition as a loss in the brand’s original values. Many start-ups were founded to grow and communicate their ambitions. Bill Gates, for example, often spoke of his desire to see a PC on every desk in every house. Sometimes founders will even use growth values to sell the company. For example, Dot’s Pretzels founder explained Hershey’s acquisition in November 2021 with the statement that she “built the business with a goal of sharing them all.”
  • A young brand acquisition will have a less negative impact on consumers. A younger company is perceived as less disruptive to authenticity of values by consumers. We find a greater negative impact for older companies that have a set or values that has been accumulated over many decades, or even centuries.


Managerial Implications

  • Managers should review the communications of the target brand and determine if the vision statement, advertising, and social media accounts contain any references to growth and reaching a wider range of customers. These cues can make the acquisition process more appealing to consumers. The acquisition process can be made more efficient by targeting brands that align with the core values of the acquiring company and making this salient.
  • Similar to the above, it could be beneficial to search for promising young brands, which can give the acquirer a reputation for investing and patronage in new businesses.

Immediately after the acquisition:

  • Managers need to plan how they will frame acquisition announcements. Managers should consider how to effectively frame acquisition announcements if founders/original owners are not involved.
  • If the values of the acquirer align with the values of the acquired brands, this can help to boost perceptions and foster the acquired brand.
  • Managers should focus on the other benefits of the acquisition, even if there is not a strong alignment between the acquirer’s and acquired brands. An acquirer might highlight a potential increase or decrease in R&D costs.

See the complete article.

FromAlessandro Biraglia and Christoph Fuchs. Elisa Maira and Stefano Puntoni. Why and When Consumers React Negatively To Brand Acquisitions: A Values Account. Journal of Marketing.

Visit the Journal of Marketing

The post Acquisitions and the Acquired Brand: Are they Harmful? American Marketing Association: Identifying the Conditions That Reduce the Negative Effect originally appeared on American Marketing Association.

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