Corporate rebranding and Its effect on consumers’ Attitudes.

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MSc Thesis

Corporate Rebranding and Its Effect on Consumers’

Attitudes

Author: Paula Cămărașu Student number: 10397833

Supervisor: Frank Slisser Second reader:

Submission date: 27.01.2014 Number of pages: 49

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ABSTRACT

Mergers and acquisitions have become a frequent phenomenon on the fast moving consumer goods market. This has brought the need to minimize transaction risks and has opened an interesting area of study: how do these corporate actions influence consumers and their evaluation of the product brand, since they can determine the success or failure of the merger. This study focused on revealing how corporate rebranding actions influence the acquirer’s customers and their evaluations of the acquirer’s product brand. The analysis managed to bring some light to these issues. Three rebranding strategies were tested: rebranding with the name of the acquired company, rebranding with the names of both

companies and rebranding with a new brand name. The results revealed that indeed, M&As and corporate rebranding negatively influence consumer evaluations of the product brand, in the order of perceived radicalness of corporate brand name change. Perceived quality of the

acquired brand and perceived corporate fit with the acquired brand were tested for moderation effects. However, only quality proved to significantly influence the relationship between

rebranding strategies and product brand attitude. These findings emphasize once more the importance of analyzing possible consumer responses to corporate actions and how managers should keep this in mind together with the financial benefits of a merger or acquisition as it could determine the fate of their business.

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Introduction

Firms can have interest in growing nationally and internationally and one way of doing this is through acquisition of or merger with another firm. These mergers and acquisitions give a firm access not only to a brand, but also to new markets. But some managers have the tendency to overlook the importance that these actions have in influencing consumers’ perceptions and how they affect the individual corporate brand’s image and associative network. The change in ownership brings about new associations both for the customers of the acquirer and for the customers of the acquired company.

The example of the acquisition of Kraft by Phillip Morris at a price of over $13 billion, more than 600% of its book value (Rao&Ruekert 1994) demonstrates that a corporate brand name and the product brands it owns are worth a considerable amount for the company.

Apart from the brand name which serves as a signal of quality of the product (Rao&Qu 1999), the corporate brand could serve as an extra guarantee of the product attributes, so associating it with the wrong brands could end up affecting consumer’s acquisition decisions and satisfaction with the brand. A corporate brand serves as a coat of arm for the company (Balmer& Gray 2003) standing behind the product, reassuring users of its superior attributes trough association with all the other products it owns.

Previous studies focused on the effect of M&A on consumer perceptions only from the acquired company’s customers (Van Vonno 2012) or by analyzing only general strategies of the firm (Jaju,Joiner&Reddy 2006). But a M&A also influences the acquirer’s image and can have important repercussions as it could alienate some customers (Ettenson&Knowles 2006) who either don’t want to be associated with the new corporate partner’s products or might

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5 perceive the new strategy as followed by a drop in quality and standards (e.g. if the acquired company is from a lower end category).

Many examples from the business world prove that M&As come not only with benefits but also with risks. A very well-known example is the one of Quaker Oats Company and Snapple Beverage Company. After successfully managing the popular Gatorade drink, Quaker Oats tried their luck with Snapple. The company acquired Snapple for more than its worth value and after two years was forced to sell it with a loss. Quaker Oats Company failed to integrate the two corporate cultures, which translated into unsuitable marketing campaigns and inappropriate marketing signals sent to customers (Investopedia 2006). A successful example on the other hand is the one of Disney and Pixar. The two companies had a high corporate fit but also sufficient compementarity and enough differences to make sense in the minds of the customers (Insead Knowledge 2011). We clearly see that corporate transactions are not without importance to consumers. It would be interesting to get more insight into the actual way in which these actions modify consumers’ behavior.

This study will try to shed light on how a merger or acquisition influences consumers’ perceptions on the acquirer company and if these can lead to a change in their acquisition decisions. The question that is to be answered is:

“How does the M&A rebranding strategy and the characteristics of the acquired company impact the attitudes of the acquirer company’s consumers towards (one of) its product brands?”

The present study is important both for companies and indirectly, their customers. By avoiding mergers that are considered unsuitable by customers, firms will maintain their promise of delivering value and a consistent and reliable image. The results could be of real

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6 help to managers in evaluating their decision and pondering the advantages and disadvantages of associating their corporate name with another one. Managers should not forget that in the end it all comes down to the entity who is the make or break of any business – the customer.

Chapter I

Literature review

Branding literature has emphasized the importance of brands as identifier and differentiator from other products (Keller 2008). Brands carry associations for customers, which in the end translate into brand equity. Brand equity is “the sum of total consumers’ perceptions and feelings about the product’s attributes and how they perform, about the brand name and what it stands for and about the company associated with the brand” (Keller2008). Brands make consumers’ job easier, when they search for a certain level of quality they can simply search for a brand name with which they had a positive previous experience (Rao&Ruekert 1994). Positive brand equity can also result in higher acceptance for a brand extension, less sensitivity to price increases and willingness to look for the brand in a new distribution channel and it will also reflect upon the acceptance and effectiveness of a marketing campaign (Keller 2008). Brand equity manifests itself in two ways: willingness to pay more for a brand than another or frequency of choosing a brand (Saunders&Guoqun 1997). Thus, brand equity plays a major role in the acquisition decision, guiding consumer purchase intentions .

It is important that consumers think there are differences between brands and that they have a positive brand image in order to be able to form knowledge structures that will affect their response and will result in various types of customer-based brand equity (Keller 2008).

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7 Brand equity can be built trough choosing brand elements, marketing or secondary brand associations. Brand elements have to be carefully chosen in order to reflect the brand personality and communicate what the product is all about (Keller 2008). The brand element that captures the most associations of a product is the brand name.

Brand names serve as communicators of unobserved quality and they carry meanings that consumers come to value (Ruekert et al. 1999). Rao and Ruekert(1994) consider brand names as an indicator for the consumer of who the manufacturer is and who to punish in case the product does not have the expected qualities.

The architecture of the brand portfolio determines how brands and brand names are organised. It can be either in the form of a house of brands, with different names not connected to each other (or with the corporate brand acting as a shadow endorser), endorsed brands (with the corporate name directly endorsing the brand), a sub brand or a branded house (with the corporate brand name used for the individual products) (Aaker and Joachimsthaler 2000).

Out of all these branding options, the one that might raise some interesting questions about the way in which it influences consumers is the house of brands, with the company acting as a shadow endorser. Since the corporate brand name is not used in the product communications, or linked directly to the product brand, it becomes a matter of whether the knowledge people have about the company that stands behind the product is of importance and how that might influence their behavior. The corporate brand name acts as a secondary association in this case.

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8 Keller(2008) defines secondary brand associations as brands being linked to other entities that have their own knowledge structures in the minds of the consumers. One important association is with the corporate brand. What stays behind a brand and reassures of its quality (and consequently of the quality of all other brands in the portfolio) is the corporate brand. A corporate brand does not only signal ownership but also serves as an insurance against risk of poor performance or financial risk (Balmer and Gray 2003). Just like brands enable consumers to define who they are or who they wish to be and how they wish to be seen (Keller2008), corporate brands can do the same in a less evident way. When consumers feel that the information they have about the brand is not complete, they tend to look for extra information, such as the corporation that produces it or country of origin.

Keller(2008) defines corporate brand equity in a similar way he defines brand equity. It comes down to strong, favorable and unique associations that consumers have about the corporate brand, with the distinction from product brands being that they can have much more associations linked to them.

Corporate brand equity is created by means of primary sources (existing products or brands) and secondary sources (other brands, places, events, persons etc.) (Uggla&Asberg 2009). All these together enable consumers to create in their minds an overall image about the company that will probably be linked in the future to other brands that the company owns, again as a secondary association.

The question with corporate brands then becomes if consumers actually care about the company that stands behind the brand and whether this in the end actually influences their acquisition decision. This is interesting to find out especially in the case of shadow endorsers,

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9 when the company’s name does not appear on the front of the package. Is it taken into consideration when they look for information about the brand? Are they transferring the information they have about the corporate brand to the product brand?

Shamma&Hassan(2011) conclude that there is a positive relationship between product brand equity and corporate brand equity, the customer’s opinions and associations of a corporate brand directly influence the acquisition behavior. They cite Keller (1993) who states that secondary associations influence product evaluations and therefore, the corporate brand (which acts as a shadow endorser and thus a secondary association), influences the overall perceptions. Going further, Aaker(2004) tested whether consumers actually care about the corporate brand endorsing a product when evaluating it or making an acquisition decision. His findings provide interesting insights into the importance of the corporate brand for customers: a bad reputation makes building brand equity difficult but a good reputation does not guarantee strong brands.

Thus, corporate brand equity is not going to be the primary driver of decision but it will influence and add to the overall brand equity, which ultimately determines the acquisition behavior. Similar findings are reported by Page and Fearn(2005): even though a good reputation is not a guarantee of success, poor reputation will make building a strong brand difficult. Their study shows that the aspects consumers care about the most are corporate success and leadership and perception of fairness towards consumers. The latter aspect especially is of great importance to them when evaluating the merits of a corporate brand since it is the one to which they can most easily relate. Therefore, consumer fairness is more important to them than broader issues such as CSR for example.

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10 Quality, as a component of brand equity (Aaker and Joachimsthaler 2000), is signaled to consumers by the product brand name (Keller 2006). The associations of the corporate brand with quality are determined by the quality of the product brands owned (Aaker 2004). Thus, this is another association that will be transferred to the new merged company. This might become a problem in the case of a merger or acquisition of a company perceived as being lower quality. The negative associations would this way be transferred to the acquirer company.

Shamma and Hassan(2011) found that it is important that a product brand is aligned with the corporate brand in order for the company to have a competitive edge over its competitors. A consistent and clear message and commitment to the brand promise will translate into a strong competitive advantage.

Other studies have argued that the corporate brand can only represent a driver and an advantage when it is in line with the “resource based view of the firm”(Barney 1986). A strong corporate brand will represent and advantage only when it is valuable, rare, durable, sustainable and inimitable (Balmer and Gray, 2003).

As soon as it has been established, the corporate brand can take a life of its own, it can easily be transferred to another organisation by selling, buying or borrowing (Balmer and Gray 2003). What happens in this case with the product brand equity? Will the associations of the newly acquired company be transferred to the acquirer’s current product brand equity? Or will consumers totally disregard the endorser and it will have no impact on them whatsoever?

One way in which the corporate and product brand can be transferred to another company is trough mergers and acquisitions (Machado et al. 2011). This implies two or more concerns coming together to form a new one (Chakravorty 2012). The main purpose is to use all

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11 available resources at their maximum potential in order to eliminate competition and achieve economies of scale (Chakravorty 2012). However, M&A should not be regarded as a solution for financial problems or profitability. Even though companies have a lot to gain from this type of transaction, these actions can hurt operating efficiency at first and provide only a short-term financial solution to existing problems (Akinbuli and Kelilume, 2013).

By making an association with branding literature, mergers and acquisitions are brand alliances at corporate level. Another way to look at them is as a brand extensions. In the case of positive primary brand equity, brand extensions are perceived favorably by consumers, as they transfer positive attitudes from the parent brand to its extension but this also depends on the fit that consumers see between the two companies (Bhat and Reddy 2001). For corporate brands, this type of association results in some transfer of image perceptions from one company to the other.

Despite the importance of corporate brand associations, managers often focus on internal issues, neglecting customer-related tasks (Homburg&Bucerius 2005 citing Hitt, Hoskisson, and Ireland 1990). As 60 to 80 percent of the M&As prove to be unsuccessful (Homburg&Bucerius 2005 citing Tetenbaum 1999) and they often end up destroying instead of creating value (Ettenson&Knowles 2006) companies should direct their attention towards the change in customer perceptions as possible reasons contributing to the failures. Very often, managers start thinking about the corporate brand strategy only after the merger is announced, the rebranding becoming just a way of fixing things prior the acquisition (Ettenson&Knowles 2006).

The M&A could represent a problematic situations as they are actions outside of the control of consumers with an imperative demand for integrating corporate cultures and values,

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12 with both of the companies’ heritage having to be kept in mind. (Kernstock and Brexendorf 2012).

Ettenson and Knowles(2006) identify 4 distinct categories of strategies after the M&A: adopting the stronger brand (“backing the stronger horse”), adopting the best of both brands (“best of both”), transformational merger (“different in kind”), portfolio transaction (“business as usual”). These in turn offer several possibilities: adopting the name and symbol of the lead company, adopting the name of the target firm, combined corporate name for a period of time and then adopting the name and symbol of the lead company, adopting the name of the lead company but with a new symbol(“backing the stronger horse”) and combing the two visual identities, combining the name with a new symbol, combining the name and/or visual identities, lead company as “silent partner”(“best of both”).

Chakravorty (2012) states in his study that one of the reasons for which most M&As fail is poor fit: organizational, strategic or cultural. The process is eased when these characteristics are in consonance with each other and the merger has less chances of failure. This fit is ultimately judged by consumers, which could feel differently about the degree to which the two companies have complementing or matching offerings.

Of course, other factors might also be responsible for the customers’ response to the rebranding. For example, since familiarity is a component of brand equity (Aaker and Joachimsthaler 2000), it might make customers feel uncertain about a merger with a brand that they haven’t heard of and which has no associations in their minds and holds no guarantee for quality.

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13 Customers might feel uncertain about their relationship with the merging firms in terms of prices, quality, products and services (Homburg&Bucerius 2005). Therefore, there is a need to get a better insight into consumers’ way of thinking when it comes to corporate rebranding. Does it affect their perceptions to such a degree that they will change their purchase intentions?

Few studies have been conducted in this area and none of them seems to fully explain this phenomenon, leaving several gaps open for research.

An experiment conducted by a MSc student (van Vonno, 2012) analyzed how four merger strategies affect the perceptions of the acquired company’s consumers on the end product. The results indicated that M&A acquirer dominant strategies have a negative effect on the brand equity of a product, increasing with the level of change. The paper also identified an interesting gap for study: studying the effects the same phenomenon has on the customers of the acquirer. This means analyzing different strategies that directly affect the acquirer.

Jaju et al.(2006) found that the brand equity related to corporate brands is often decreased as a result of M&A activities and that individuals react differently to mergers employing different redeployment strategies. This study however did not focus on each particular strategy nor did it address the customers of only one of the involved firms.

Out of the 10 strategies that Ettenson&Knowles (2006) identified, three are relevant and might affect the customers of the acquirer, namely the second strategy – the lead company adopts the identity of the target firm, the 5th strategy – the new organization combines the visual identities of the lead and target companies and the 9th strategy – the new organization adopts both a new name and symbol. All these strategies imply minimizing the importance of

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14 the acquirer and the authors identify challenges such as customers being confused and disenfranchised, forced switching, uncertainty about the brand promises, brand equity fit concerns, skepticism etc.

The authors of the article present both advantages and disadvantages related to choosing each rebranding strategy. A radical strategy from the point of view of the acquirers’ customers is when the lead company decides to change its name to the acquired company’s name. In this case they might feel like they are forced to buy from this second company against their will and could feel that the lead company wasn’t strong enough in the first place and ended up being assigned another company’s identity.

When the merger or acquisition results in an entity that combines the identities of both companies, the level of change in the minds of consumers is lower as the name that they trusted before still exists. Still they might have some doubts about the promise brought about by the new collaboration. This option is preferred when the merger involves two familiar brands (Machado et al., 2011).

The option of acting as an endorser for another brand raises questions about whether the endorsed company fits with the endorser and if it creates positive associations. On the positive side however, the association with a brand that consumers think highly of could add to the corporate brand equity.

Probably the most radical strategy of all from the point of view of the acquirer’s customers is the creation of a totally new corporate brand name. The previous brand equity of both firms might end up being lost and consumers could become confused about the identity of the newly created entity. However, it could very well represent a new beginning and leave

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15 space for new expectations and associations (Machado et al., 2011). The company will continue to act the in the same way as it did before the change of name and therefore will reduce the impact of the new name introduction (Muzellec and Lambkin, 2008).

The same options for corporate rebranding are found in Kernstock and Brexendorf(2012). They distinguish between synergistic brand strategies (maintain both the original brand names) and dominant and non-synergistic strategies (do not maintain both brand names). Gussoni and Mangani (2012) have a similar classification, dividing the strategies into “innovative” (new name or combined identity) and “conservative” (using the name of the target company).

Research shows that the majority of rebranding strategies imply the adoption of the acquirer name and symbol, followed closely by the strategy of adopting the elements of the strongest brand, which could very well be the acquired brand (Ettenson and Knowles, 2006; Basu, 2006). However, a merger should not result in a loss of identity, as this is a major strength for the acquiring company(Chakravorty 2012). In the case of Jaguar for example, the car’s image significantly dropped after merging with British Leyland.

The reasons for which a company decides to implement either one of these strategies are not very clear and they are very much dependent on the vision of the executive team (Kernstock and Brexendorf, 2006). These decisions can impact customers in different ways, either hurting or benefiting the actual product brand.

The need for a study to cover the gap in the research is deemed necessary and will offer valuable insights into this unexplored area. It would be interesting to analyze how these rebranding actions impact the choices and influence the associations of the acquirer’s customers. Will they damage or help the product brand? What are the implications for brand

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16 equity? With this knowledge in hand, managers can gain a broader view on how their corporate decisions will affect the consumers and avoid the ones that might backfire to the detriment of the company.

Chapter II

Hypotheses

An important variable that can influence consumer behavior is brand familiarity (Campbell and Keller 2003). Familiarity refers to consumers’ ability to confirm exposure to the brand when given the brand as a cue (brand recognition) and to the ability to retrieve the brand from memory when given a product category or usage situation (brand recall) (Keller 2008). Unfamiliar brands require a greater cognitive effort than familiar brands and consumers are likely to experience disconfirmation of their expectations (Tam 2006).

Phang Ing(2012) states that the feeling towards more familiar brands will be stronger than the ones towards less known ones. Therefore, for familiar corporate brands the change in name can be viewed as a more drastic action compared to less familiar brands.

Rao and Ruekert 1994, citing Levin and Levin(2000) state that in an alliance, if both brands are highly familiar they contribute equally to the alliance’s evaluation, whereas if one is more familiar than the other, the more familiar one dominates the evaluations. However, from the perspective of the acquirer, associating with a lesser-known or unknown company can bring, at least at first, certain doubts and questions (Ettenson and Knowles 2006) that will ultimately affect product brand equity.

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17 According to Ettenson and Knowles(2006), the most radical rebranding strategy is the creation of a totally new brand name, as the previous brand equity could end up being lost and it could confuse consumers. The lowest degree of change is implied by the combining of the identities of both companies, obviously because the name they already knew still exists. The order of radicalness, from lowest to highest, should therefore be: combined identity, identity of the acquired brand, new corporate brand name.

From this we can imply that:

H1: If a corporate brand of a familiar product acquires a less familiar corporate brand, attitudes towards the acquirer’s product brand will be more negative if the rebranding strategy results in more change

If a company with a well known corporate brand, owing a familiar product, acquires a company with a less familiar corporate brand, attitudes towards the acquirer’s product brand will be more negative if the rebranding strategy results in more change (compared to the previous corporate brand name).

Rao and Rukert(1994) view brands as facilitators of interaction between consumer and products, when they search for a certain degree of quality, they can search for a brand name with which they had a positive previous experience.

Quality is an important factor in the decision-making process and its evaluation is different for every customer. Quality can be either internal or external (Molina-Castillo et. al 2012). While external quality is based on perceptions of extrinsic cues (brand, price, country of origin etc.), internal quality cannot be changed without altering the nature of the product itself

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18 (Molina-Castillo et al, 2012). The latter refers to whether the product performs as it is supposed to, has a low probability of failing or to its image and product design (Lemmink and Kasper 1994).

The overall image customers have about the company’s products will be transferred to and associated with the corporate brand (Aaker 2004). Thus, the corporate brand, just like the product brand signals a certain level of quality and could be a factor in the acquisition decision. By acquiring another corporate brand, the new associations of the acquired brand (including perceived quality) will serve as secondary associations to the acquirer’s customers. If a corporate brand that has associated a high or medium degree of quality acquires a company with lower quality brands, the attitudes towards the first brand are expected to change in a negative way, as customers will transfer associations regarding quality from the new partner (Lee et al 2009).

Therefore:

H2: If a corporate brand perceived as having high or medium quality acquires a corporate brand that is viewed as having lower quality, attitudes towards the acquirer product brand will be more negative. Quality will negatively moderate the relationship between merger attitude and product brand attitude.

Fit with corporate personality has been proven to be in direct relationship with customer satisfaction and customer loyalty (Anisimova 2009). Once consumers identify with an organization, they will show support in various ways (more frequent acquisition, etc)(Huber et

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19 al 2009). The perceived degree of fit between customer and organization might change with the acquisition of another company, with which they might or might not feel that they identify.

Through association, a M&A can be viewed as a brand extension, as the transaction will bring new types of products under the company’s umbrella. Fit for brand extensions is based on product related attributes and non-product-related attributes (usage situations, user types etc)(Keller 2008). Going too far away from the initial product offering might arise problems regarding consumer acceptability. If the extension is considered unsuitable and having no fit with the current product offering, it might not be accepted by customers and might result in negative feelings and evaluations of the parent company (Boush and Loken 1991). Dorata(2012) states that consumers will benefit the most from M&A within similar industries due to advantages such as improvement in product quality increase in outputs and decrease in production costs.

When the offerings of two companies come together under the same corporate identity, fit of the two portfolios will determine the positive or negative evaluation of the new entity that will ultimately inevitably reflect upon the product brand. When the two companies are seen as being more similar to each other, consumers’ evaluation of the merger are more positive.

H3: If consumers perceive a low degree of corporate fit between two merging companies, the strategy will have a negative effect on consumer brand attitudes towards the acquirer’s product brand.

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Research model

The fore mentioned hypotheses and relationships between variables will be studied using the research model described below.

This study will research how the attitude towards the merger and the three different rebranding strategies influence the informed product brand attitude ( the merger is announced to consumers). This relationship is moderated by perceived quality of the corporate brands and the perceived corporate fit between the two companies. The uninformed group, which will not be given any information about the merger, will be used to serve as a control group and point of comparison.

Uninformed product brand attitude

Merger attitude

Rebranding strategy 1

Rebranding strategy 2 Informed product brand attitude Rebranding strategy 3

Quality Corporate fit

Chapter III

Research design

An experiment was conducted in order to determine consumer’s attitude towards rebranding after a M&A.

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21 The respondents were presented an online questionnaire via Qualtrics, with four possible scenarios, three that described a M&A and one control group that was not given any information about the merger, in order to compare the variance of the responses.

The M&A scenarios presented a highly familiar company that acquires a less familiar company. Since toothpaste is a commonly and frequently used product for everyone, two companies within this business sector were chosen. Also, since it is an everyday-use product, customers have more chances of developing an actual relationship with the brand and the product.

The three M&A scenarios started with a short description of the two companies together with their logos (aided recall). The first two questions were used to select the appropriate respondents for this study. Therefore, only the ones that were moderately to highly familiar to Colgate-Palmolive and less familiar to Henkel were selected. Each of the three scenarios presented to the respondents one of the three rebranding strategies (from Ettenson and Knowles 2006). The first situation presented the situation in which Colgate-Palmolive decides to acquire Henkel and the company that results from this strategic move will be renamed “Henkel”. In turn, the second scenario implied the same acquisition with the difference that the new company was renamed “Colgate-Palmolive-Henkel”. In the third scenario the respondents were told that the resulting company will have a new name, “Hengate”(obtained by putting together the names of the two companies).

It was explained to respondents what changes this strategic move will bring. Each scenario was tested by developing appropriate questions that identify the attitude of the acquirer brand’s customers towards these corporate decisions and how it reflects upon the

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22 product brand. The product brand chosen was Colgate-Palmolive’s most popular product, “Colgate” toothpaste.

The fourth scenario was a control group, the respondents were not informed about any strategy and no information about the companies was presented in the beginning. This group served as a comparison for the other three groups.

The independent variables were the three merger situations, while the dependent variable was the product brand attitude.

The relationship between the rebranding strategies and the product brand attitude was tested for moderation by quality and corporate fit.

Data and participants

A pre-test questionnaire was handed in in order to determine the companies that were most appropriate to fulfill the conditions of the study. Two companies were selected: the one with the highest familiarity (Colgate-Palmolive) and one that scored lower than the first one, but not unfamiliar to the consumers (Henkel). This situation could pass as credible because acquisitions are a frequent action in this particular sector and also Colgate-Palmolive has the necessary monetary means for this kind of transaction.

The questionnaires for the main study were distributed online via Qualtrics survey software. The targeted respondents were mainly European students who were asked to further distribute the survey in order to generate more responses. Each respondent was randomly assigned to one of the four scenarios of the questionnaire (three rebranding strategies and one control group). Overall, there were 411 people who accessed the survey but only 251 filled it

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23 out entirely (response rate 61,5%). However, since the scenarios needed respondents that consider Colgate a familiar brand and that know the brand ‘Henkel’, the ones who did not fulfill these criteria were presented control questions after the familiarity questions.

Out of all, 11 respondents were less than moderately familiar about the “Colgate-Palmolive” corporate brand and were redirected to the control questions as the study was targeting customers that were very familiar with this brand. Also, 37 respondents were not familiar at all with the “Henkel” corporate brand, so they were also redirected to the control questions as they couldn’t answer the following questions without knowing the brand.

In the end, 203 respondents that corresponded to the criteria filled out the whole survey.

Table 1: Respondent frequencies table

Group No. respondents Percent out of total

Strategy 1: Identity of the acquired company

47 23.3%

Strategy 2: Combines both identities

42 20.7%

Strategy 3: New identity 54 26.7%

Control group 60 29.2%

The respondents were 79% in the 18-24 age group (199 respondents), 11% in the 25-29 (29 respondents) age group and 8% were older than 30 (22 respondents). As far as gender is concerned, only 250 respondents out of all agreed to mention their gender, 62.4% were female, while 37.6% were male. Most of the respondents had Romanian nationality (16.1%) followed by a Dutch minority (3.3%). The other respondents were from European, Asian or African countries: 94.1% European, 5.9% Asian, North American, South American, African. One control questions assessed whether respondents actually care about brands. Most of the respondents said that they “Somewhat agree” with this statement (Mean=5.05, SD=1.32, Mode=6, “Agree”).

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24 The other control question assessed whether quality is an important factor in their acquisition decision. Most respondents stated that they “Agree” with this statement (Mode= 6, mean=5.28, SD=1.32).

A one way ANOVA analysis of brand importance revealed no significant differences between the groups(=.50). Respondents from all three groups find brands equally important. A one way ANOVA also revealed that there are no differences in quality importance between the groups (=.48). Therefore, respondents from all three groups found quality equally important (mean group 1=5.49, mean group 2=5.19, mean group 3=5.33).

Measures

A pretest questionnaire was handed in in order to determine the three companies used for the study. The pretest contained several items evaluating consumer attitude towards two attributes of the companies: quality and corporate fit. The questionnaire was distributed through Qualtrics survey software mostly to European students. Out of the 38 people who responded to the questionnaire, only 30 filled it out completely.

For familiarity and quality the measures used items from previous studies. The measurement of knowledge level has been studied by Brown (1950). In his study he measured the level of brand knowledge by the aided recall method, where an individual is given a list of brand names and asked to state which of the brands he/she is using now, used in the past and of which he/she has heard about. For measuring quality, Aaker and Keller(1990) used a 7-point scale that assessed the overall quality of each brand(1=inferior, 7=superior). The same measure was used in the pretest.

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25 For corporate fit, all companies were paired with one another. The measure used was the one used by Aaker and Keller (1990), a 7-point Likert scale to measure fit between two brands (1=strongly disagree 7= strongly agree):” I believe there is good fit between the two companies”.

In the end a company that scored the most on familiarity and quality was chosen (Colgate-Palmolive) (mean=6.11, SD=1,82) and one that scored lower on quality and fit with the first one (Henkel) (mean quality=3,43; mean corporate fit=2,90).

The main questionnaire contained 21 items taken from previous studies. A 7 point Likert scale was used to measure the attitude towards the brands.

Familiarity

Familiarity was measured using the same item as in the pretest. Respondents were asked to rate how familiar they are with each of the two brands.

Product brand attitude

The study by Thorbjørnsen and Dahlén (2011) was also used for the measures of acquirer product brand attitude before and after the merger. Respondents were presented with questions on a three-item, seven point Likert scale(1=disagree, 7=strongly agree): “I like this brand”, “I have a positive image of this brand” and “ I am favorably disposed towards this brand”.

Quality

In order to measure the attitude towards the product brand after the acquisition, first respondents were asked to measure the perceived overall quality of each company’s products,

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26 adapted after the model of Boulding and Kirmani(1993):”Compared to A, what is the likely quality of B” (1= much lower than average quality; 7=much higher than average quality). And “Please rate the products of A/B on the following dimensions”(1=low quality, 7=high quality).

Corporate fit

The level of fit between the acquirer brand and the acquired brand was measured using the three dimensions of fit developed by Aaker and Keller(1990): substitute, complement and transfer. Respondents were asked to assess whether the companies complement each other in terms of product offering (1=strongly disagree; 7=strongly agree):”I believe that the companies have product offerings that complement each other”, whether one’s product offering could substitute the other in the same usage situations: “I believe that the products of B can be used in the same usage situation as the products of A” and whether the acquirer has the ability to produce the acquired product:” I believe that B1 has the ability to produce the products of A.”

Merger attitude

The questions for measuring merger attitude were adapted from Thorbjørnsen and Dahlén (2011), who used a five item, seven point Likert scale (1=strongly agree, 7= strongly disagree). The items used were: “This merger limits my freedom of choice”, “I feel I am becoming a customer of brand [B1/B2] against my will” “In many ways I feel forced to become a customer of brand B1/B2” “I feel that brand A has made a decision on my behalf” and “My transition from being a customer of brand A to becoming a customer of brand B1/B2 is not voluntary”.

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Control variables

Two control variables were used, perception of quality and importance of brands for consumer, as they also relate to the product brand attitude. Perception of quality measured whether quality is a decision factor in their acquisition process: ” In general, brand quality is an important factor in my acquisition decision”(1=strongly disagree,7=strongly agree).

The other control variable measured whether consumers actually cared about product brands:” I generally find brands important” (1=strongly disagree, 7=strongly agree).

Finally, the gender and age of the respondents were taken into consideration as possible determinants of certain responses.

Chapter IV

Results

The most important findings of this study will be presented in this chapter.

Since the study needed respondents that were moderately to highly familiar with Colgate-Palmolive and at least somewhat familiar with Henkel, some respondents did not qualify to answer all the questions of the study. Overall, 48 respondents did not fit the conditions of this study, out of whom 11 did not move on to the question about Henkel. However, for research purposes, they were presented the control questions about brand and quality importance. The correlation analysis between the Colgate-Palmolive level of familiarity and the importance of brands in the acquisition decision revealed a significant positive strong correlation (p=.62). The same relationship was found for brand quality (p=.59). Therefore, the respondents that were

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28 less familiar about Colgate-Palmolive did not consider brands or their quality so important when acquiring a product.

Overall, a strong positive correlation was found between knowledge about Colgate-Palmolive and brand importance in the acquisition decision. The same strong and positive correlation was found with importance of quality in the acquisition decision (p=.62).

Respondents in the informed groups were more knowledgeable about Colgate-Palmolive and Henkel than the ones in the control group, probably because they were presented the short introduction about the two companies. However, an ANOVA analysis revealed that the scores for familiarity with Colgate-Palmolive are not very far apart from each other.

The analysis of the items used to measure the dependent variable reveals differences between the three questions.

Cronbach’s Alpha for the three items measuring product brand attitude was .844, above the acceptable standard of .60 (Nunnally 1978). If the first two items were deleted, the coefficient would be lower but if the 3rd item is deleted, the Cronbach’s Alpha would be .851. This could be because of the nature of the question, respondents could have found the “favorably disposed” phrasing as being too abstract and did not understand what it implies. However, the difference is not big enough for us to proceed with excluding it from the analysis. The corrected item correlation for the third item measuring product brand attitude was .63, not much lower than the other two items.

The mean for the first item, “I like this brand” was 5.08( SD=1.11), the second one, “I have a positive image of this brand” had a mean of 4.93(SD=1.10), while the third one, “I am favorably disposed towards this brand” appeared to have a slightly lower mean than the other

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29 two(Mean= 4.59 SD=1.31). Looking at the mode values, we can see that the mode for group 1 was 6, for group 2 was 5 and for group 3 was 4.

The range and variance were somewhat constant between the three items: item 1 had 1.14 variance, range=6, item 2 had 1.21 variance, range=5 and item 3 had 1.27 variance, range=6.

Looking at the skewness coefficients, we see that item 1 was skewed the most, followed by item 2.

Overall, even if the Cronbach’s Alpha will slightly increase if we would delete the third item, no other unusual scores were observed during the analysis of the descriptive results. Therefore, all items will be kept.

Table 2: Descriptive results of the dependent variable

Percentage

Item Mean SD Mode Skewness Variance 1 2 3 4 5 6 7 Total

Item1 5.08 1.11 6 -.77 1.24 .7 2.1 3.5 23.2 28.2 37.3 4.9 100

Item2 4.93 1.10 5 -.50 1.21 0 3.5 4.2 26.1 32.4 29.6 4.2 100

Item3 4.59 1.13 4 -.42 1.27 .7 4.2 8.5 32.4 32.4 19.7 2.1 100

For the next steps of the investigation, the three questions were computed into one variable that measures product brand attitude, to enable comparisons between the groups and correlations.

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Manipulation

An ANOVA analysis was conducted for the dependent variable, product brand attitude. The test compared the scores of the three groups and revealed that they are statistically different. Therefore, merger attitude had an impact on product brand attitude.

Table 3: Manipulation check results for merger radicalness

Group 1(n=47) Group 2(n=42) Group3(n=54) Dependent Variable

Product brand attitude

M(SD) 4.70(.94) M(SD) 5.37(.8) M(SD) 4.62(.98)

A post-hoc Tukey test revealed that the biggest difference was between group 3 and group 2, consumers who were faced with the situation of the rebranding under a new name have a less favorable attitude towards the product brand. Also, there was a difference between group 1 and group 2, respondents that were faced with the situation of using the acquired company’s name have less positive brand attitude than the ones that were faced with the “combined identities” condition. Therefore, we can conclude that the manipulations were successful, the respondents realized the difference between the presented scenarios and there were significant differences between the research groups .

A correlation analysis was performed for the items measuring corporate brand quality. The results revealed a positive and significant correlation between the items. The question that directly compares the quality of the two corporate brands will be used in the analysis, as it implies a direct comparison between the two.

The questions measuring corporate fit were compiled into one variable measuring corporate fit.

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Correlation check

Pearson’s correlation coefficient was calculated in order to determine if the dependent variable and control variables (brand importance, quality importance) are all correlated between them (Pallant 2011). A value that is above 0 represents a positive relationship, while a value below 0 represents a negative relationship. The coefficient takes values within the {-1,1} interval.

The test revealed that all variables are significantly and positively correlated. Table 4: Correlation table for dependent and control variables

Correlations Brand importance Quality importance Product brand attitude

Brand importance Pearson Correlation 1 .568** .171*

Sig. (2-tailed) .000 .042

N 142 142 142

Quality importance Pearson Correlation .568** 1 .195*

Sig. (2-tailed) .000 .020

N 142 142 142

Product brand attitude Pearson Correlation .171* .195* 1

Sig. (2-tailed) .042 .020

N 142 142 142

**. Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the 0.05 level (2-tailed).

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Analysis of hypotheses

Hypothesis 1 implies that product brand attitudes towards the acquirer’s product brand will be more negative if the merger implies more change. The radicalness of the strategies was assumed to be Group2<Group 1<Group 3.

The product brand attitude in each group was compare to the product brand attitude in the control group.

Table 5: Descriptive for the dependent variable “Product brand attitude”

Group N Mean Std. Deviation

1 47 4,70 ,941

2 42 5,37 ,807

3 54 4,62 ,986

Total 143 4,87 ,972

ANOVA

Sum of Squares df Mean Square F Sig.

Between Groups 15,234 2 7,617 8,961 ,000

Within Groups 118,996 140 ,850

Total 134,230 142

The box plot below (Figure 1) shows that the three samples have approximately the same shapes, except for group 3.

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33

Figure 1: Box plot product brand attitude

A Mann-Whitney U test was conducted. This test evaluates whether the medians between two groups differ significantly (Pallant 2011). The analysis reveals that group 1 scores lower than the control group (p=.00). This means that respondents that were presented the situation in which Colgate-Palmolive is renamed “Henkel” have less positive evaluations of the product brand.

Table 6: Mann-Whitney U test ranks for control group and group 1

Ranks

Group N Mean Rank Sum of Ranks

0 60 63,58 3815,00

1 47 41,77 1963,00

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34 Group 2 has almost the same U coefficient as the control group (just slightly lower) and the test revealed that there are no significant differences between the two groups (p=.71). Respondents did not consider the co-branding strategy much different from the original corporate branding.

Table 7: Mann-Whitney U test ranks for control group and group 1

Ranks

Pr_brand_at

0 60 52,38 3142,50

2 42 50,25 2110,50

Total 102

Group 3 has much lower scores compared to the control group, with significant differences observed (p=.00).

Table 8: Mann-Whitney U test ranks for control group and group 2 Ranks

Pr_brand_at

0 60 69,35 4161,00

3 54 44,33 2394,00

Total 114

In order to evaluate the differences between the rebranding strategies groups, a Kruskal-Wallis test was performed. This test is the non-parametric analogue of the one-way ANOVA, and does not make assumptions about normality(Pallant 2011).

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35 The test showed, at a .00 level of significance, that indeed as hypothesized the attitude towards the product brand is more negative as the rebranding strategy implies more change: mean rank group 3 (=61.73)< mean rank group 1 (=64.69)<mean rank group 2 (=93.38).

Table 9: Kruskal-Wallis test ranks of the groups and statistics

Test Statisticsa,b

Pr_brand_at Chi-Square 16,236

df 2

Asymp. Sig. ,000 a. Kruskal Wallis Test

b. Grouping Variable: Group

Therefore, there is enough evidence for hypotheses 1 to be confirmed.

Moderation analysis

A moderator is defined as a variable that influences the effect of the dependent variable (Pallant 2011). These variables are often individual difference variables, particularities of individuals that influence their answers and the way in which they respond to manipulation and treatment conditions (Pallant 2011).

The second hypotheses states that quality moderates the interaction between merger attitude and product brand attitude.

Moderation is calculated through regression analysis and revealed in this case that the model is significant.

The two variables, quality and merger attitude, were standardized and a moderator variable was created by computing the product of the two standardized variables. A linear

Ranks

Group N Mean Rank

Pr_brand_at

1 47 64,69

2 42 93,38

3 54 61,73

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36 regression was conducted for the three variables (dependent – product brand attitude, independent – merger attitude and the obtained moderator variable.

Table 10: Regression tables and ANOVA analysis when introducing the moderator variable

Model Summary

Model R R Square Adjusted R

Square

Std. Error of the Estimate

1 ,395a ,156 ,144 ,899

a. Predictors: (Constant), moderator, Merger attitude

ANOVAa

Model Sum of Squares df Mean Square F Sig.

1

Regression 20,989 2 10,494 12,974 ,000b

Residual 113,241 140 ,809

Total 134,230 142

a. Dependent Variable: Product brand attitude b. Predictors: (Constant), moderator, Merger attitude

Coefficientsa a. Dependent Variable: Product brand attitude

Model Unstandardized Coefficients Standardized

Coefficients t Sig. B Std. Error Beta 1 (Constant) 6,165 ,287 21,506 ,000 Merger attitude -,307 ,067 -,355 -4,562 ,000 moderator ,196 ,078 ,196 2,523 ,013

a. Dependent Variable: Product brand attitude

The two regression tables were compared by looking at the values of the adjusted R square. The adjusted R square basically reveals how much of the variable “quality” can explain the dependent variable “product brand attitude”. The level of the adjusted R square in this case is 14.4%, which is not very high.

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37 The ANOVA table indicates that the regression model predicts the outcome variable significantly well(p=.00). This means that the ‘quality’ variable can statistically significant predict the outcome variable, ‘product brand attitude’(strong significance), confirming that the “quality” variable acts as a moderator in this case.

We can conclude that quality has a (low) moderating effect on the relationship between merger attitude and product brand attitude. If the acquired company is viewed as having higher quality, the attitudes towards the product brand will be more positive, irrespective of the type of rebranding strategy used. Hypothesis 2 is thus partially confirmed.

Hypothesis 3 states that the perceived corporate fit between the two companies will also act as a moderator for the relationship between the merger attitude and product brand attitude. In other words, a low degree of perceived fit will imply more negative evaluations of the product brand.

For the evaluation of perceived corporate fit, a variable that resulted from compiling the questions that evaluated this aspect was used. The new measure was created by calculating the mean of all the items evaluating corporate fit.

Then, the same manipulation as in the case of the other moderator was done. This variable was then standardized and a moderator variable was created by computing the product of the compiled measure of the “corporate fit” and the merger attitude. As in the previous case, a linear regression was conducted for the three variables. This proved to be not significant(p=.082)

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38

Table 11.1: Regression analysis for the moderation of ‘perceived corporate fit’

Model Summary

Model R R Square Adjusted R Square

Std. Error of the Estimate

1 ,379a ,144 ,131 ,909

a. Predictors: (Constant), Moderator2, Merger attitude

Table 11.2: ANOVAa

Model Sum of Squares df Mean Square F Sig.

1

Regression 19,251 2 9,625 11,658 ,000b

Residual 114,763 139 ,826

Total 134,013 141

a. Dependent Variable: Product brand attitude b. Predictors: (Constant), Moderator2, Merger attitude

Table 11.3: Coefficients a

Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) 6,232 ,296 21,034 ,000 Merger attitude -,328 ,070 -,376 -4,723 ,000 Moderator2 ,128 ,073 ,139 1,751 ,082

a. Dependent Variable: Product brand attitude

Looking at the third table we can see that the significance of the moderator in this case is .082, above the acceptable level of .05, which means the relationship between the moderator and the dependent variable is not significant. The test revealed that the variable ‘perceived corporate fit’ cannot explain the dependent variable “product brand attitude”.

Therefore, hypothesis 3 is not confirmed, perceived corporate fit does not moderate the relationship between merger attitude and product brand attitude.

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39

Chapter V

Discussion

The purpose of this study was to reveal the effect of corporate rebranding on the customers of the acquirer brand and on their evaluation of the product brand. The study tried to offer an explanation for the frequent failures of mergers and acquisitions.

The first study that was conducted here was a comparison between the informed groups and control group, in order to discover variations related to the perceived radicalness of the rebranding strategies and its effect on the product brand. The second study was a moderation analysis on the product brand attitude.

The study revealed that indeed there are differences in the way in which consumers perceive different types of merger rebranding strategies. These strategies proved to have a negative effect on product brand evaluations depending on their level of change. More exactly, the product brand attitude decreased with a higher level of change in the corporate brand.

The findings of this study were consistent with the work of Ettenson and Knowles(2006): the strategies that imply more change (such as coming up with a totally new corporate brand name), are perceived as being more radical and bring more negative evaluations, whereas strategies such as deciding to keep both brand names do not bring so many negative consequences.

After comparing each of the tested rebranding groups to the control group, we observed that the product brand evaluations of the respondents confronted with the strategy that implied the lowest degree of change did not significantly differ from the evaluations in the control group, leading us to think that this could be the least dangerous choice for the brand

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40 equity, at least in the first year(s) after the transaction. The other two strategies however, brought along more negative evaluations of the product brand, with the rebranding under a new name significantly lowering the evaluations of the product brand. As Chakravorty (2012) notes, brand equity is an important asset, most of it being comprised in the brand name and a merger should not result in a loss of identity. This loss of identity is obviously felt by the consumers, who seem to think that the product will lose some of its previous qualities.

The moderation analysis clarified the aspects related to quality and perceived corporate fit. The quality of the acquired brand has an effect of product brand evaluations subsequent to the merger. A transaction with a company that is viewed as having lower quality than the acquirer brings about more negative attitudes towards the product brand. It can be said that, if the acquiring company is thinking about pursuing a rebranding strategy that implies more change, they might be able to preserve the positive brand associations when acquiring a high quality corporate brand. Quality is an important factor in the acquisition decision (Rao and Rukert 1994) and a switch to a name that had more negative associations cold negatively influence the product brand.

Corporate fit however did not seem to have any impact on the relationship between the rebranding strategies and product brand attitude. This could be also because the respondents were quite young and might not have fully understood the concept of corporate fit and how to evaluate it.

The topic of this analysis is relevant to the business environment nowadays, as M&As are frequently encountered, especially in the area chosen for study, the fast moving consumer goods sector. This study revealed some important insights that could help managers in their

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41 decision making process. Apart from immediate monetary reasons, managers should not overlook several other advantages or disadvantages of a potential acquisition. Since the consumer is the one responsible of the success of the company, the aspects that he finds important about a brand should be also considered. A brand name comprises many associations in the minds of consumers (Keller 2006) and its wrongful use could become the cause of a potentially profitable transaction turning out to be unsuccessful. Quality is one of the aspects that influence their acquisition decision so the partner company should be carefully chosen so that it would match the expectations of the consumers.

Many examples from the previous M&As demonstrate that success is not always guaranteed by a promise of high revenues and higher market shares ( e.g. the case of Jaguar and British Leyland or Quaker Oats and Snapple). It is the manager’s job to base his or her decision on a complete analysis of all possible interfering factors.

Limitations

Apart from the conclusive insights, the present study has also some limitations.

First of all, the survey assumed that describing briefly an imaginary situation is enough to create in the minds of the consumers an image close to reality and making them believe that such a situation could actually occur. In the case of an actual M&A, consumers will learn this information from multiple sources (mass media, packaging etc.) and will have more time to asses and evaluate all the information regarding the two companies, their brands and what this merger will bring about. A short description of the situation might not have the same effects on them and their answers might be different in a real-life situation.

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42 Another limitation would be that the study had only a small number of respondents and most of them under 25. Out of the 251 respondent, 48 were less than moderately familiar about Colgate-Palmolive. It might be the case that these people are not the ones who are making the acquisition decision for a personal care product, as some of them might still live together with their parents. Therefore, we do not know if the actual decision makers feel the same as they do.

Also, most of the respondents were Romanians and the survey was distributed in English, which is not their native language, so we have to account for eventual misunderstanding of the terminology of the study. Since the study is talking about “mergers” ”corporate fit” etc., which are not in the basic English vocabulary, they might have encountered some problems understanding and answering the questions.

One of the notions tested in this study, corporate fit, might be an abstract concept for some respondents, despite the explanation presented before the items. The explanation itself was taken from a business dictionary and this, together with the language barrier could have made the questions hard to understand and relate to.

Also, in this case Henkel was viewed as being a company that has low quality products, even though this is not really the case, its products being part of the middle priced segment. It is not sure whether this is not due to the fact that Henkel does not often use its corporate brand name as an endorser for products, which makes it less know and therefore perceived as having lower quality. It is not sure whether consumers would have the same reactions when informed about the brands that Henkel has in its portfolio.

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43 It is also important to note that the survey did not verify whether the respondents fully understood the situation tested and whether they could say in the end which situation they were exposed to.

Future research

Future studies could pick up from where this study has left off in order to come up with more useful insights regarding mergers and acquisitions an if effects on product brand attitude.

The same study could be conducted on a sample of respondents over 30, on people who are the actual decision makers, to see how the results compare to this study.

Other moderating factors of the relationship between the rebranding strategies and product brand attitude could be taken into consideration: price, secondary associations, etc. These could better explain the relationship between the two variables and offer a complete picture of the topic.

In this case, only three rebranding strategies were tested but further research could test the other strategies identified by Ettenson and Knowles(2006). The study could offer more detailed information to respondents (how the new corporate logo will look on the product etc.) in order to create a situation as close to reality as possible. Respondents could also be tested by being faced with more than one type of rebranding strategy at a time. This way, they could make a direct comparison between the two, which will reveal into more detail their motivation for the product brand evaluations.

Research could also focus on what are the suitable actions to diminish the negative product brand evaluations, even in the case of mergers that imply more change or when the

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44 acquired company is perceived as being less qualitative. It would be useful to see what stimuli would consumers respond to in such cases.

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45

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MSc Thesis