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BRAND ACQUISITIONS

Acquired brands often viewed as having compromised original values

By our News Team | 2022

Study finds brand acquisitions may not work out as planned, as consumer perceptions of the brand become tainted. But this can be mitigated.

Bigger companies frequently acquire smaller, successful, ones with the intention of further growing and diversifying the new brand and its products. But, sometimes, the acquisition will damage the smaller brand in the eyes of consumers. This may even apply when both organisations are of similar size.

Researchers from University of Leeds in England, University of Vienna in Australia, and University of Pennsylvania in the US have published an article in the peer-reviewed Journal of Marketing that examines why consumers develop negative reactions towards acquired brands and explains conditions that reduce this negative effect.

Brand Acquisitions

Photo by Sora Shimazaki from Pexels

For example, when Unilever acquired GROM, an Italian gelato (ice cream) company, 83% of consumers polled by a newspaper described the acquisition as “bad news”. This reduced consumer interest led to the closure of several GROM retail outlets, including the ice cream maker’s first store, four years after the acquisition. 

Similarly, consumer ratings for The Body Shop, an ethical and naturally-made cosmetic brand, plummeted after L’Oréal acquired it.

Why there are negative reactions

This new study explains why consumers develop negative reactions towards acquired brands in terms of lower brand choice and reduced purchase likelihood.

As Alessandro Biraglia, one of the study authors, explains: “We find that, across product categories, consumers often see an acquired brand as having compromised the authentic values upon which it was founded. 

“This perception is triggered not only when a big company acquires a smaller one, but also when the sizes of the acquirer and acquired brand are comparable. Furthermore, the negative effect appears even in the case of partial acquisition, such as 15% of ownership.”

Adds another study author, Christoph Fuchs: “Building on this values authenticity … we find that the negative effect of acquisitions depends on the acquired brand’s values, brand age, leadership continuity, and the alignment between [the] acquiring and acquired brands.” 

Among the conditions that lessened the negative effect of acquisitions:

  • Consumers seem less concerned when the original leadership team remains in charge after the acquisition, as 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 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 crystallised over decades—or even centuries—we find a more severe negative effect.

The study lays out the managerial implications of these findings, both before and after the acquisition: 

Before the acquisition

“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,” explains study author Elisa Maira. “Such cues may make the acquisition process more favourable in the eyes of consumers.” 

Thus, targeting brands aligned with the acquiring company’s core values and making this alignment relevant 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 emerging businesses.

After the acquisition

“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 study author Stefano 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.

But 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 Journal of Marketing is published by the American Marketing Association. You can read more about the study here.

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