'Even if the merged company is the result of a so-called balanced merger and not a takeover, employees, investors and customers receive the same clear message,' says Helge Thorbjørnsen, professor of marketing at the Department of Strategy and Management.

Winner and losers

The message is: This merger has a winner and a loser.

'Customers who are "losers", who have not expressed any wish to change suppliers, will often experience psychological resistance as a result of their perceived freedom of choice being set aside.'

In collaboration with Professor Micael Dahlén at the Stockholm School of Economics, Thorbjørnsen has carried out a series of studies of customers' reactions to real and fictional mergers. This work has resulted in the article 'Customer reactions to acquirer-dominant mergers and acquisitions', which was published recently in the International Journal of Research in Marketing.

'Previous research has shown that companies that merge are often unable to achieve their financial goals and often do worse than their competitors in the years following the merger. Many factors have been studied in an attempt to explain this, but questions relating to the customers' reactions to mergers and acquisitions have rarely been investigated.'

The customers' reactions were precisely what Thorbjørnsen and Dahlén wanted to study. The study was based on the hypothesis that the customers of the smallest company in mergers and acquisitions react with frustration, dissatisfaction and - finally - by changing suppliers. They do not like the 'forced marriage' and react with reactance, or psychological resistance.

Mergers in the insurance industry

The choice of brand name has a strong symbolic value in merger processes, and this was also something the researchers focused on in their research.

'The most common brand strategy in mergers and acquisitions is to keep the biggest brand name and remove the smallest one, the so-called "backing-the-strong-horse' strategy".'

This was the case in the first study conducted by the researchers. The study was carried out during the merger of two Scandinavian insurance companies. During the merger process, it was decided that brand A (the biggest company) should be used as the brand name of the merged company.

The perception of customers of brand B (the smallest company) would therefore be that they were 'transferred' to brand A. A study was carried out of brand B's customers, where half the respondents (randomly chosen) were informed about the merger and the final choice of brand name, while the other half did not receive this information.

'In line with the reactance theory, the customers who received information about the imminent merger upgraded their view of their own brand (brand B), their attitude to the acquiring brand (brand A) became more negative and their intention to change suppliers became stronger when compared with the control group.'

Thorbjørnsen and Dahlén wanted to test this effect further and conducted five new studies in other empirical settings. The second study was conducted in Sweden, where they tested the effects of a merger between two supermarket brands.

Wanted to shop elsewhere

'We found the same effects in this setting: When the customers of the smallest brand are informed about the merger itself and that the acquiring brand will be the final brand name of all the shops after the merger, they downgrade their attitude to the brand that takes over, inflate their attitude to the existing brand, "their brand", and report that they will shop more at competing brands in future.'

Such psychological resistance among customers leads to a change in attitude, whereby customers will upgrade their assessment of their own brand's attractiveness, i.e. the brand name that disappears becomes more attractive, and their assessment of the attractiveness of the brand that takes over is downgraded, says Thorbjørnsen.

As a result, customers long for the old company and increase their intention to change companies.

'The results from a total of six studies all show that the customers of the company that is "devoured" during mergers and acquisitions develop psychological resistance, more negative attitudes to the acquiring brand and a stronger intention to change companies after the merger.'

'However,' says Thorbjørnsen, 'our study shows that, when the customers are allowed to participate in the merger in some way, for example in the choice of name, resistance is reduced. What should the company be called after the merger? The negative reactions disappear completely in many cases when the customers are involved and their freedom of choice is in a way restored. Interestingly enough, the negative reactions are strongly reduced even when the customers are involved in obviously unimportant questions, such as what IT system the merged company should use.'

The findings from the last five studies, which were conducted in the bank, supermarket and retail furniture sectors, show the same clear results and contribute even more to validating reactance as an explanation of the observed effects.

'The five studies also confirm that these findings are robust, both when we control for customers' existing attitude to the brands, the quality of products and services, and price. We also find the same reactance effects even when the acquiring brand is initially better liked -also among brand B's own customers.'

Last on the agenda

The NHH professor believes that the results of these studies can help to provide new insight into why merged companies often perform worse than their competitors financially after acquisitions and mergers.

'The findings also contain some very tangible advice as to how companies should behave in relation to customers in merger processes. I believe that both executives and academics could benefit from looking more closely at factors relating to customers' experience and expectations of mergers,' he claims.

In merger processes, executives' focus is often on expected cost savings, financing the merged company and planning the expected integration process, Thorbjørnsen believes.

'Market-related considerations, such as brand strategy, positioning of the merged company and insight into the expected reactions among the customers of the company that is "devoured", normally come last on the agenda.'

For this type of experiment-based studies, the NHH professor says, it is always possible to argue that the effects probably decrease - and perhaps also disappear - over time. Once the initial reactance blows over, most customers may well continue as before and in time become just as satisfied as they were before the merger.

'That is possible, of course, but the data from the American Consumer Satisfaction Index, for example, tell another story. Here, the customers were still more negative about their own company as long as two years after the merger,' Helge Thorbjørnsen concludes.



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