Brand equity transfer in B2B M&As
How customers value functional and emotional aspects of brand equity after acquirer dominant B2B acquisitions
ir. E. (Eelke) Stellingwerf University of Amsterdam
Student number. 6357091 / 10095934 Date: August 28th, 2014
Brand equity transfer in B2B M&As
How customers value functional and emotional aspects of brand equity after acquirer dominant B2B acquisitions
University of Amsterdam Amsterdam Business School
Master: Part-time Master of Business Administration Specialisation: Strategic Marketing management
Address: Plantage Muidergracht 12, 1018 TV Amsterdam
First supervisor: mw. dr. K. (Karin) Venetis, assistant professor marketing
Date of submission: 28th of august, 2014
Author: ir. E. (Eelke) Stellingwerf University of Amsterdam
Student number. 6357091 / 10095934
Stieltjesstraat 131 6511 AK Nijmegen
Summary
Before the financial crisis, the number of mergers and acquisitions (M&As) was increasing rapidly (Hijzen et al, 2008; Renneboog, 2007) and forecasts predict that economic recovery will cause a new wave of M&As (Financial Times, 2014). A large number of M&As result in an acquirer dominant brand strategy (Ettenson & Knowles, 2006; Andrade et al., 2001) in which the original brand equity of both companies involved in the M&A is often inappropriate dealt with (Hise, 1991; Kumar & Blomqvist, 2004; Homburg & Bucerius, 2005). These and other problems have resulted in increased academic attention to business-to-business (B2B) branding in the last decade (Baumgarth, 2010). A recent article by Lambkin & Muzellec (2010) shows that an acquirer-dominant M&A in a B2B environment creates increased brand equity for all B2B stakeholders: customers, employees and financial analysts (Lambkin & Muzellec, 2010). These findings contrast with similar studies in the business-to-consumer (B2C) environment (Lee, Lee & Wu, 2011; Jaju et al., 2006 and Thorbjørnsen & Dahlén, 2011). The contradiction in findings between B2C and B2B has led to the development of this research. The reason for the contradiction may lie in the different roles that functional (e.g. quality and price) and emotional (e.g. trust and relation) values play in customers’ valuation of brand equity (Jensen and Klastrup, 2008; Lynch & de Chernatony, 2004). Therefore, the research question is:
How do functional, emotional and social value dimensions play a role in customers’ appreciation of brand equity after an acquirer-dominant M&A in the B2B environment?
To answer the research question a practical model was created, in which two existing brands were used to simulate an acquirer-dominant acquisition (Figure 0). Both brands were quantitatively measured on five scales: BE (brand equity), Fp (functional value price), Fq (functional value quality), E (emotional value) and S (social value). After the acquisition of Company B by Company A was simulated, the new company, AB, was measured at the same five scales.
Figure 0. Research model main study
Except for the functional value price all other variables showed a significant increase in value after Company B was acquired by Company A. Based on this finding, this study shows how acquirer dominant acquisitions could lead to an increase in functional, emotional and social customer perceived
values. In general, brand equity also increases in an acquirer-dominant acquisition. The research shows that functional values play a significant role in the assessment of brand equity after an acquisition. There was no significant evidence of emotional values playing a role in brand equity after an acquisition. Weak but significant evidence of the role of social values in brand equity after a acquisition was found.
Foreword
Dear ReaderWith great pride I hereby present my thesis. This thesis is the completion of my part-time MSc. study in Business Administration at the University of Amsterdam. The thesis topic is about customers’ valuation of brand equity after acquirer dominant acquisitions in a B2B environment.
Over the past four years the part-time study Business Administration has consumed a large part of my life. In the first two years of my study I completed all the courses with great success. Then, while writing my thesis I was personally tested in all possible ways: I have known turbulent times in both my business and private life. However, “quitting” is a term that does not appear in my vocabulary. In the past few months, with regained energy and support from my immediate environment, I have been working rapidly towards a result that I am more than satisfied with.
I would like to take this opportunity to thank several people. First, I want to thank my supervisor, Karin Venetis, who saw me struggling in the beginning. I could always reach you with questions and you always showed a very critical attitude. Thank you for your patience Karin!
I would also like to thank the former board of Heijmans Utiliteit for the fact that they gave me the opportunity to follow this study. My unfinished study was taken with me in my recent move to BAM AAM, I would also like to thank the current management of BAM AAM for this opportunity.
Finally, I thank my immediate surroundings, family and friends, because I could not join you every time I would have liked to. In particular, I thank my parents who taught me to persevere in order to achieve what I really want, but in doing so they never pushed me to anything in my life. I also thank Maret who gave me the right support and freedom in recent months to carry through.
I am convinced that humans are never finished learning, but for now I will take a break from studying for a while ...
Eelke
Index
1
INTRODUCTION ... 9
1.1
B
ACKGROUND:
BRANDING PROBLEMS AFTERM&A
S... 9
1.1.1
Increasing number of acquisitions ... 9
1.1.2
Brand equity problems after M&As ... 10
1.1.3
Brand equity transfer in M&As ... 11
1.2
O
CCASION FOR NEW RESEARCH... 11
1.3
R
ESEARCH GOAL AND QUESTIONS... 12
1.4
A
CADEMIC AND MANAGERIAL RELEVANCE... 13
1.4.1
Academic relevance ... 13
1.4.2
Managerial relevance ... 14
1.5
S
COPE OF RESEARCH... 14
1.6
O
VERVIEW THESIS... 15
2
LITERATURE REVIEW AND HYPOTHESES ... 16
2.1
C
HARACTERISTICS OFB2B
BRANDING... 16
2.1.1
Branding, not only for businesses to consumers ... 16
2.1.2
B2B Branding: Benefits for both suppliers and buyers ... 17
2.1.3
Branding in the purchasing process ... 17
2.2
B
RAND EQUITY AND MEASUREMENT SCALES... 18
2.2.1
Definition of brand equity ... 19
2.2.2
Brand equity in a B2B environment ... 20
2.2.3
Definition of customer perceived value ... 21
2.2.4
Value dimensions of perceived value ... 22
2.2.5
Scales for measuring brand equity ... 24
2.3
T
HEORETICAL INSIGHTS ON BRAND MERGERS... 25
2.3.1
What drives companies to merge? ... 25
2.3.2
Brand architecture ... 26
2.3.3
Strategies for brand mergers ... 28
2.4
C
USTOMERS’
REACTIONS TOM&A
PROCESSES... 30
2.4.1
Reactions of B2C customers in an M&A process ... 30
2.4.2
Reactions of B2B customers in an M&A process... 31
2.4.3
Differences between B2C and B2B reactions in an M&A process ... 32
2.5
H
YPOTHESES... 33
3
RESEARCH METHOD ... 36
3.1
R
ESEARCH STRATEGY... 36
3.3
R
ESEARCH DESIGN... 36
3.4
D
ATA COLLECTION... 37
3.4.1
Secondary data ... 37
3.4.2
Primary data ... 37
3.5
R
ESEARCH VALIDITY AND RELIABILITY... 39
3.5.1
Internal and external validity ... 39
3.5.2
Reliability... 40
3.6
E
THICAL PRINCIPLES OF THIS RESEARCH... 40
4
RESEARCH FINDINGS AND ANALYSIS ... 42
4.1
P
RE-
TEST1 ... 42
4.2
M
AIN STUDY... 42
4.2.1
Sample description ... 43
4.2.2
Reliability questionnaire ... 44
4.2.3
Manipulation check ... 45
4.2.4
Main study results ... 45
4.2.5
Analysis of main study results ... 46
4.3
F
EEDBACK ON HYPOTHESES... 48
5
DISCUSSION ... 50
5.1
G
ENERAL CONCLUSIONS AND DISCUSSION... 50
5.2
L
IMITATIONS... 51
5.3
R
ECOMMENDATIONS FOR FURTHER RESEARCH... 52
Appendix 1: Pretest 1 61
Appendix 2: Survey questionnaire main study 63
Appendix 3: Results pretest 1 78
List of figures
- Figure 1. Number of US M&As over the last 20 years 10
- Figure 2. Branding in purchasing process source 18
- Figure 3. A revised Customer-Based Brand Equity Pyramid for B2B 21
- Figure 4. Integrating corporate brands 29
- Figure 5. Ten strategies for branding a merger 29
- Figure 6. Brand Equity transfer in B2B M&As 32
- Figure 7. Visual representation of the performed main study 39
List of tables
- Table 1. Comparison between consumer and industrial market characteristics 16
- Table 2. Brand benefits for buyers and suppliers 17
- Table 3. Definitions and dimensions of Brand equity 19
- Table 4. Definitions of Customer Perceived Value (CPV) 22
- Table 5. Value dimensions 23
- Table 6. Four questions that offer help for new brand strategy decisions 24
- Table 7. Summary of final results from exploratory Factor Analysis 28
- Table 8. Comparison table differences between B2B and B2C reactions on M&As 33
- Table 9. B2C reactions, functional, emotional or social 34
- Table 10. Constructs and items for measuring Brand Equity and perceived value 38
- Table 11. Top 5 strongest and most ranked brands pretest 1 42
- Table 12. Sample demographics 44
- Table 13. Reliability of items per construct and company 45
- Table 14. Brand Equity: Means, standard deviations and differences of Technische Unie and Plieger at T1
45
- Table 15. Brand Equity: Means, standard deviations and differences of Plieger acquired by Technische Unie at T2
46
- Table 16. Correlation test between BE and Fp, Fq, E and S. - Table 17. Regression test between BE and Fp, Fq, E and S
47 48
List of abbreviations
B2B Stands for "Business to Business." A business that markets its products or services to other businesses
B2C Stands for "Business to Consumer." A business that markets its services or products to consumers
CPV Customer Perceived Value M&A Merger & Acquisition M&E Mechanical and Electrical
T1 Time 1, situation before acquisition T2 Time 2, situation after acquisition
Q Questionnaire
BE Brand Equity
Fp Functional value price Fq Functional value quality
E Emotional value
1 Introduction
Mergers and acquisitions (M&As) occur every day. Managers who deal with M&As make difficult decisions that influence all stakeholders. One important decision that arises with M&As is how to deal with existing brands (Ettenson & Knowles, 2006). A large number of M&As result in an acquirer dominant brand strategy in which a large acquiring company takes over a smaller company and renames the newly acquired company with the existing brand name of the acquiring company (Ettenson & Knowles, 2006; Andrade et al., 2001). In the Business to Consumer (B2C) market the acquirer dominant strategy negatively influences customers’ perception of the rebranded company (Thorbjørnsen & Dahlèn, 2011; Jaju et al., 2006). Moreover, customers are always negatively influenced by any kind of M&A (Jaju et al., 2006). However, recent insights prove opposite reactions from customers in a Business-to-Business (B2B) environment (Lambkin & Muzellec, 2010). Lambkin & Muzellec (2010) have found evidence that B2B customers welcome acquirer-dominant M&As in which the acquiring company transfers brand equity (corporate reputation) to the target’s brand. This increased brand equity consists of brand name, corporate ability and financial position. This research attempts to validate the qualitative data found by Lambkin & Muzellec (2010) with comparable quantitative research. In addition this research investigates whether functional or emotional values play a role in customers’ perceived brand equity after a B2B M&A.
This first chapter is an introduction to the influence of M&As on customers’ valuation of a brand. The first paragraph provides a brief introduction to the issue of brand equity after an M&A. The background introduction in Paragraph 1.1 is followed by the research occasion in Paragraph 1.2. Following this, the research goal, including the research question and sub questions, is described in Paragraph 1.3. Paragraph 1.4 discusses the academic and managerial relevance of the research. The demarcation of this research is stated in Paragraph 1.5. Finally, Paragraph 1.6 previews the remaining thesis content.
1.1 Background: branding problems after M&As
The number of M&A activities has increased exponentially during the past decade (Martynova & Renneboog, 2007; Hijzen et al., 2008). Given the problems that often occur with M&As, such as mismanagement of integration, distrustful and disgruntled employees, and cynical and dissatisfied customers (Ettenson & Knowles, 2006), it is not surprising that research into B2B acquisitions has also increased over the last decade. Subparagraph 1.1.1 shows today’s M&A movements. Subparagraph 1.1.2 mentions why brand equity problems often occur when M&As are executed. Finally, Subparagraph 1.1.3 discusses the probability that brand equity is transferred.
1.1.1 Increasing number of acquisitions
In a fast-changing world technology is getting an increasingly important position. Companies have to adapt and for that the number of M&As increases rapidly (Hijzen et al, 2008; Renneboog, 2007). Many industrial markets (B2B) are faced with the consequences of the increasing number of M&As (Andrade et al., 2001; PricewaterhouseCoopers, 2007). The main reason for a company to acquire or merge
with another company is the desire to add additional capacities and competitiveness in a relatively short period of time (Lynch and Lind, 2002; Lipponen et al., 2004). M&As make it possible for acquiring companies to obtain technologies, products, distribution channels and desirable market positions (Schweizer, 2005).
It should be noted that the current economic crisis is causing a temporary decline in the number of mergers and acquisitions while at the same time many companies face bankruptcy and are (partly) acquired (PWC, 2013). As shown in Figure 1, economic recovery in the US stimulate an M&A wave in the B2B environment (Business.time, 2013; Financial Times, 2014; RTLNieuws, 2014).
Figure 1: Number of US M&As over the past 20 years. Reprinted from “US Deals” (Financial Times, 2014)
These forecasts reinforce the need for new studies into a correct way to deal with M&As in a B2B environment and fit into the overall trend of a growing number of studies about branding in a B2B environment (Baumgarth, 2010). In addition, important changes such as increasing uniformity, increasing product quality, and increasing personal relationships through digital communications result in this growing interest in branding in a B2B environment (Baumgarth, 2010).
1.1.2 Brand equity problems after M&As
Previous studies show that M&A's often result in the loss of potential value due to the neglect of, or inappropriate handling of, brand equity (Hise, 1991; Kumar & Blomqvist, 2004; Homburg & Bucerius, 2005). Over time, brand equity has been defined in various ways, but almost all conceptualisations agree that it involves the value that is added to a product or service by consumers’ associations and perceptions of a particular brand name (Aaker, 1991; Bendixen et al., 2004; Keller, 1993).
Acquiring companies appears to initially focus on cost cutting and financial performance, but it seems that consideration of customer’s perceptions of the M&A (Lee, Lee & Wu, 2011) and the way brand equity could be transferred in the M&A process (Ettenson & Knowles, 2006) is neglected. The attention to potential brand equity transfer follows, after when financial and operational matters are dealt with (Krishnan, Hitt & Park, 2007). However, the company’s lack of attention to brand equity as perceived by stakeholders has a negative effect on a customer’s brand valuation (Jaju et al., 2006).
This could lead to a decline in brand equity and cynical and dissatisfied customers (Ettenson & Knowles, 2006).
1.1.3 Brand equity transfer in M&As
It is likely that companies differ in level of brand equity when participating in an M&A. In almost all cases a large, strong company acquires a smaller, weaker company (Ettenson & Knowles, 2006). This is called a superior dominant acquisition (Lee, Lee & Wu, 2011). Based on a 30-year study of transactions it was found that, on average, strong acquirers were approximately 10 times larger than their targets (Andrade et al., 2001). In functional terms, it is likely that in an acquirer dominant M&A the stronger acquiring company transfers brand equity to the acquired weaker company because customers of the acquired company will experience the benefits of the acquirer. Almost 40% of M&As, operate according the principle in which a strong company acquires a weaker company and rebrand the acquired company to the existing strong brand (Ettenson & Knowles, 2006).
1.2 Occasion for new research
Over the past decade research into M&A activities has increased. A review of available studies shows that only a few recent studies focus on the effects of M&As on customers’ perception of brand equity of both concerned companies (Lee, Lee & Wu, 2011; Lambkin & Muzellec, 2010; Jaju et al., 2006 and Thorbjørnsen & Dahlén, 2011). Although some of these studies use different M&A strategies, the overall conclusion that can be drawn is that M&As in a B2C environment cause a decline in brand equity (Lee, Lee & Wu, 2011; Jaju et al., 2006 and Thorbjørnsen & Dahlén, 2011). At the same time, Lambkin & Muzellec (2010) show that an M&A in a B2B environment creates increased brand equity for all B2B stakeholders: customers, employees and financial analysts (Lambkin & Muzellec, 2010).
Consistent with the contrast that can be concluded from the comparison of the abovementioned articles (Lee, Lee & Wu, 2011; Jaju et al., 2006; Thorbjørnsen & Dahlén, 2011 and Lambkin & Muzellec, 2010)1, Lambkin & Muzellec (2010) note that their findings disagree with numerous rebranding failures and comparable studies in the B2C sector. They suggest that B2B stakeholders welcome acquirer brand redeployment, particularly when there is a perceived benefit from the infusion of value from the acquirer. These findings indicate a strengthening of brand equity. Lambkin & Muzellec’s (2010) findings have not been tested in a quantitative study. One of their recommendations is to validate the initial findings by way of a quantitative study (Lambkin & Muzellec, 2010).
A possible explanation for the different reactions of B2B and B2C customers could come from the different interests that both customer groups have towards brands. Early literature about B2B branding indicates that BSB customers focus more on tangible issues than do typical B2C consumers. According to early literature, this is possibly why businesses value companies on their functional aspects and consumers value companies on both functional and emotional aspects (Aaker, 1991; Abratt, 1986; Bendixen et al., 2004; Kuhn et al., 2008). Leek & Christodoulides (2011) question
traditional thoughts about the opinion that B2B transactions comprise functional values only. Leek & Christodoulides (2011) suggest that even B2B transactions are performed by individuals; personal feelings and emotions are also involved in evaluation of products and services. They add several emotional values, such as risk reduction, reassurance, trust and credibility to the list of B2B purchase considerations (Leek & Christodoulides, 2011).
In conclusion, recent studies in a B2B environment provide input for new opinions about customer’s valuation of brands after M&As. The need for quantitative validation of this research (Lambkin & Muzellec, 2010) provides the opportunity to start new research about customers’ valuation of brands after an M&A and find quantitative evidence that B2B customers positively value M&As and why this is the case.
1.3 Research goal and questions
The problem of inconsistency in research findings regarding customers’ reactions to M&As, as described in Paragraph 1.1, leads to the following research goal and research question; the latter is divided into sub-questions.
Research goal
Contrasting results of studies into customer’s reactions following an M&A gives rise to a new study. The goal of this research is to provide quantitative data on the factors that influence customers' valuations of brand equity after an acquirer-dominant M&A in the B2B environment.
Research question
Sub questions
In order to answer the research question, the research is divided into several sub questions that are sequentially followed and answered in this study.
Sub questions: Discussed in section:
1 What does relevant literature say about B2B branding characteristics?
Paragraph 2.1
2 What does relevant literature say about brand equity and how it can be measured using different values?
Paragraph 2.2
3 What are the theoretical insights into how a brand merger could be performed when a company acquires or merges with another company?
Paragraph 2.3 How do the functional, emotional and social value dimensions play a role in customers’ appreciation of brand equity after an acquirer-dominant M&A in the B2B environment?
4 In previous research about customer reactions in M&A processes what are the reactions of customers with regard to the brand equity of an acquired company?
Paragraph 2.4
5 Measured in a B2B context, which changes in customers’ perceived values of brand equity occur when a brand is acquired by a stronger brand?
Chapter 5
1.4 Academic and managerial relevance
This research contributes to existing literature and academic knowledge about B2B marketing. In addition, this research contributes to the practical managerial needs of professionals in a B2B environment. Both academic and managerial relevance are described in Subparagraphs 1.4.1 and 1.4.2.
1.4.1 Academic relevance
In recent years, research into B2B branding has increased significantly. It started with the relevance of marketing in a B2B environment and soon many parallels were drawn with B2C marketing (Mudambi, 2002). Given the increase in M&As (Martynova & Renneboog, 2007; Hijzen et al., 2008), existing studies on mergers and acquisitions in a B2B environment were supplemented with studies on intanglible aspects such as branding and how to deal with brand architecture (Basu, 2006; Ohnemus, 2008; Leek & Christodoulides, 2010) as errors often occur in the process of a takeover or a merger (Lambkin & Muzellec, 2010).
Research shows that brand value plays an important role in the choice of a new brand strategy (Ettenson & Knowles, 2006; Lambkin & Muzellec, 2010). However, these studies are exploratory in nature and contain many open ends. For example, in the B2B segment, how brand strategy decisions are established and what considerations are made therein appears to be missing. Although functional and emotional values were the subject of recent B2B studies (Leek & Christodoulides, 2010), it seems that how customer’s perceived value (emotional or functional) plays a role in the final choice for a new brand strategy has not been determined. Most studies into M&As concentrate on the role played by internal stakeholders, but less academic attention has been paid to how external stakeholders such as customers are effected by M&A activities (Kato & Schoenberg, 2014).
Given the importance that "brand value" has gained in B2C literature, it is essential that this theory is tested in a B2B environment. This study will lead to better theoretical insight into how B2B customers assess their supplier’s brand strategy. In addition, this study can be seen as a continuation and deepening of previous studies into functional and emotional values in brand equity (Mudambi, 2002; Leek & Christodoulides, 2011). Lambkin & Muzellec’s (2010) recommendation to validate their qualitative findings with regard to brand equity transfer in B2B M&As with quantitative research will be undertaken in this study.
1.4.2 Managerial relevance
Managers need good steering mechanisms when making business choices. As M&As are daily business and necessary for companies to gain knowledge and skills, it is important that well-informed choices are made in the integration of a new business. In particular following an acquisition or a merger.
Research shows that acquisitions do not often prove to be successful (Porter, 1987; Young, 1981). In many cases this is due to the inadequate management of "soft issues" (Christensen, et al., 2011). Therefore, company managers need to understand the choices (and the importance of these choices) that they have to make for the integration of new businesses. Recent studies show that emotional value also plays a role in the value that a client attaches to a supplier in a B2B environment (Jensen and Klastrup, 2008; Lynch & de Chernatony, 2004). The non-inclusion of this data in a rebranding strategy limits the potential for the full use of a new brand strategy. This study provides managers with guidance to make choices for brand strategies after mergers and acquisitions.
1.5 Scope of research
The research in this thesis focuses solely on M&As in a B2B environment. Insights from a B2C environment will only be viewed in the literature study for the lessons learned and possible insights that might predict outcomes in a B2B environment. This research focuses on acquirer-dominant M&As in which the acquiring company is superior (larger and stronger) to the acquired company. The reason this form of acquisition is selected is because it is the most common and relevant type of acquisition (Ettenson & Knowles, 2006). The M&As in this research will be looked at from a customer point of view: other stakeholders will be disregarded. Despite the fact that insights from other stakeholders are relevant, in the academic world customer response is underexposed (Kato & Schoenberg, 2014). The restriction to one group of stakeholders forms the necessary delineation for this research. Insights from other stakeholders have already been examined regularly (Kato & Schoenberg, 2014). The reactions from the customers of the acquired company are of interest in this study. How do they perceive the M&A and what does that do with their feelings towards the acquired company they do business with?
Finally, customers’ beliefs on perceived brand equity could be measured in various ways. For example, the articles that lead to this research each measured brand equity in different ways (Lee, Lee & Wu, 2011; Jaju et al., 2006; Thorbjørnsen & Dahlén, 2011 and Lambkin & Muzellec 2010). In addition, the definition of brand equity is not uniform in academic theory. However, almost all authors agree on the fact that brand equity involves added value to a product or service based on consumers’ associations and perceptions of a particular brand name (Aaker, 1991; Bendixen et al., 2004; Keller, 1993). For this thesis added value will be specifically be measured on emotional and functional values. The reason for this is the possibility that, in a B2B environment, different reactions occur compared to those in a B2C environment when brand equity is measured by different types of customer perceived value.
1.6 Overview thesis
In order to answer sub questions 1-4, Chapter 2 covers theoretical research into B2B branding in general, brand equity and the way it could be measured, M&A specifics and theoretical insights into customer reactions to M&As. Chapter 2 concludes with hypotheses that form the starting point for empirical research. Chapter 3 describes the research methodology that is used to structure field research. Chapter 4 deals with the results of the pre-test and the main research. These results are analysed in Chapter 5. Finally the conclusions drawn from this research are incorporated in Chapter 6.
2 Literature review and hypotheses
This section covers the first four sub-questions by means of a thorough literature study. First, Paragraph 2.1 explains the general characteristics of B2B branding. In Paragraph 2.2, brand equity in terms of customer perceived value is defined from an academic point of view. Thirdly, how brand mergers are conducted is described in Paragraph 2.3. Finally, this chapter concludes in Paragraph 2.4 with the probable reactions of customers of acquired companies to M&As.
2.1 Characteristics of B2B branding
This section describes specific characteristics of B2B branding. It starts with a comparison to B2C branding in Subparagraph 2.1.1. Then the benefits of B2B branding for both suppliers and buyers are mentioned in Subparagraph 2.1.2. Subsequently the role of branding in the purchasing process is covered in Subparagraph 2.1.3.
2.1.1 Branding, not only for businesses to consumers
Companies and organizations have used marketing for decades. More specifically, they use branding as a tool to distinguish themselves from other suppliers of goods and services (Keller, 2003). A brand can be defined as “a name, term, sign, symbol, or design, or combination of them, which is intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competitors” (Keller, 2003). Historically, brands are mainly associated with products (Gardner & Levy, 1995). Branding was seen as the process whereby value was added to a product (Farquhar 1989). Although branding in B2C markets has been the subject of many studies, branding has received little attention from academics when focused on B2B markets (Beverland, Napoli, & Lindgreen, 2007; Lynch & de Chernatony, 2007; van Riel, de Mortanges, & Streukens, 2005). The main reason for this lack of attention may come from the belief that the B2B sector relies solely on rational decisions (Leek & Christodoulides, 2011c). However, this point of view seems to be out-dated in light of several studies in the last decade (Leek & Christodoulides, 2011c). Although both markets have different competencies, the value of marketing in the B2B sector has been proven. Mudambi (2002) compared basic principles of consumer and industrial markets as seen in Table 1.
Table 1
Comparison of consumer and industrial market characteristics. Adapted from “Branding importance in business-to-business markets - Three buyer clusters” (Mudambi, 2002).
Consumer markets Industrial markets
Emphasis on the tangible product and intangibles in the purchase decision
Emphasis on tangible product and augmented services in the purchase decision
Standardized products Customized products and services
Impersonal relationships between buyer and selling company Personal relationships between buyer and salesperson Relatively unsophisticated products Highly complex products
Buyers growing in sophistication Sophisticated buyers
In conclusion, B2B markets deal with more complex, customized and personal/individual products and services. Unlike B2C markets, B2B markets rely on a personal professional relationship between the buyer and seller. Notwithstanding the differences, B2B markets still benefit from branding activities, only more specifically on customized products and services.
2.1.2 B2B Branding: Benefits for both suppliers and buyers
Suppliers benefit in multiple ways from the way they brand their company and services. Firstly, they benefit from the improved perception of quality (Cretu & Brodie, 2005). Secondly, they benefit by conferring uniqueness (Michell, King & Reast, 2001). Thirdly, they are able to ask a premium price (Low & Blois, 2002; Ohnemus, 2009). Finally, suppliers can use their brand to raise the entry barriers for their services or products in their market (Michell et al, 2001).
Suppliers are not the only ones who benefit from their brand. Their buyers also benefit. Studies note two main benefits. Firstly, buyers have confidence and satisfaction when purchasing a well-known brand (Low & Blois, 2002; Michell et al., 2001). The other buyer’s benefit is the reduced level of perceived risk and uncertainty (Bengtsson & Servais, 2005; Mudambi, 2002; Ohnemus, 2009). Results from extensive research by Leek & Christodoulides (2011a) provide a more detailed summary of brand benefits for both suppliers and buyer as outlined in Table 2.
Table 2
Brand benefits for buyers and suppliers. Adapted from “A literature review and future agenda for B2B branding: Challenges of branding in a B2B context” (Leek & Christodoulides, 2011a).
Benefits for suppliers Benefits for buyers
Quality Higher confidence
Differentiation Reduction of risk/uncertainty
Higher demand Greater comfort
Premium price Identification with a strong brand Brand extensions
Distribution power Barrier to entry raised Goodwill
Loyal customers Customer satisfaction Referrals
As is apparent from Table 2, a strong brand delivers benefits for both suppliers and buyers. A strong brand makes it possible for B2B companies to distinguish themselves from other companies and deliver value to their customers.
2.1.3 Branding in the purchasing process
Subparagraph 2.1.1 indicates that branding does play a role in the B2B purchase process. As noted in Subparagraph 2.1.2, branding provides various benefits to both buyer and supplier. But when does branding play a role in the purchasing process? According to Aaker (1991) the branding model is based on the assumption that branding offers customers functional, emotional and self-expressive benefits. Mudambi (2002) based her conceptual model on classic models and illustrated the links
between the recognition of a purchase need, buyer characteristics, purchase characteristics, the perception of attribute importance, the decision process, and the final choice. The model is displayed in Figure 2.
Figure 2: Branding in the purchasing process. Reprinted from “Branding importance in business-to-business markets - Three buyer clusters” (Mudambi, 2002).
Buyers base their decision on three bundles of attributes (Mudambi, 2002): the product, the augmented services and branding. For example, products could be the price and physical product properties; augmented services consist of technical support services, ordering and delivery services; and branding could be general name awareness, general reputation and purchase loyalty.
Several aspects influence the importance of branding. The nature of the buyer, the characteristics of the customer company and the nature of the purchase situation are all of interest. In addition, there may also be various interactions that influence the buyers’ decision (Mudambi, 2002). Mudambi’s (2002) model is partially supported by other research. According to Bendixen et al (2004) branding is of limited importance (16%) to the purchase decision. More important attributes are: delivery period (27%), price (24%), technology (19%) and the availability of parts (14%). Both Mudambi (2002) and Bendixen et al. (2004) note that absolute product aspects (price an technology) and services (delivery period and availability) are important attributes in the purchasing decision of B2B buyers. Given these outcomes, it is logical to ask what the value of branding is in B2B purchase processes. Beverland, Napoli and Lindgreen (2007) examined global B2B brands and found that these companies share the following attributes: they all build an identity based on adaptability to customer needs and they share the provision of a total solution. However, it is not clear whether B2B branding increases the financial award (Leek and Christodoulides, 2011a)
2.2 Brand equity and measurement scales
This paragraph evaluates brand equity theory and the way it could be measured in a B2B context. Subparagraph 2.2.1 reviews definitions that exist for the term “brand equity”. Subparagraph 2.2.2
develops brand equity theory in a B2B environment. To measure brand equity on functional and emotional values, customer perceived value theory is used to shape the construct for field research. Therefore customer perceived value is defined in Subparagraph 2.2.3. Value dimensions of Customer Perceived Value are shown in Subparagraph 2.2.4, and the definitive construct that is used for this research is described in Subparagraph 2.2.5.
2.2.1 Definition of brand equity
In the 1980s the term “brand equity” appeared to indicate the added value given to the product by the brand (Farquhar, 1989) or to denote an intangible, market-based relational asset that reflects bonds between firms and customers (Christodoulides & de Chernatony, 2010). In the 1990s several researchers added to literature about the subject brand equity (Aaker, 1991; Srivastava and Shocker, 1991; Kapferer, 1992 and Keller, 1993). All these contributions did not lead to a general definition for brand equity (Feldwick, 1996; Vazquez et al 2002, Keller 2003). An overall way of brand equity measure has not been forthcoming (Washburn 2002). According to Feldwick (1996) different approaches can be used in different situations. Aaker’s (1991) definition of brand equity is commonly cited. He defined brand equity as “a set of assets and liabilities linked to a brand, its name and symbol, that add to or subtract from the value provided by a product or service to a firm and/or that firm's customers” (Aaker, 1991).
There are two principal and distinct perspectives that have been taken by academics studying brand equity: finance- and customer-based brand equity. The finance-based perspective comes from a financial market’s point of view. Financial markets typically assess brand on their asset value (Farquhar et al. 1991, Simon and Sullivan 1990). The customer-based perspective assesses brand equity on the consumer’s response to a brand name (Keller 1993, Shocker et al. 1994).
Table 3
Definitions and dimensions of brand equity based on an inventory by Fayrene & Lee (2011)
Definition and dimensions of brand equity Authors
The set of associations and behaviours on the part of the brand’s consumers, channel members, and parent corporation that permits the brand to earn greater volume or greater margins than it would without the brand name and that gives the brand a strong, sustainable, and differentiated advantage over competitors
The Marketing Science Institute (Leuthesser 1988)
The value consumers associate with a brand, as reflected in the dimensions of brand awareness, brand associations, perceived quality, brand loyalty and other proprietary brand assets.
Aaker (1991)
The consumer’s implicit valuation of the brand in a market with differentiated brands relative to a market with no brand differentiation. Brands act as a signal or cue regarding the nature of product and service quality and reliability and image/status.
Swait et al (1993)
Customer-based brand equity occurs when the consumer is familiar with the brand and holds some favourable, strong, and unique brand associations in the memory of customers.
Kamakura & Russell 1993 (Lassar et al.1995)
The differential effect of brand knowledge on consumer response to the marketing of the brand. Brand knowledge is the full set of brand associations linked to the brand in long-term consumer memory.
Keller (1993)
The consumers’ perception of the overall superiority of a product carrying that brand name when compared to other brands. Five perceptual dimensions of brand equity are performance, social image, value, trustworthiness and attachment.
Lassar et al.(1995)
Brand equity is: (1) Loyalty (brand’s real or potential price premium), (2) loyalty (customer satisfaction based), (3) perceived comparative quality, (4) perceived brand leadership, (5) perceived brand value (brand’s functional benefits), (6) brand personality, (7) consumers’ perception of organisation (trusted, admired or credible), (8) perceived differentiation to competing brands, (9) brand awareness (recognition and recall), (10) market position (market share), prices and distribution coverage.
Aaker (1996)
Almost all authors agree that brand equity involves added value to a product or service by consumers’ associations and perceptions of a particular brand name (Aaker, 1991; Bendixen et al., 2004; Keller, 1993). Focus and demarcation, as described in Paragraph 1.5, lies in the customers’ perception of a brand. For that reason, finance-based brand equity will be disregarded in this literature study. Keller’s definition (1993) fits best for this consumer-based brand equity research: “The differential effect of brand knowledge on consumer response to the marketing of the brand. Brand knowledge is the full set of brand associations linked to the brand in long-term consumer memory” (Keller, 1993).
2.2.2 Brand equity in a B2B environment
It has only been a decade since serious attention has been paid to brand equity in a B2B environment. Comparable with B2C literature, authors who studied B2B brand equity distinguish two perspectives (Baumgarth & Schmidt, 2010). The first perspective is characterised by customers’ cognitive and affective responses to the brand. The second perspective is characterised by hard measures such as financial performance. The second perspective is often referred to as the internal perspective (Baumgarth & Schmidt, 2010). As noted in Subparagraph 2.2.1, this study focuses on external (customer-based) brand equity in the B2B environment. For this reason only external B2B brand equity will be enlarged upon in this subparagraph.
In a B2B context, brand equity is gaining serious ground (Ohnemus, 2009). In recent years the number of studies on branding in a B2B context has increased. For example, Jensen and Klastrup (2008) tested the applicability of a general B2C brand equity model in a B2B setting. Findings suggest that the drivers of a B2B customer-based brand are both rational and emotional, providing support to earlier works on the importance of emotion in B2B markets (Lynch & de Chernatony, 2004).
Bendixen et al. (2004), found that due to a higher brand value, B2B customers are willing to pay for their favourite brand a higher price. Moreover, buyers are willing to extend the brand’s goodwill to other product lines and are also willing to recommend the brand to others (Bendixen et al., 2004).
Kuhn et al (2008) tested Keller’s (2003) brand equity pyramid in a B2B setting and created a revised Customer-Based Brand Equity Pyramid. Figure 3 shows both pyramids. It is notable that the two
pyramids contain both functional and emotional aspects of customer based values. Relationship is on top in both pyramids.
Figure 3: A revised Customer-Based Brand Equity Pyramid for B2B (Keller, 2003 and Kuhn et al., 2008). Reprinted
from “A literature review and future agenda for B2B branding: Challenges of branding in a B2B context” (Leek & Christodoulides, 2011a).
As several authors have found that both functional and emotional values play a role in customers’ valuation of brand equity, brand equity should be measured in a scale that contains at least separate functional and emotional values. In literature many definitions and several scales exist for customer perceived value (CPV). Subparagraph 2.2.3. develops CPV theory.
2.2.3 Definition of customer perceived value
Customers are related to the brands they prefer. The reason for this relationship can be based on many different causes. In most cases, suppliers are able to establish distinctive value for the product or service they offer. CPV has been the subject of many studies in B2C markets, but has been neglected in B2B studies. This subparagraph develops CPV theory.
Many years of research have led to a variety of definitions of CPV. Many of them originate from a B2C perspective (Zeithaml, Parasuraman and Berry, 1988; Monroe, 1991; Newman, 1988; Woodruff and Gardial, 1996). However, studies from a B2B perspective have been added to the collection of articles
(Anderson, Jain and Chintagunta 1993; Flint, Woodruff and Gardial, 1997, Hansen et al, 2008; Hulten, 2012; Lapierre, 2000; Ugala and Chacour, 2001). The definitions are shown in Table 4. The most common definition for CPV in a B2B context is that of Flint, Woodruff and Gardial (1997): “The customers' assessment of the value that has been created for them by a supplier given the trade-offs between all relevant benefits and sacrifices in a specific-use situation” (Flint, Woodruff and Gardial, 1997). Given the fact that many recent studies in a B2B context agree on this definition, it will be used for this research.
Table 4
Definitions of Customer Perceived Value (CPV), (source: own preparation)
Definition of Customer Perceived Value Authors
The consumer's overall assessment of the utility of a product based on a perception of what is received and what is given.
Zeithaml, Parasuraman and Berry (1988)
Ratio of perceived benefits relative to perceived sacrifice. Monroe (1991); Newman (1988), Hansen et al (2008)
Trade-off between desirable attributes compared with sacrifice attributes. Woodruff and Gardial (1996)
Perceived worth in monetary units of the set of economic, technical, service, and social benefits received by a customer firm in exchange for the price paid for a product offering, taking into consideration the available alternative suppliers' offerings and price.
Anderson, Jain and Chintagunta (1993)
The customers' assessment of the value that has been created for them by a supplier given the trade-offs between all relevant benefits and sacrifices in a specific-use situation.
Flint, Woodruff and Gardial (1997); Hulten (2012); Lapierre (2000); Ugala and Chacour (2001)
When analysing the definitions of customer-perceived value presented in Table 4, three key issues can be identified: the multiple components of value, the impact of roles and perceptions, and the importance of competition (Ugala & Chacour, 2001). Subparagraph 2.2.3 of this thesis elaborates on the theory that customer perceived value consists of multiple components. In addition, the role of the perception of customers can be traced to the type of customer. In this research the distinction is made between B2B and B2C customers. Paragraph 2.1 develops that subject. Finally, the competition element is reflected in the M&A strategy (superior vs. inferior). More on that subject can be found in Paragraph 2.3.
2.2.4 Value dimensions of perceived value
As noted in Subparagraph 2.2.3, CPV consists of multiple components. Typically, most definitions and conceptualisations in the B2B environment focus on the economic worth of tangible outcomes. For example, Anderson and Narus (1990) state that: “… the worth in monetary terms of the economic, technical, service and social benefits a customer receives in exchange for the price it pays for a product offering” (Anderson and Narus, 1990). According to earlier studies, emotional values should be relatively unimportant because of the purchase process that is generally followed in a B2B context.
Buyers require tangible aspects to make their decision to purchase a product or a service (Aaker, 1991; Abratt, 1986; Bendixen et al., 2004; Kuhn et al., 2008).
Lynch & De Chernatony (2004) argue that brands are clusters of functional and emotional values that promise a unique and welcome experience between buyer and supplier. Sweeney and Soutar (2001), note that other authors have also suggested that it is too simplistic to only view value as a trade-off between price and quality. They base their statement on findings from Schechter (1984), Bolton & Drew (1991) and Porter (1990). For example, Porter (1990) indicates that: “superior value to the buyer in terms of product quality, special features, or after-sale service” is important. Sweeney and Souter (2001) suggest that existing constructs (up on 2001) are too narrow and that dimensions other than price and quality would increase the construct’s usefulness. Their conclusion strengthens earlier thoughts that additional values other than functional values play a role in the decision making process of consumers. More recently, other authors confirm the fact that evaluation of value is subjective in nature (Garcie-Acebron et al., 2010; Parry et al., 2012).
The literature revealed different views on CPV (Table 5). Perhaps one of the most used scales for measuring CPV is the division on dimensions that was created by Sweeney and Souter (2001). They used Seth et al.’s (1991a, 1991b) partition as a strong foundation for creating their own design of a construct for measuring CPV. (Sweeney and Soutar, 2001).
Table 5
Value dimensions (source: own preparation)
Author: Dimensions: Values:
Seth et al (1991a & 1991b) Social value -
Emotional value -
Functional value -
Epistemic value -
Conditional -
Ruyter, de, K., Wetzels, M., Lemmink, J. & Mattson, J. (1997)
Emotional dimension Intrinsic values
Functional dimension Extrinsic values
Logical dimension -
Ugala & Chacour (2001) Functional Quality, (product, service, promotion)
price.
Sweeney & Soutar (2001) Functional Price / value for money
Functional Quality / performance
Emotional -
Social -
Leek & Christodoulides (2011) Functional Quality, technology, capacity, infrastructure, after sales services, capabilities, reliability, innovation, price.
Emotional Risk reduction, reassurance, trust,
2.2.5 Scales for measuring brand equity
The construct developed by Sweeney and Soutar (2001), the PERVAL scale, can be used to assess customers’ perceptions of value. Although the PERVAL scale was originally developed to measure the value of a customer durable good or service at a brand level, Sweeney and Souter (2001) indicate that this construct can be used for a variety of potential applications. For this research, in which the presence of several dimensions of perceived value are tested, the PERVAL scale constitutes an appropriate basis for structuring the survey.
The PERVAL scale has four distinct value dimensions: emotional, social, quality/performance and price/value for money (Table 6). Emotional value can be specified as “the utility derived from the feelings or affective states that a product generates” (Sweeney and Soutar, 2001). Secondly, social value (enhancement of social self-concept) can be specified as “the utility derived from the product’s ability to enhance social self-concept” (Sweeney and Soutar, 2001). Thirdly, functional, value as in price/value for money, can be specified as “the utility derived from the product due to the reduction of its perceived short term and longer term costs” (Sweeney and Soutar, 2001). Finally, functional value, as in performance/quality, can be specified as “the utility derived from the perceived quality and expected performance of the product” (Sweeney and Soutar, 2001).
The reliability and validity of the scale was determined using exploratory and confirmatory analyses. These analyses show that all four dimensions contribute significantly to the determination of customer perceived value both in pre purchase and post purchase situations.
Tabel 6.
Summary of final results from exploratory Factor Analysis. Table reprinted from “Consumer perceived value: The development of a multiple item scale” (Sweeney and Soutar, 2001).
The division into different dimensions makes it possible to test whether different values occur before and after the acquisition of a company by another company. Moreover, the division into different dimensions makes it possible to check if there is a specific value that changes. For example, emotional versus functional values.
Three-item scale for brand equity
Sweeney and Souter’s (2001) PERVAL scale does not measure brand equity in general. For that reason, Davis et al.’s (2008) three-item construct could be added to the questionnaire. This construct consists of the following questions that are all positively tested for reliability. “We are willing to pay more in order to do business with this company” (0,76), “This company's brand is different to other companies” (0.79), “The name of this company gives them an advantage over other companies” (0.78) (Davis et al., 2008; Davis, 2003).
2.3 Theoretical insights on brand mergers
To manage challenges in market fragmentation, business environments and channel dynamics, managers structure and create relationships in a company’s brand strategy. According to Aaker & Joachimsthaler (2000a): “coherent brand architecture can lead to impact, clarity, synergy, and leverage rather than market weakness, confusion, waste and missed opportunities” (Joachimsthaler, 2000a).
2.3.1 What drives companies to merge?
One of a company’s most valuable possessions is their brand. Therefore, it is not surprising that the brand plays an important role in an M&A. In general, companies acquire others to add additional capacities and competitiveness in a relatively short period of time (Lynch and Lind, 2002; Lipponen et al., 2004). However, companies may have several reasons for merging or acquiring other companies. According to Nadolska and Barkema (2007) four main reasons exist. First of all, an M&As may bring benefits such as market power. Secondly, M&As make it possible to redeploy assets. Thirdly, technical knowledge can be exploited. Fourthly, an increase in shareholder value is achieved, at least in the short run.
Many mangers believe that a company‘s growth and diversification of objectives could be achieved in a quicker and easier way (Datta, 1991). However, research shows that nearly half of all acquisitions performed were not very satisfactory for managers of the acquiring firms (Porter, 1987; Young 1981; Nadolska and Barkema, 2007). Christensen, et al. (2011) proved that most M&As fail because acquirers do not execute their buying and management in a systematic way. Difficulties in acquiring, noted by Nadolska and Barkema (2007), were: difference in corporate cultures and management styles, perceived inequalities in compensation, the possibility of lay-offs, resistance to the acquirer’s directives, and an increase in the size and management scope of the combined company.
To achieve success in acquiring other companies, it is important to find candidates that match correctly (Christensen, et al., 2011). Ultimately, companies need to develop knowledge and routines to overcome the problems described above (March et al, 1991).
2.3.2 Brand architecture
The discipline of structuring and managing challenges in branding is called brand architecture. Aaker & Joachimsthaler (2000a) define brand architecture as: “… an organizing structure of the brand portfolio that specifies brand roles and the structure of relationships between brands.” Balmer & Gray (2003) provide a similar definition: “Brand architecture refers to the relationship among and between corporate, company (subsidiary), and product brands. Such relationships embrace products and services, or a mixture of the two across the hierarchy of brands”. Thus, a firm’s brand architecture is its collection of brands and their interrelationships, and typically consists of umbrella, line, and modifier brands (Aaker & Joachimsthaler, 2000a).
A tool to manage a brand portfolio is the brand relationship spectrum. This tool, developed by Aaker & Joachimsthaler (2000a), is intended to “help brand architecture strategists to employ, with insight and subtlety, sub brands and endorsed brands” (Aaker & Joachimsthaler, 2000a). Basically, the tool consists of four types of brand strategies: house of brands, endorsed brands, sub brands and branded house.
The house of brands and the branded house represent two strategies at either end of the spectrum. A house of brands is a strategy that is based on independent, unconnected brands. In contrast, the branded house uses a single master brand to drive several offerings (Aaker & Joachimsthaler 2000a). In the middle of the spectrum are endorsed brands and sub brands. In the following text all four strategies are explained.
A house of brands
As stated above, the house of brands strategy is a strategy in which a company uses an independent set of stand-alone brands. Al different brand have their own challenge to maximize their impact on the market (Aaker & Joachimsthaler 2000a). A good example of a company using the house of brands strategy is Procter & Gamble. It operates with more than 80 major brands that are not (or are only slightly) connected to each other or to Procter & Gamble.
When using a house of brands strategy, companies cannot benefit from economies of scale or associated synergies. They risk stagnation and decline. However, the benefits are the opportunity to visibly position brands on functional benefits. Another benefit is to dominate niche segments (Aaker & Joachimsthaler 2000a). According to Aaker & Joachimsthaler (2000a) additional reasons for choosing a house of brands strategy could be:
- avoiding an association that would be incompatible with an offering - signalling breakthrough advantages of new offerings
Aaker and Joachimsthaler (2000a) distinguish two sub categories within the house of brands strategy: not connected and shadow endorser. Not connected has been explained above. The shadow endorser is a sub strategy in which a brand is not visibly connected, but many consumers know about the link between the brands. The brands represent a different product and market, but have the advantage of one brand backing up the other.
Endorsed brands
Within the endorsed brands strategy, the brands are still independent but they are also endorsed by another brand that is usually an organisational brand (Aaker & Joachimsthaler 2000a) (for example, Polo Jeans by Ralph Lauren). The benefits of being endorsed by an established brand are added credibility and substance. Saunders and Guoqun’s (1997) study, cited by Aaker & Joachimsthaler (2000a), shows that corporate endorsements add value. The endorser strategy has two variants: token endorser and linked name (Aaker & Joachimsthaler 2000a).
The token endorser is similar to an endorsed brand, but the endorser strategy usually features less prominently. By giving the endorsed product enough space, the endorser allows the endorsed product to develop its own reputation (Aaker & Joachimsthaler 2000a).
The linked name strategy uses naming to create endorsements. The endorser lends a recognisable part of their brand to the naming system. A good example of a brand that uses their brand to create endorsement is McDonalds. They link their products, such as McNuggets, McMuffin and Big Mac, to their brand by using Mc or Mac in the product name and thus establish an endorsed relationship (Aaker & Joachimsthaler 2000a).
Sub brands
Sub brands are connected to their master brand and allow master brands to target niche markets or spread into new areas. The master brand is the primary frame of reference. Sub brands are closely related to the master brand and spread the original brand to additional attribute associations. The downside of this close relationship is the potential to affect the association of sub brands with the master brand. Additionally, such close proximity can also restrain the sub brand’s development (Aaker & Joachimsthaler 2000a).
Branded house
The main characteristic of a branded house strategy is that the master brand moves from the primary driver role to the dominant driver role (Aaker & Joachimsthaler 2000a). The brand uses a strategy in which the brand is equivalent to the company itself. The branded house strategy offers many benefits. First of all, the branded house strategy leverages an established brand. Services and products were brought together under the umbrella of a single, strong brand. Due to the unambiguous method of branding, investments required for each product or service are minimized. This strategy is also referred to as economies of scale (Aaker & Joachimsthaler 2000a).
The disadvantages of a branded house strategy arise from the fact that individual units do not have their own identity or autonomy. This limits departments in their breadth of marketing efforts. Reverse reasoning, or negative reactions to a single product or service could draw back on the entire brand (Aaker & Joachimsthaler 2000a).
When it comes to choosing which side of the spectrum fits best for a new brand strategy, Aaker & Joachimsthaler (2000a) use four key questions to provide direction (see Table 7).
Table 7
Four questions offering assistance when making new brand strategy decisions. Adapted from “The Brand Relationship Spectrum: The Key to the Brand Architecture Challenge” (Aaker & Joachimsthaler, 2000a).
Towards a Branded House Towards a House of Brands
Does the master brand contribute to the offering by adding: Is there a compelling need for a separate brand because it will:
- associations enhancing the value proposition? - create its own association? - credibility with organisational associations? - represent a new, different offering?
- visibility? - avoid an association?
- communication efficiencies? - retain/capture a customer/brand bond? - deal with channel conflict
Will the master brand be strengthened by associating with the new offering?
Will the business support a new brand name?
Although the brand strategy spectrum provides a tool for making brand strategy decisions, most companies still use a mixture of the four main strategies. Therefore, the main strategies cannot be seen as an absolutely required law (Aaker & Joachimsthaler 2000a).
2.3.3 Strategies for brand mergers
In general, four strategies are distinguished when two firms (A and B) merge their corporate brands (Basu, 2006). These strategies are:
1) One brand strategy (A or B) 2) Joint Brand strategy (A-B) 3) Flexible Brand strategy (A & B 4) New Brand strategy (C)
Figure 4, Integrating corporate brands. Reprinted from “Merging brands after mergers” (Basu, 2006)
According to Basu (2006) the same four strategies are also mentioned by Ettenson & Knowles (2006) who expand the strategies into ten sub strategies (Figure 5).
Figure 5, Ten strategies for branding a merger. Reprinted from “Merging the brands and branding
These ten sub strategies are the result of possible variations in names and symbols. - Backing the stronger horse (4x) (use strongest brand)
- Best of both (4x) (adopting the best of both brands) - Different in kind (1x) (new brand)
- Business as usual (1x) (no brand changes will occur)
The first key result in the study of Ettenson & Knowles (2006) is that nearly 64% of all cases, companies choose to rebrand the acquired company immediately (new name and symbol, 39,6%) or leave everything as before the M&A (23,7%). The other key result is that they found that brand strategy was not an important component of most companies’ M&A deliberations. This second conclusion is confirmed by Lambkin & Muzellec (2010), who show that in M&As often lead to improper dealing with companies’ original brand equity. Prior to acquiring companies is how to eliminate unnecessary costs and focus on financial performance (Lee, Lee & Wu, 2011; Krishnan, Hitt & Park, 2007).
2.4 Customers’ reactions to M&A processes
Many studies exist about the general effects of M&As. Only a small number of studies focus specifically on customer valuation of brand equity in M&A processes. Within this small number of studies, only a few researchers use the B2B environment for their research. In addition, research on the specific area of B2B customer valuation of brand equity in M&A processes is explorative in nature and not quantitatively supported.
This chapter provides an overview of customer beliefs about brand equity of companies that have been acquired by other companies. As there is limited research into B2B customer’s beliefs to brand equity in M&A processes, research in a B2C environment is examined in Subparagraph 2.4.1. followed by an examination of available research in a B2B perspective Subparagraph 2.4.2.
2.4.1 Reactions of B2C customers in an M&A process
Many studies have focussed on the effect of M&As on internal stakeholders (Kato & Schoenberg, 2014). Only a few studies have evaluated the effects of an M&A to brand equity from a marketing perspective in which the brand equity of both the acquiring and acquired brand is considered (Thorbjørnsen & Dahlèn, 2011; Lee, Lee & Wu, 2011; Jaju et al., 2006). As superior-dominant acquisitions cover the largest section of all executed M&As (Ettenson & Knowles, 2006) and it is used as the proposed strategy in this study, this paragraph will solely focus on customer’s reaction to the acquired company in a superior-dominant acquisition. This section examines the perceived benefits and challenges mentioned by Ettenson & Knowles (2006), the customer reactions discovered by Thorbjørnsen & Dahlèn (2011) and the findings of Jaju et al.’s (2006) research into customer evaluations of corporate brand redeployments.
Ettenson & Knowles (2006) distinguish 10 options for corporate rebranding after an M&A. All rebrand options have unique benefits and challenges for customers, employees and the investment
