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European Journal of MarketingEmerald Article: Brand image strategy affects brand equity after M&A

Hsiang-Ming Lee, Ching-Chi Lee, Cou-Chen Wu

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Brand image strategy affectsbrand equity after M&A

Hsiang-Ming LeeDepartment of Business Administration and Institute of Business

& Management, Ching Yun University, Jhongli City, Taiwan

Ching-Chi LeeJean Yves Enterprise Co. Ltd, Taipei City, Taiwan, and

Cou-Chen WuDepartment of Business Administration,

National Taiwan University of Science and Technology, Taipei City, Taiwan

Abstract

Purpose The purpose of this study is to examine the relationship between the variance of twobrand images and dimensions of brand equity after M&A, especially when the acquirer-dominant isaffiliated to a weak brand image and the acquired one has a stronger brand image.

Design/methodology/approach In total, 409 responses were collected through random samplingfrom an internet survey platform in Taiwan (weak image differences were gathered from 209respondents and strong image differences were gathered from 200 respondents).

Findings This study uses an experimental design to discuss how the variance of two brand images(this study uses two kinds of M&A: a company with an inferior brand image acquires one with asuperior or average brand image) affects the acquirers brand equity (perceived quality, brandassociation, and brand loyalty). This study also examines how brand equity of an acquired brandchanges after M&A. Results from the MANOVA and paired-sample t-test methods show that the

greater the perceived differences between acquirers and acquired brands, the more the brand equity ofthe acquirer will increase. In addition, all the dimensions of brand equity for the brand with a superiorimage decrease significantly.

Originality/value Few studies have evaluated the brand image effect of an M&A from amarketing perspective. The contribution is to help managers understand whether the acquirer shouldpreserve the obtained brand and focus on increasing brand equity of the acquired brand to avoid theloss of customer loyalty.

Keywords Brand image, Brand equity, Brand loyalty, Taiwan

Paper type Research paper

IntroductionAs the current economic environment becomes more competitive and introducing new

brands becomes increasingly costly, companies must find new strategies to increasetheir capacity and competitiveness (Lipponen et al., 2004). Mergers and Acquisitions(M&A) is a very important strategy for companies. M&A can enable acquiringcompanies to obtain technologies, products, distribution channels and desirablemarket positions (Schweizer, 2005). Acquiring companies tend to focus on cost cuttingand financial performance after completion of the M&A deal, but they neglect toconsider consumer perceptions of the M&A. This practice may compel manyconsumers (Bekier and Shelton, 2002) given their uncertainty regarding the future

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/0309-0566.htm

Brand imagestrategy

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Received May 2008Revised January 2009

Accepted September 2009

European Journal of Marketing

Vol. 45 No. 7/8, 2011

pp. 1091-1111

q Emerald Group Publishing Limited

0309-0566

DOI 10.1108/03090561111137624

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performance of the acquiring company (e.g. price, quality of products and services)(Homburg and Bucerius, 2005).

Recently, some companies with an inferior brand image have used an M&Astrategy to acquire superior image brands. For example, Tata Motors Limited from

India acquired Jaguar Cars Limited and Land Rover in 2008. Under suchcircumstances, customers may have concerns regarding the acquiring companysability to maintain the quality or image of the superior brand after the M&A. It isimportant for managers to understand how the difference between the two brandimages can influence acquirer and acquired brands. In the M&A process, the worststrategy for brand managers is to do nothing after the M&A and let the brands go theirseparate ways as they did before the pre-merger (Basu, 2006). Hence, the acquiringcompany needs to know how to manage the migration of a brand to the new companyand ensure that customers will remain loyal to their brand (Kumar and Blomqvist,2004). Measurement of brand equity is an ongoing concern, in relation to M&A, andhas received little attention in academic literature (Ratnatunga and Ewing, 2009).However, a few existing research studies have examined the brand image effects onbrand equity after M&A. Therefore, this study utilizes an experimental design toexamine the different effects of brand equity on an inferior brands image after it hasacquired a brand with a superior or an average image. In addition, this study examineshow consumer attitudes change towards the acquiring and acquired brand after M&A.Balance theory is useful in explaining attitude formation and attitude change (Dean,2002) and this study uses balance theory for its hypotheses.

Literature review and hypothesisBrand equityCustomer-based brand equity occurs when customers are familiar with the brand andhold favorable, strong and unique brand associations in memory (Keller, 1993). Aaker

(1996b) has stated that brand equity is a set of assets and liabilities. Five brand equityassets brand loyalty, brand awareness, perceived quality, brand association and otherproprietary brand assets are fundamentals of value creation. This study uses these fivebrand equity classifications from Aaker (1991), as they are the most acceptable to-date.

As brand equity is a multidimensional concept (Aaker, 1991), research has varioussuggestions for measuring its dimensions some include brand loyalty and brandassociation (Schoker and Weitz, 1988). There is also brand knowledge, whichcomprises of brand awareness and brand image (Keller, 1993). Furthermore, Yoo et al.(2000) have suggested that perceived quality, brand loyalty and brand awareness havea strong brand association. Among the five brand equity assets, it is very difficult tomanipulate a consumers perception of brand association in an experiment (Pappu et al.,2006). Furthermore, other proprietary brand assets, such as patents, are not easy to

measure. Therefore, the current study uses brand loyalty, brand association andperceived quality as the measurements of brand equity.

Brand loyalty is an important consideration when estimating the value of a brand asloyalty can translate into profit (Aaker, 1991). Brand loyalty is a barrier for newcompetitors and forms the basis for a price premium (Aaker, 1996b). Brand loyalty alsoencourages repeated purchase behavior from consumers, and discourages them fromswitching to competitor brands (Yoo et al., 2000). Therefore, the greater the customerloyalty, the higher the brand equity will be. Perceived quality is another dimension of

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brand value that can encourage customers to choose a product or service (Zeithaml,1988). Perceived quality can be defined as the customers perception of the overallquality or superiority of a product or service with respect to its intended purpose,relative to alternatives (Aaker, 1991). Customers product experiences, expenditure

situations and unique needs might influence their judgment of product quality (Yooet al., 2000). Since customers make their choices based on product attributes andcompare these to other products, perceived quality is not an objective measure.Perceived quality can increase customer satisfaction, provided the customer has hadsome previous experience with the product or service (Aaker, 1996a). Hence, perceivedquality is generally associated with brand equity (Motameni and Shahrokhi, 1998), andthe better the perceived quality, the greater the brand equity (Yoo et al., 2000).

From a brand association perspective, Aaker (1991) felt that brand equity is closelyrelated to brand association. A brand association is anything linked in memory to abrand (Aaker, 1996a). Keller (1998) suggested that brand association can be dividedinto three major categories: attributes (including product-related attributes andnon-product-related attributes such as price, brand personality, emotions andexperience), benefits (what customers think the product or service can do for them,including functional benefits, symbolic benefits and experiential benefits) and attitudes(customers overall evaluations of the brand). The most powerful brand associationsare those that deal with the intangible or abstract traits of a product. Brand associationcan assist with spontaneous information recall (van Osselaer and Janiszewski, 2001)and this information can become the basis of differentiation and extension (Aaker,1996b). Strong association can help strengthen brand and equity. Similar to perceivedquality, brand association can also increase customer satisfaction with the customerexperience (Aaker, 1991).

Brand image

Keller (1993) defined brand image as perceptions about a brand as reflected by thebrand association held in consumer memory. These associations refer to any brandaspect within the consumers memory (Aaker, 1996a, b). Basically, brand imagedescribes the consumers thoughts and feelings towards the brand (Roy and Banerjee,2007). In other words, brand image is the overall mental image that consumers have ofa brand, and its uniqueness in comparison to the other brands (Faircloth, 2005).

Brand image comprises a consumers knowledge and beliefs about the brandsdiverse products and its non-product attribute. Brand image represents the personalsymbolism that consumers associate with the brand, which comprises of all thedescriptive and evaluative brand-related information (Iversen and Hem, 2008). Whenconsumers have a favorable brand image, the brands messages have a strongerinfluence in comparison to competitor brand messages (Hsieh and Li, 2008). Therefore,

brand image is an important determinant of a buyers behavior (Burmann et al., 2008).In the B2B market, brand image also plays an important role. This is especially sogiven that it is difficult to distinguish between products and services, based on theirtangible attributes (Mudambi et al., 1997).

Balance theoryBalance theory owes its origins to Heider (1958) and its basic model is the triad of aperson (p), another person (o) and an entity (x) (Carson et al., 1997). This theory states

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that an individual wants to maintain consistency among the triad of linked attitudes(Russell and Stern, 2006). According to balance theory, these triadic relationships caneither be balanced or imbalanced (Dean, 2002). A balanced relationship comprises oftwo people who have the same attitude towards an object (Heider, 1958). When a

relationship is imbalanced, it will cause systematic tension. If the tension persists, thenthe individual will attempt to both mentally and physically, decrease tension and movetowards a balanced state (Woodside, 2004; Homburg and Stock, 2004). A relationship isimbalanced if there are two people in a relationship with opposing attitudes towardsthe object another (e.g. A dislikes the object but B likes it). These circumstances, incognitive tension, would lead to behavior that attempts to balance the system; that is,A can change his attitude to be consistent to Bs attitude in order to rebalance thesystem (Homburg and Stock, 2004).

In this study, balance theory is applied to a relationship system involving threeseparate entities: inferior brand image, superior or average brand image andcustomers. Based on the balance theory, this system reaches a balanced state if a

customers attitude towards a brand with an inferior image changes after purchasing abrand with a superior or average image, and is similar to customers who havepurchased a brand with a superior or average image.

Effects of brand image on customer-based brand equityA favorable brand image would have a positive influence on consumer behaviortowards the brand in terms of increasing loyalty, commanding a price premium andgenerating positive word-of-mouth (Martenson, 2007). Marketing studies argue thatbrand image is an important factor affecting brand equity (Biel, 1992, 1993;Villareji-Ramos and Sanchez-Franco, 2005). Faircloth et al. (2001) also found that themore positive the brand image, the more consumers are willing to pay and thus the

greater the brand equity.Many successful companies with an inferior brand image merge and acquire

companies with a superior brand image in order to increase their market share(Nguyen and Kleiner, 2003). Meanwhile, companies also want to take advantage of astronger brand image to improve their own image (Rao et al., 1991). In this acquisition,companies endeavor to change consumer perception of the inferior brand, and maintaintheir cognitive consistency towards brands with an inferior and superior image, as perthe balance theory (Heider, 1958). The balance theory proposes that, consumers valueharmony among their thoughts and they are motivated to reconcile incongruentthoughts (Dean, 2002). Therefore, when there is imbalance, people change theirattitudes or behaviors to restore balance. In addition, the stronger the attitude towardsthe original object, the more likely it is that similar attitudes will be held towards other

associations related to that object (Dalakas and Levin, 2005). This image improvementis the most important goal that a company, with an inferior brand image, desires toaccomplish after completing the M&A. Based on the aforementioned point, ifconsumers have a positive attitude towards the obtained brand, they may adopt apositive attitude or change their existing attitude towards the obtained brand. That is,the stronger the image of a company with an inferior brand, the greater a companysbrand equity. The relationships between brand image and consumer-based brandequity sub-dimensions are as follows:

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Brand association can help consumers process and recall information, serve as the

basis of dissimilarity and extensions and provide a reason to purchase and createpositive feelings toward the brand (Aaker, 1992). Brand association, based on the types

of associations held, leads to a stronger market position in comparison to other brands.

Such associations include brand image, price and country-of-origin (OCass and Lim,2002). A brand image can be an association set and is usually organized in somemeaningful way (Aaker, 1991). Keller (1993) has argued that if a brands image is

related to association (e.g. attribute and attitude), the brands association gains,

favorable strength and uniqueness in the mind of the consumer. A positive brand

image is created by marketing programs that link powerful and unique associations to

a consumers memory of the brand (Keller, 1998). That is, brand image can create

associations that elicit positive feelings and attitudes towards the brand (Porter andClaycomb, 1997). Besides, Biel (1992) has argued that brand association could also arise

from corporate image, product image and user image. Most of the corporate association

theory has been developed from corporate image (Power et al., 2008).

Application of balance theory, suggests that consumers will increase their positiveassociation with an inferior brand image, when it is acquired, by a company, with a

good brand image. Therefore, the more superior the brand image, the stronger the

brand association will be (Dalakas and Levin, 2005). Based on the previous overview,

our hypothesis is that:

H1. The better the brand image acquired by one with an inferior image, the morethe brand association will increase.

The effect of brand loyalty on marketing costs is critical because attracting a newconsumer costs more than retaining an old one (Wood, 2001). Furthermore, loyal

consumers create a barrier that makes it difficult for competitors to enter the market

(Keller, 1998). There are no other assets in a business comparable to its brand and asuperior brand can attract consumers, develop their loyalty and capture theirimagination (Schultz, 2005). A popular brand not only attracts more customers, but

those consumers also have greater loyalty to the brand (Ehrenberg et al., 1990). Brandpopularity occurs due to factors such as a superior brand image, word-of-mouth and

imitation (Kim and Chung, 1997). In B2B markets, brand image is also an importantfactor in a customers perception of a product or service, especially when it is difficult

to differentiate products or services based on tangible features (Cretu and Brodie,

2007). Nandan (2005) believed that a company could increase brand loyalty by assuring

consumers that its brand image and identity are congruous. In addition, many studieshave proposed that brand image has a positive influence on consumer loyalty

(Zeithaml, 1988; Zins, 2001). More favorable brand images lead to greater customer

loyalty (Andreassen and Lindestad, 1998; Johnson et al., 2001). As per the balancetheory (Heider, 1958), brand loyalty towards an inferior image brand will increase afterit merges with a brand with a superior image, and vice versa. In addition, the more

superior the brand image, the more the brand loyalty increases (Dalakas and Levin,

2005). Based on the aforementioned literature, our hypothesis is that:

H2. The better the brand image acquired by one with an inferior image, the morethe brand loyalty will increase.

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Perceived quality is defined as a buyers evaluation of a products cumulativeexcellence (Zeithaml, 1988; Grewal et al., 1988). Perceived quality refers to a consumersintangible perception of the whole quality or superiority of a product or service theiroverall feeling about the brand (Ramaseshan and Tsao, 2007). Information about

intrinsic cues (e.g. brand features) and other extrinsic cues such as brand image,country-of-origin image, brand name, price or the amount that advertising caninfluence perceived quality (Speece and Nguyen, 2005; Ahmed et al., 2006). A brand,which is usually associated with quality, can create an image in the consumers mindand can be motivation to buy a particular product (Vranesevic and Seancec, 2003).Hankinson (2005) has investigated the brand image of a travel destination from theperspective of a tourist and has identified three dimensions: overall attractiveness ofthe destination, functionality and ambience. All three dimensions were correlated toperceived quality. Research has demonstrated the positive relationships betweenbrand image and quality of service or products in both qualitative studies (Browanet al., 2001) and quantitative studies (Andreassen and Lindestad, 1998; Bloemer et al.,1998; Cretu and Brodie, 2007). According to the balance theory (Heider, 1958), a

consumers perceived quality of a brand with a negative image will improve after itmerges with a brand with a positive image, and vice versa. In addition, superiority ofthe brand image they acquire is correlated to the perceived quality of the brand(Dalakas and Levin, 2005). Based on the literature about brand image and perceivedquality, this study makes the following hypothesis:

H3. The better the brand image acquired by one with an inferior image, the higherthe perceived equity will increase.

MethodologyResearch designThis study was conducted to measure how different levels of variance in two brand

images affect brand equity after M&A. This study uses an experimental design wherethe difference in variance for two brand images after M&A is the manipulatedtreatment variable (using two levels: a brand with a poor image acquires one with anaverage image, and another brand with a poor image acquires one with a good image).Brand equity is hypothesized as a three-dimensional construct as shown in Figure 1.Each brand equity dimension is a dependent variable in this framework and isexpected to be influenced by different levels of variance in two brand images, after theM&A. The unit of analysis was the individual consumer.

PretestThe data from National Information and Communication Initiative Committee inTaiwan showed that the household computer penetration (number of computers per

100 households) reached 82.9 per cent in Taiwan this year (www.nici.nat.gov.tw/index.php) and the data based on ITU (International Telecommunication Union)showed that the personal computer penetration (number of computers per 100 persons)reached 57.5 per cent. Computer penetration in Taiwan ranked as 14th in the world in2005 (www.itu.int/net/home/index.aspx); that is, computers have gained popularity inTaiwan. Besides, Ahmend et al. (2005) used computer brands sold in Taiwan anddemonstrated the country of design, country of assembly, brand name and warrantyeffects on Taiwanese consumers perceived quality and perceived risk. Hence,

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computer end-users are appropriate subjects to be used in this study to examine thebrand image effects on consumer perceptions. Based on the points stated previously,this study will conduct a pre-test to assess consumer perceptions about superior,average, and inferior brand images among computer consumers in Taiwan.

To ascertain whether computer brand images are either: superior, average orinferior, this study surveyed 37 computer users for the pre-test sample and theserespondents have used computers for an average of 11.73 years. On a five-pointLikert-type scale, participants were asked to rate all the computer brands sold inTaiwan across two dimensions: brand image and overall evaluation. The results of thepre-test indicated that the computer brand with the best image is Sony (score 4.37),Lenovo is ranked as medium (score 3.04) and the brand that is ranked inferior is Clevo

(score 2.68). This study also used a t-test to verify whether these three brands havesignificantly different brand images. The results confirmed the differing perceptionsconsumers had of the three brand images. Therefore, this study is conducted under twoM&A scenarios: one is that Clevo acquires the Sony laptop department and the other isthat Clevo acquires the Lenovo laptop department. A survey asked how consumers feltabout these M&A scenarios.

Survey instrumentThe questionnaire comprises three parts. Part one of the questionnaire contained threeconstructs measuring various dimensions of brand equity: brand loyalty, brandassociation, and perceived quality. In this part, respondents rated their perception of

the two brands before the merger, as inferior/medium or inferior/superior. Measures forthe constructs of brand equity were based on previous studies (Aaker, 1991, 1996b,1997; Yoo et al., 2000; Yoo and Donthu, 2001; Pappu et al., 2006). Measures forperceived quality, as adapted by Aaker (1991), Yoo et al. (2000) and Pappu et al. (2006),included four items. Brand loyalty, as adapted by Pappu et al. (2006), included twoitems. In addition, brand association, adapted by Aaker (1991, 1996a, b), Aaker (1997)and Pappu et al. (2006), comprised two parts: brand personality and organizationassociation (which included five items). Each item had the verbal anchors strongly

Figure 1.A model of different levels

of variance in two brandimage after M&A effects

on brand equity

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disagree to strongly agree for the 1 to 5. Appendix 1 (see Table AI) provides furtherdetails.

Part 2 of the questionnaire also included three constructs regarding variousdimensions of brand equity in part 1. However, as this study manipulated one

treatment as a variance of image difference to demonstrate the image difference effecton brand equity, the beginning of part 2 included information about a computer brandwith an inferior image acquiring one with an average or superior image. Furthermore,both these brands were still sold in the market. Next, respondents rated theirperception of the acquirer and acquired brands in terms of brand equity. All the itemswere displayed in Chinese.

Part three of the questionnaire collected respondents demographic information (e.g.gender, age, level of education). Questions in all three sections were identical in both ofthe questionnaires, except for the M&A. Each respondent completed one version of thequestionnaire. Each construct used in other brand equity research exceeded thesuggested level of 0.7 for reliability, across both the automobile and television productcategories. In addition, all the constructs also exceeded the suggested level for

convergent and discriminant validity (Pappu et al., 2006). That is, all the constructs aresuitable for this research.

SamplingThe survey comprised 409 respondents (171 males and 238 females) completing anonline questionnaire in Chinese made available on a secure research web site(www.my3Q.com) in Taiwan (209 respondents with low image differences and 200respondents with high image differences), and the unit of analysis was the individualconsumer. The questionnaire was advertised on a mailing list and on internet researchweb sites. The profiles of respondents are shown in Table I. The questionnaire used tocollect data contained an experimental design.

Analysis proceduresAll construct scales were analyzed using Cronbachs a to determine if the scalesexhibited acceptable levels of reliability (Nunnally, 1978). Table II shows the reliabilityestimates in four parts acquiring and acquired companies before and after M&A. Allthe Cronbachs a value were more than 0.7, indicating that all constructs hadacceptable reliability. Convergent and discriminant validity were assessed through

Item Description Frequency Percentage

Gender Male 171 41.8Female 238 58.2

Education High school 11 2.6College 20 4.8University 331 80.9Master/PhD 47 11.5

Age , 20 76 18.521-30 212 51.831-40 74 18.141-50 33 8.0. 50 14 3.4

Table I.Description ofrespondent

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confirmatory factor analysis (Fornell, 1983; Bagozzi and Yi, 1989). Appendix 1 showsthe validity of measurements. The estimated factor loadings indicated that all the itemsloaded as expected ( j or 3t j or 3value . 1.96), with significant and positive parameterestimates. These results provide strong evidence of convergent validity. As for

discriminant validity, Appendix 2 (see Table AII) shows that the correlation of pairedconstructs is significantly less than 1. In addition, the smallest t-value observed was2 5.5, which corresponds to t , 2 1.96. This result implies the discriminate validity,as suggested by Bagozzi et al. (1991).

The MANOVA used three consumer-based equity variables (perceived quality,brand association and brand loyalty), which were computed by averaging the scores ofitems as the dependent variables. The data were verified to ensure all the assumptions(e.g. equality of variance-covariance, normality, linearity and absence ofmulticollinearity) of MANOVA were satisfied and, in all cases, the cell sizes wereapproximately the minimum recommended size (Hair et al., 1998). A requirement forMANOVA is that the dependent variables have to be correct. Bartletts test ofsphericity (Hair et al., 1998) indicated that MANOVA was suitable for analyzing thedata (Bartletts x2 5 800

:

583, p , 0:

001) and that the assumption of equity ofvariance-covariance matrices was satisfied. The Boxs test (p 0:821 . 0:05) showedthe absence of statistically significant deviation from the homogeneity of covariancematrices.

Results of MANOVATable III summarizes the results of the MANOVA. This table shows that the differentlevels of variance between two brand images after M&A have a significant effect onconsumer-based brand equity. The results indicate that the sets of threeconsumer-based brand equity variables vary according to different levels ofvariance between two brand images after M&A. Consequently, Univariate F-tests(Table IV) show that each of the consumer-based brand equity dimensions (perceivedquality, brand association and brand loyalty) varies significantly with the variance of

PQ BA BL

Low brand variance Before M&A Acquirer brand 0.879 0.903 0.887Acquired brand 0.906 0.908 0.857

After M&A Acquirer brand 0.887 0.908 0.786Acquired brand 0.919 0.915 0.885

High brand variance Before M&A Acquirer brand 0.891 0.912 0.888Acquired brand 0.871 0.860 0.905

After M&A Acquirer brand 0.926 0.924 0.818

Acquired brand 0.941 0.932 0.900

Table II.

Reliability estimates

Wilks l F-value p-value

Variance of two brand images after M&A 0.941 8.507 0.000 * *

Note: * *deemed significant at the 0.05 level

Table III.MANOVA results:

significance ofmultivariate tests

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the two brand images after M&A. As per the balance theory, the stronger the attitudetowards the original target, the more likely the attitude will impact association with thetarget in a similar manner (Dalakas and Levin, 2005). From Table IV we are able toconclude that a brand with an inferior image, which acquired one with a superior

image, had higher perception scores among respondents across all the threedimensions of brand equity, compared to if it acquired a brand with an average image.That is to say, the better the brand image acquired by one with an inferior image, themore the brand equity (perceived quality, brand association and brand loyalty) willincrease. These results support the statement of balance theory and supporthypotheses H1, H2 and H3.

Results of paired-sample t-testThe following paired-sample t-test examined whether a brand with an inferior imagecan increase its brand equity by acquiring one with a better image, and the potentialeffects of the superior brand image. Tables V and VI present the results of the

paired-sample t-test.Table V showed that all the dimensions of brand equity, for the brand with an

inferior image significantly increases after it acquires a brand with a superior image.However, all the dimensions of brand equity of the brand with a superior imagedecrease significantly after it is acquired by a brand with an inferior image. The resultsin Table VI show that all the dimensions of brand equity of a brand with an inferiorimage increase significantly after acquiring a brand with an average image. However,

Brand equity Mean difference SD t-value p-value

Inferior brand imagePerceived quality 2 0.32 0.73 2 6.12 0.000 * *

Brand association 2 0.46 0.72 2 9.19 0.000 * *

Brand loyalty 2 0.80 0.96 2 11.67 0.000 * *

Superior brand imagePerceived quality 0.58 0.91 8.95 0.000 * *

Brand association 0.69 0.86 11.40 0.000 * *

Brand loyalty 0.43 1.04 5.90 0.000 * *

Note: * *deemed significant at the 0.05 level

Table V.Paired-sample t-testresults for high imagedifference

Low-variance High-varianceSource measure F-value p-value h2 Mean SD Mean SD

Brand image variancePerceived quality 5.415 0.020 * * 0.013 3.06 0.74 3.23 0.72Brand association 21.438 0.000 * * 0.050 2.80 0.77 3.14 0.71Brand loyalty 16.592 0.000 * * 0.039 2.78 0.89 3.13 0.83

Note: * *deemed significant at the 0.05 level

Table IV.MANOVA results:multivariatetests-between subjecteffects

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only loyalty for the brand with an average image increases, and perceived quality and

brand association do not change significantly after M&A. The conclusion andimplications section explores possible reasons for this phenomenon.

Conclusion and implicationsPrevious studies only examined the relationship between brand image and brandequity, while in contrast; the present study first examined the relationship between thevariance of two brand images and then the dimensions of brand equity after M&A.The test results show that a company with an inferior brand image can makesignificant improvements to its consumer-based brand equity by acquiring a brandwith a better image. In other words, by acquiring a better brand, companies will beimproving the existing image of its brand.

H1, H2, and H3 test the relationship variance between the two brand images after

M&A, and also the three dimensions of brand equity. Each of the three dimensions ofbrand equity (perceived quality, brand association, and brand loyalty) was expected tovary significantly based on the variance of the two brand images after M&A. Findingssuggest that brand image does have an influence on brand association, and this resultsupports a previous study by OCass and Lim (2002). This study also finds that thevariance with the greatest value across both brand images was brand association. Forexample, the magnitude of variance for brand association across brand image wasapproximately four times that of perceived quality. In addition, this study finds thatbrand association for a respondent varies significantly across both brand images afterM&A. In other words, acquiring a brand with a superior image can create better brandassociations than acquiring one with an average image.

Meanwhile, acquiring a brand with a better image creates the same effect on brand

loyalty as it does on brand association in this study. Previous studies also demonstratethat brand image influences consumer loyalty (Zins, 2001; Cretu and Brodie, 2007). Inaddition, the difference between the variance of two brand images was the greatest forbrand loyalty. In other words, acquiring a brand with a superior image could increaseloyalty for the new brand rather than acquiring one with an average image.

Richardson et al. (1994) expressed their belief that consumers tend to use brandimage as an extrinsic cue to evaluate the quality of a brand or product. Dodds et al.(1991) also pointed out that brand image can serve as a product guarantee. Thus, the

Brand equity Mean difference SD t-value p-value

Inferior brand imagePerceived quality 2 0.30 0.81 2 5.28 0.000 * *

Brand association 2 0.28 0.78 2 5.20 0.000 * *

Brand loyalty 2 0.73 0.96 2 11.06 0.000 * *

Middle brand imagePerceived quality 7.30E-02 0.73 1.41 0.151Brand association 8.23E-02 0.72 1.63 0.103Brand loyalty 2 9.81E-02 0.83 2 1.70 0.090 *

Notes: * *deemed significant at the 0.05 level; *deemed significant at the 0.1 level

Table VI.Paired-sample t-test

results for low imagedifference

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better the brand image, the better the quality as perceived by consumers. The present

study also demonstrates the relationship between brand image and perceived quality.

The results show that acquiring a brand with an excellent image creates the perception

of better quality among consumers rather than acquiring a brand with an inferior

image.In addition, this study explores how M&A affects the brand equity of the obtained

brand. Tables V and VI show that all three dimensions of brand equity for the brand

with a superior image significantly decrease after M&A, and brand association

experiences the sharpest decline. Brand associations take on different forms, and the

company that makes the product is a non-product-related attribute affecting brand

association (Keller, 1993). M&A means that the ownership of a brand or a company is

transferred to the other company i.e. a brand with a superior image might take on an

inferior image after M&A. Consumers may doubt whether the superior brand can

maintain its product attributes, intangible assets, consumer benefits, and even brand

personality. All of the concerns are critical factors that affect consumer associations

with a brand (Aaker, 1991). As a result, a brand with a superior image experiences adramatic decline in brand association after M&A.

As for the brand with an average image, only brand loyalty significantly increases

after M&A. The average brand (Lenovo) used in this study is a brand from Mainland

China. Although this is a famous computer brand in China, products labeled Made in

China generally do not have a good reputation (Chao et al., 2005). On the other hand, acomputer brand with a good reputation in Taiwan is seen as favorable in international

markets (Chang and Yu, 2001). When consumers perceive the brand to provide

superior quality and thus they will become more brand loyal (Kayaman and Arasli,

2007). In addition, many studies demonstrate that country-of-origin image positively

and significantly influences brand loyalty (Yasin et al., 2006; Pappu et al., 2006).

Therefore, the better the country-of-origin, the stronger the brand loyalty (Yasin et al.,2006; Pappu et al., 2006). This study showed that if Lenovo (from China) was acquiredby Clevo (from Taiwan), consumer loyalty to Lenovo would increase significantly.

From the aforementioned results, this study suggests that the acquirer should pay

more attention to the reciprocal effects of brand image on brand equity. Such reciprocal

effects are important in enhancing or diluting brand equity, given the effects of

co-branding or brand extension (Swaminathan, 2006). In the co-branding study

conducted by Geylani et al. (2006), it was found that co-branding for imagereinforcement might not be a viable strategy for reliable brands. That is because

uncertainty associated with the reliable brand would increase through co-branding and

no matter what partner the reliable brand chooses, its reliability always decreases

(Geylani et al., 2006). The present study also found that the equity of brands with anaverage and superior image indeed decreases after M&A. Increasing uncertainty is the

critical factor that decreases a consumers faith in brands with an average or superior

image. It is very important for acquirer to reduce consumer uncertainty. Thus,

acquiring a high attribute and complementary company is helpful for enhancing

consumer perceptions and decreasing uncertainty that, in turn, leads to greater

consequential effects rather than acquiring a company with lower complementary

value as simply part of a co-branding strategy (Park et al., 1996).

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Managerial implicationsWhen a company endeavors to increase its market share or enter a new market, M&Ais one of the fastest, easiest and valuable strategies. By using M&A, the acquirer canreceive all the assets of the acquired company, including the tangible and intangible

assets; the brand is often being the most valuable of these assets. This is more so whena brand with an inferior image acquires one with a superior image, which leads to agreater investment of time, money, and resources that go into protecting the image ofthe superior brand.

Different brand images significantly affect brand equity measures for purchaseintentions and willingness to pay premium prices (Faircloth et al., 2001). Therefore,brands with a better image are associated with premium prices and higher brandequity (Lassar et al., 1995). The results of the present study demonstrate that acquiringa brand with a better image affects brand equity. That is why many companies fromdeveloping countries (i.e. low country-of-origin image) attempt to acquire companiesfrom developed countries (i.e. high country-of-origin image). An example of this is the

largest Indian steelmaker, Mittal, acquiring French Arcelor (Craze and Deen, 2006).However, in the acquisition process, the efficient migration of the brand to the newcompany is important for managers in the acquiring firm, especially when it comes tothe brand name (Kumar and Blomqvist, 2004). Jaju et al. (2006) found that differentbrand redeployment strategies after M&A create different effects on brand equity.Their research also suggests that if both brands were strong brands, anacquirer-dominant strategy is the most effective. On the other hand, Kumar andBlomqvist (2004) suggested that if the acquired brand is stronger than the acquiringbrand, the latter needs to consider a combination of the two names or even abandoningits own name in favor of the acquired brand. Consequently, it is essential for managersto consider the influence that brand redeployment decisions will have on consumers.

Many acquiring firms want to preserve the acquired brand name and keep the

identity and brand name of the acquired company as a subsidiary or department in theacquiring company after M&A (such as P&G acquiring Gillette) ( Jaju et al., 2006). Theresults of the present study show that if the difference in image between acquirer andacquired is larger, the equity of the acquired brand would significantly decrease. Toillustrate using this study, if Clevo acquires Sony, consumers may be unsure as towhether the quality of Sony will be maintained to previous standards and this couldresult in a sharp decline in the brand image, which could mean the brand associationwill be harmful to Sony. Hence, consumers could lose faith in the acquired brand, andthe brand equity of the acquired brand decreases. Jaju et al. (2006) also found thatacquisition leads to a decrease in brand equity for the acquired brand. The managers ofthe acquiring company strive to avoid decreasing the brand equity of the acquiredbrand.

This study provides the following suggestions to assist managers seeking toincrease consumer perceptions of an acquired brand:

. The management team of the acquired brand should not be replaced so thatconsumers will assume that the quality of products is still the same.

. Decrease the link between the acquiring and acquired brand.

. Create after-sales services that are better than that of the acquired brand so thatconsumers will increase their perception of and faith in the acquired brand.

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. Continue to communicate with consumers via advertisements to assure themthat we are still the same.

Limitations and directions for future research

All of the respondents in this study were Taiwanese consumers who were generallyquite familiar with the quality of Japanese and Chinese products. Their responses couldbe different from those consumers who are not familiar with Japanese and Chineseproducts. Hence, future research must be conducted with consumers who are notfamiliar with Japanese and Chinese products to illustrate brand image effects moreobviously.

In addition, this study only examines household electronics. Further study is neededto determine if these results can be applied to other industries, especially the serviceindustry. The features of the service industry are quite different from other industriesand thus future research could analyze consumer perceptions about M&A activitiesbetween service companies (such as banks). Different industry features might generatedifferent effects on consumer evaluations of the new brand.

Moreover, during the M&A process, managers often become too focused on someelements such as negotiations, legal and regulation issues and financial problems.However, they sometimes ignore consumer perceptions of two brands after M&A(Kumar and Blomqvist, 2004; Jaju et al., 2006). Furthermore, previous studies did notanalyze the impacts of M&A activities from a marketing perspective (Homburg andBucerius, 2005). Therefore, future studies can use the consumer behavior perspective(including attitudes, beliefs, and involvement) or some other marketing concepts suchas brand name redeployment strategy to investigate consumer perceptions aboutbrands after M&A.

Furthermore, it is very important to understand cultural problems in aninternational M&A. These cultural problems could affect the M&A activities given

consumer perceptions of the new brand. Country of origin (COO) effect is one of themost important multicultural factors that can influence consumer brand equity (Pappuet al., 2006; Yasin et al., 2006). Many brands that originate from countries with aninferior image use M&As to increase their market share and create a positive image.An example includes Tata Motors Ltd in India that acquired Jaguar and Land Roverfrom England. It is important for a company, originating from a country with aninferior image, to reduce consumers fear about the quality or service of the brand andproduct in the post acquisition phase. In addition to the COO effect, consumeranimosity towards a foreign product will also affect their product perceptions andpurchase intentions (Klein et al., 1998). If consumers have animosity towards a certaincountry, they will not buy the brand or product from this country even if they think thebrand or product is better. When the company wants to use M&A to increase its

market share, it must look at utilizing the right information to decrease consumeranimosity. Given the era of globalization, there are many products and brands thatoriginate from various countries and it is very important to reduce consumerethnocentrism. It is also very important for the acquirer to avoid a strategy ofethnocentrism when marketing their products and brands during the post-mergergiven the cultural differences that could be present. There are different customs,values, languages, symbols and religions in different countries and a manager shouldknow the consumer perceptions of the brand or company after the M&A and make the

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correct marketing decisions. Based on the aforementioned points, future studies canexamine the effect of multicultural problems such as COO and animosity onconsumer-based brand equity after M&A in order to give managers a theoreticalconstruct for stabilizing situations that involve cultural issues and consequently; how

to increase consumer-based brand equity.

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Corresponding authorHsiang-Ming Lee can be contacted at: hmlee@cyu.edu.tw

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Appendix 1

Construct

Items

Standardized

loading

(t-value)

Sources

Perceived

quality

PQ1

B

randXmustbeofverygoodquality

10.8

2

20.8

9

(19.8

6)

(22.7

0)

Aaker(1991);Yooetal.(2000),Papp

uetal.

(2006)

PQ2

B

randXoffersproductsofconsistent

quality

10.7

2

20.7

8

(18.7

2)

(16.6

6)

PQ3

B

randXoffersverydurableproducts

10.8

5

20.8

4

(21.1

9)

(20.7

7)

PQ4

B

randXoffersveryreliableproducts

10.8

5

20.8

9

(20.9

4)

(22.7

8)

Brand

association

BA1

ItrustthecompanywhichmakesBrand

X

10.8

0

20.8

2

Aaker(1991),

1996)

Aaker(1991),1996a,

b);Aaker(199

7),

Pappuet

al.(2006)

BA2

It

isappropriatetodescribetheproduc

ts

offeredbyBrandXasup-market

(1)0.7

9

20.7

3

(19.0

3)

(16.9

4)

BA3

It

isappropriatetodescribetheproduc

ts

offeredbyBrandXastough

10.8

2

20.8

6

(19.9

4)

(21.8

2)

BA4

IlikethecompanywhichmakesBrand

X

10.8

5

20.8

8

(21.2

4)

(22.6

3)

BA5

I

wouldfeelproudtoownproductsfrom

th

ecompanywhichmakesBrandX

10.8

2

20.8

5

(20.1

7)

(21.4

5)

Brandloyalty

BL1

B

randXwouldbemyfirstchoice

10.9

0

20.9

2

(22.7

1)

(24.0

8)

Pappuet

al.(2006)

BL2

I

considermyselfloyaltoBrandX

10.8

9

20.8

9

(22.3

8)

(22.6

5)

Notes:

1Acquirerbrand;

2acquiredbrand

Table AI.Items in scales

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Appendix 2

Before

M&A(acquirer)

BeforeM&A(acquired)

t-value

PQ

BA

BL

PQ

BA

BL

BeforeM&A(acquirer)

PQ

BA

2

6

(0.9

4,

0.0

1)

BL

2

9.6

(0.7

1,

0.0

3)

27.5

(0.8

5,

0.0

2)

BeforeM&A(acquired)

PQ

2

12.6

(0.2

7,

0.0

5)

215.6

(0.2

2,

0.0

5)

2

17.2

(0.1

4,

0.0

5)

BA

2

15

(0.2

5,

0.0

5)

215

(0.2

5,

0.0

5)

2

16.6

(0.1

7,

0.0

5)

2

8

(0.9

2,

0.0

1)

BL

2

15.8

(0.2

1,

0.0

5)

215.2

(0.2

4,

0.0

5)

2

14.4

(0.2

8,

0.0

5)

2

8

(0.7

6,

0.0

3)

2

5.5

(0.8

9,

0.02)

Table AII.

Brand imagestrategy

1111