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European Journal of Marketing

Emerald Article: Brand image strategy affects brand equity after M&A Hsiang-Ming Lee, Ching-Chi Lee, Cou-Chen Wu

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Hsiang-Ming Lee, Ching-Chi Lee, Cou-Chen Wu, (2011),"Brand image strategy affects brand equity after M&A", European Journal of Marketing, Vol. 45 Iss: 7 pp. 1091 - 1111 Hsiang-Ming Lee, Ching-Chi Lee, Cou-Chen Wu, (2011),"Brand image strategy affects brand equity after M&A", European Journal of Marketing, Vol. 45 Iss: 7 pp. 1091 - 1111 Hsiang-Ming Lee, Ching-Chi Lee, Cou-Chen Wu, (2011),"Brand image strategy affects brand equity after M&A", European Journal of Marketing, Vol. 45 Iss: 7 pp. 1091 - 1111

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Brand image strategy affects brand equity after M&A

Hsiang-Ming Lee
Department of Business Administration and Institute of Business & Management, Ching Yun University, Jhongli City, Taiwan

Brand image strategy

Received May 2008 Revised January 2009 Accepted September 2009

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

Cou-Chen Wu
Department of Business Administration, National Taiwan University of Science and Technology, Taipei City, Taiwan
Purpose The purpose of this study is to examine the relationship between the variance of two brand images and dimensions of brand equity after M&A, especially when the acquirer-dominant is afliated 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 sampling from an internet survey platform in Taiwan (weak image differences were gathered from 209 respondents 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 a superior or average brand image) affects the acquirers brand equity (perceived quality, brand association, and brand loyalty). This study also examines how brand equity of an acquired brand changes 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 of the acquirer will increase. In addition, all the dimensions of brand equity for the brand with a superior image decrease signicantly. Originality/value Few studies have evaluated the brand image effect of an M&A from a marketing perspective. The contribution is to help managers understand whether the acquirer should preserve the obtained brand and focus on increasing brand equity of the acquired brand to avoid the loss of customer loyalty. Keywords Brand image, Brand equity, Brand loyalty, Taiwan Paper type Research paper

Introduction As the current economic environment becomes more competitive and introducing new brands becomes increasingly costly, companies must nd new strategies to increase their capacity and competitiveness (Lipponen et al., 2004). Mergers and Acquisitions (M&A) is a very important strategy for companies. M&A can enable acquiring companies to obtain technologies, products, distribution channels and desirable market positions (Schweizer, 2005). Acquiring companies tend to focus on cost cutting and nancial performance after completion of the M&A deal, but they neglect to consider consumer perceptions of the M&A. This practice may compel many consumers (Bekier and Shelton, 2002) given their uncertainty regarding the future

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&A strategy to acquire superior image brands. For example, Tata Motors Limited from India acquired Jaguar Cars Limited and Land Rover in 2008. Under such circumstances, customers may have concerns regarding the acquiring companys ability to maintain the quality or image of the superior brand after the M&A. It is important for managers to understand how the difference between the two brand images can inuence acquirer and acquired brands. In the M&A process, the worst strategy for brand managers is to do nothing after the M&A and let the brands go their separate ways as they did before the pre-merger (Basu, 2006). Hence, the acquiring company needs to know how to manage the migration of a brand to the new company and 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, and has received little attention in academic literature (Ratnatunga and Ewing, 2009). However, a few existing research studies have examined the brand image effects on brand equity after M&A. Therefore, this study utilizes an experimental design to examine the different effects of brand equity on an inferior brands image after it has acquired a brand with a superior or an average image. In addition, this study examines how 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 hypothesis Brand equity Customer-based brand equity occurs when customers are familiar with the brand and hold 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 equity assets brand loyalty, brand awareness, perceived quality, brand association and other proprietary brand assets are fundamentals of value creation. This study uses these ve brand equity classications from Aaker (1991), as they are the most acceptable to-date. As brand equity is a multidimensional concept (Aaker, 1991), research has various suggestions for measuring its dimensions some include brand loyalty and brand association (Schoker and Weitz, 1988). There is also brand knowledge, which comprises of brand awareness and brand image (Keller, 1993). Furthermore, Yoo et al. (2000) have suggested that perceived quality, brand loyalty and brand awareness have a strong brand association. Among the ve brand equity assets, it is very difcult to manipulate 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 and perceived quality as the measurements of brand equity. Brand loyalty is an important consideration when estimating the value of a brand as loyalty can translate into prot (Aaker, 1991). Brand loyalty is a barrier for new competitors and forms the basis for a price premium (Aaker, 1996b). Brand loyalty also encourages repeated purchase behavior from consumers, and discourages them from switching to competitor brands (Yoo et al., 2000). Therefore, the greater the customer loyalty, the higher the brand equity will be. Perceived quality is another dimension of

brand value that can encourage customers to choose a product or service (Zeithaml, 1988). Perceived quality can be dened as the customers perception of the overall quality 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 inuence their judgment of product quality (Yoo et al., 2000). Since customers make their choices based on product attributes and compare these to other products, perceived quality is not an objective measure. Perceived quality can increase customer satisfaction, provided the customer has had some previous experience with the product or service (Aaker, 1996a). Hence, perceived quality is generally associated with brand equity (Motameni and Shahrokhi, 1998), and the 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 closely related to brand association. A brand association is anything linked in memory to a brand (Aaker, 1996a). Keller (1998) suggested that brand association can be divided into three major categories: attributes (including product-related attributes and non-product-related attributes such as price, brand personality, emotions and experience), benets (what customers think the product or service can do for them, including functional benets, symbolic benets and experiential benets) and attitudes (customers overall evaluations of the brand). The most powerful brand associations are those that deal with the intangible or abstract traits of a product. Brand association can 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 perceived quality, brand association can also increase customer satisfaction with the customer experience (Aaker, 1991). Brand image Keller (1993) dened brand image as perceptions about a brand as reected by the brand association held in consumer memory. These associations refer to any brand aspect within the consumers memory (Aaker, 1996a, b). Basically, brand image describes 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 of a brand, and its uniqueness in comparison to the other brands (Faircloth, 2005). Brand image comprises a consumers knowledge and beliefs about the brands diverse products and its non-product attribute. Brand image represents the personal symbolism that consumers associate with the brand, which comprises of all the descriptive and evaluative brand-related information (Iversen and Hem, 2008). When consumers have a favorable brand image, the brands messages have a stronger inuence 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 so given that it is difcult to distinguish between products and services, based on their tangible attributes (Mudambi et al., 1997). Balance theory Balance theory owes its origins to Heider (1958) and its basic model is the triad of a person (p), another person (o) and an entity (x) (Carson et al., 1997). This theory states

Brand image strategy


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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 can either be balanced or imbalanced (Dean, 2002). A balanced relationship comprises of two 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, then the individual will attempt to both mentally and physically, decrease tension and move towards a balanced state (Woodside, 2004; Homburg and Stock, 2004). A relationship is imbalanced if there are two people in a relationship with opposing attitudes towards the object another (e.g. A dislikes the object but B likes it). These circumstances, in cognitive 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 the system (Homburg and Stock, 2004). In this study, balance theory is applied to a relationship system involving three separate entities: inferior brand image, superior or average brand image and customers. 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 a brand with a superior or average image, and is similar to customers who have purchased a brand with a superior or average image. Effects of brand image on customer-based brand equity A favorable brand image would have a positive inuence on consumer behavior towards the brand in terms of increasing loyalty, commanding a price premium and generating positive word-of-mouth (Martenson, 2007). Marketing studies argue that brand image is an important factor affecting brand equity (Biel, 1992, 1993; Villareji-Ramos and Sanchez-Franco, 2005). Faircloth et al. (2001) also found that the more 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 a stronger 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 maintain their cognitive consistency towards brands with an inferior and superior image, as per the balance theory (Heider, 1958). The balance theory proposes that, consumers value harmony among their thoughts and they are motivated to reconcile incongruent thoughts (Dean, 2002). Therefore, when there is imbalance, people change their attitudes or behaviors to restore balance. In addition, the stronger the attitude towards the 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 improvement is the most important goal that a company, with an inferior brand image, desires to accomplish after completing the M&A. Based on the aforementioned point, if consumers have a positive attitude towards the obtained brand, they may adopt a positive 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 companys brand equity. The relationships between brand image and consumer-based brand equity sub-dimensions are as follows:

Brand association can help consumers process and recall information, serve as the basis of dissimilarity and extensions and provide a reason to purchase and create positive 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 some meaningful 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 and Claycomb, 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 positive association 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 more the brand association will increase. The effect of brand loyalty on marketing costs is critical because attracting a new consumer costs more than retaining an old one (Wood, 2001). Furthermore, loyal consumers create a barrier that makes it difcult for competitors to enter the market (Keller, 1998). There are no other assets in a business comparable to its brand and a superior brand can attract consumers, develop their loyalty and capture their imagination (Schultz, 2005). A popular brand not only attracts more customers, but those consumers also have greater loyalty to the brand (Ehrenberg et al., 1990). Brand popularity 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 important factor in a customers perception of a product or service, especially when it is difcult 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 studies have proposed that brand image has a positive inuence 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 balance theory (Heider, 1958), brand loyalty towards an inferior image brand will increase after it 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 more the brand loyalty will increase.

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Perceived quality is dened as a buyers evaluation of a products cumulative excellence (Zeithaml, 1988; Grewal et al., 1988). Perceived quality refers to a consumers intangible perception of the whole quality or superiority of a product or service their overall 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 can inuence 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 mind and can be motivation to buy a particular product (Vranesevic and Seancec, 2003). Hankinson (2005) has investigated the brand image of a travel destination from the perspective of a tourist and has identied three dimensions: overall attractiveness of the destination, functionality and ambience. All three dimensions were correlated to perceived quality. Research has demonstrated the positive relationships between brand image and quality of service or products in both qualitative studies (Browan et 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 it merges with a brand with a positive image, and vice versa. In addition, superiority of the 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 perceived quality, this study makes the following hypothesis: H3. The better the brand image acquired by one with an inferior image, the higher the perceived equity will increase. Methodology Research design This 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 where the difference in variance for two brand images after M&A is the manipulated treatment variable (using two levels: a brand with a poor image acquires one with an average 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 is expected to be inuenced by different levels of variance in two brand images, after the M&A. The unit of analysis was the individual consumer. Pretest The data from National Information and Communication Initiative Committee in Taiwan showed that the household computer penetration (number of computers per 100 households) reached 82.9 per cent in Taiwan this year ( 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 in 2005 (; that is, computers have gained popularity in Taiwan. Besides, Ahmend et al. (2005) used computer brands sold in Taiwan and demonstrated the country of design, country of assembly, brand name and warranty effects on Taiwanese consumers perceived quality and perceived risk. Hence,

Brand image strategy


Figure 1. A model of different levels of variance in two brand image after M&A effects on brand equity

computer end-users are appropriate subjects to be used in this study to examine the brand 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 or inferior, this study surveyed 37 computer users for the pre-test sample and these respondents have used computers for an average of 11.73 years. On a ve-point Likert-type scale, participants were asked to rate all the computer brands sold in Taiwan across two dimensions: brand image and overall evaluation. The results of the pre-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 have signicantly different brand images. The results conrmed the differing perceptions consumers had of the three brand images. Therefore, this study is conducted under two M&A scenarios: one is that Clevo acquires the Sony laptop department and the other is that Clevo acquires the Lenovo laptop department. A survey asked how consumers felt about these M&A scenarios. Survey instrument The questionnaire comprises three parts. Part one of the questionnaire contained three constructs measuring various dimensions of brand equity: brand loyalty, brand association, and perceived quality. In this part, respondents rated their perception of the two brands before the merger, as inferior/medium or inferior/superior. Measures for the 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 for perceived 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 two items. In addition, brand association, adapted by Aaker (1991, 1996a, b), Aaker (1997) and Pappu et al. (2006), comprised two parts: brand personality and organization association (which included ve items). Each item had the verbal anchors strongly

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disagree to strongly agree for the 1 to 5. Appendix 1 (see Table AI) provides further details. Part 2 of the questionnaire also included three constructs regarding various dimensions of brand equity in part 1. However, as this study manipulated one treatment as a variance of image difference to demonstrate the image difference effect on brand equity, the beginning of part 2 included information about a computer brand with an inferior image acquiring one with an average or superior image. Furthermore, both these brands were still sold in the market. Next, respondents rated their perception of the acquirer and acquired brands in terms of brand equity. All the items were 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 of the questionnaires, except for the M&A. Each respondent completed one version of the questionnaire. Each construct used in other brand equity research exceeded the suggested level of 0.7 for reliability, across both the automobile and television product categories. In addition, all the constructs also exceeded the suggested level for convergent and discriminant validity (Pappu et al., 2006). That is, all the constructs are suitable for this research. Sampling The survey comprised 409 respondents (171 males and 238 females) completing an online questionnaire in Chinese made available on a secure research web site ( in Taiwan (209 respondents with low image differences and 200 respondents with high image differences), and the unit of analysis was the individual consumer. The questionnaire was advertised on a mailing list and on internet research web sites. The proles of respondents are shown in Table I. The questionnaire used to collect data contained an experimental design. Analysis procedures All construct scales were analyzed using Cronbachs a to determine if the scales exhibited acceptable levels of reliability (Nunnally, 1978). Table II shows the reliability estimates in four parts acquiring and acquired companies before and after M&A. All the Cronbachs a value were more than 0.7, indicating that all constructs had acceptable reliability. Convergent and discriminant validity were assessed through
Item Gender Education Description Male Female High school College University Master/PhD , 20 21-30 31-40 41-50 . 50 Frequency 171 238 11 20 331 47 76 212 74 33 14 Percentage 41.8 58.2 2.6 4.8 80.9 11.5 18.5 51.8 18.1 8.0 3.4

Age Table I. Description of respondent

conrmatory factor analysis (Fornell, 1983; Bagozzi and Yi, 1989). Appendix 1 shows the validity of measurements. The estimated factor loadings indicated that all the items loaded as expected ( j or 3t j or 3value . 1.96), with signicant and positive parameter estimates. These results provide strong evidence of convergent validity. As for discriminant validity, Appendix 2 (see Table AII) shows that the correlation of paired constructs is signicantly less than 1. In addition, the smallest t-value observed was 2 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 of items as the dependent variables. The data were veried to ensure all the assumptions (e.g. equality of variance-covariance, normality, linearity and absence of multicollinearity) of MANOVA were satised and, in all cases, the cell sizes were approximately the minimum recommended size (Hair et al., 1998). A requirement for MANOVA is that the dependent variables have to be correct. Bartletts test of sphericity (Hair et al., 1998) indicated that MANOVA was suitable for analyzing the data (Bartletts x 2 5 800:583, p , 0:001) and that the assumption of equity of variance-covariance matrices was satised. The Boxs test (p 0:821 . 0:05) showed the absence of statistically signicant deviation from the homogeneity of covariance matrices. Results of MANOVA Table III summarizes the results of the MANOVA. This table shows that the different levels of variance between two brand images after M&A have a signicant effect on consumer-based brand equity. The results indicate that the sets of three consumer-based brand equity variables vary according to different levels of variance between two brand images after M&A. Consequently, Univariate F-tests (Table IV) show that each of the consumer-based brand equity dimensions (perceived quality, brand association and brand loyalty) varies signicantly with the variance of
PQ Low brand variance Before M&A After M&A High brand variance Before M&A After M&A Acquirer brand Acquired brand Acquirer brand Acquired brand Acquirer brand Acquired brand Acquirer brand Acquired brand 0.879 0.906 0.887 0.919 0.891 0.871 0.926 0.941 BA 0.903 0.908 0.908 0.915 0.912 0.860 0.924 0.932 BL 0.887 0.857 0.786 0.885 0.888 0.905 0.818 0.900

Brand image strategy


Table II. Reliability estimates

Wilks l Variance of two brand images after M&A Note: * *deemed signicant at the 0.05 level 0.941

F-value 8.507

p-value 0.000 * *

Table III. MANOVA results: signicance of multivariate tests

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the two brand images after M&A. As per the balance theory, the stronger the attitude towards the original target, the more likely the attitude will impact association with the target in a similar manner (Dalakas and Levin, 2005). From Table IV we are able to conclude that a brand with an inferior image, which acquired one with a superior image, had higher perception scores among respondents across all the three dimensions 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, the more the brand equity (perceived quality, brand association and brand loyalty) will increase. These results support the statement of balance theory and support hypotheses H1, H2 and H3. Results of paired-sample t-test The following paired-sample t-test examined whether a brand with an inferior image can increase its brand equity by acquiring one with a better image, and the potential effects 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 signicantly increases after it acquires a brand with a superior image. However, all the dimensions of brand equity of the brand with a superior image decrease signicantly after it is acquired by a brand with an inferior image. The results in Table VI show that all the dimensions of brand equity of a brand with an inferior image increase signicantly after acquiring a brand with an average image. However,

Source measure Table IV. MANOVA results: multivariate tests-between subject effects Brand image variance Perceived quality Brand association Brand loyalty

F-value 5.415 21.438 16.592

p-value 0.020 * * 0.000 * * 0.000 * *

0.013 0.050 0.039

Low-variance Mean SD 3.06 2.80 2.78 0.74 0.77 0.89

High-variance Mean SD 3.23 3.14 3.13 0.72 0.71 0.83

Note: * *deemed signicant at the 0.05 level

Brand equity Inferior brand image Perceived quality Brand association Brand loyalty Superior brand image Perceived quality Brand association Brand loyalty

Mean difference 2 0.32 2 0.46 2 0.80 0.58 0.69 0.43

SD 0.73 0.72 0.96 0.91 0.86 1.04

t-value 2 6.12 2 9.19 2 11.67 8.95 11.40 5.90

p-value 0.000 * * 0.000 * * 0.000 * * 0.000 * * 0.000 * * 0.000 * *

Table V. Paired-sample t-test results for high image difference

Note: * *deemed signicant at the 0.05 level

Brand equity Inferior brand image Perceived quality Brand association Brand loyalty Middle brand image Perceived quality Brand association Brand loyalty

Mean difference 2 0.30 2 0.28 2 0.73

SD 0.81 0.78 0.96

t-value 2 5.28 2 5.20 2 11.06

p-value 0.000 * * 0.000 * * 0.000 * *

Brand image strategy

7.30E-02 8.23E-02 2 9.81E-02 0.73 0.72 0.83 1.41 1.63 2 1.70 0.151 0.103 0.090 * Table VI. Paired-sample t-test results for low image difference

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

only loyalty for the brand with an average image increases, and perceived quality and brand association do not change signicantly after M&A. The conclusion and implications section explores possible reasons for this phenomenon. Conclusion and implications Previous studies only examined the relationship between brand image and brand equity, while in contrast; the present study rst examined the relationship between the variance 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 make signicant improvements to its consumer-based brand equity by acquiring a brand with a better image. In other words, by acquiring a better brand, companies will be improving 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 of brand equity (perceived quality, brand association, and brand loyalty) was expected to vary signicantly based on the variance of the two brand images after M&A. Findings suggest that brand image does have an inuence on brand association, and this result supports a previous study by OCass and Lim (2002). This study also nds that the variance with the greatest value across both brand images was brand association. For example, the magnitude of variance for brand association across brand image was approximately four times that of perceived quality. In addition, this study nds that brand association for a respondent varies signicantly across both brand images after M&A. In other words, acquiring a brand with a superior image can create better brand associations 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 demonstrate that brand image inuences consumer loyalty (Zins, 2001; Cretu and Brodie, 2007). In addition, the difference between the variance of two brand images was the greatest for brand loyalty. In other words, acquiring a brand with a superior image could increase loyalty for the new brand rather than acquiring one with an average image. Richardson et al. (1994) expressed their belief that consumers tend to use brand image 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

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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 signicantly 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 benets, 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 a dramatic decline in brand association after M&A. As for the brand with an average image, only brand loyalty signicantly 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, a computer 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 signicantly inuences 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 acquired by Clevo (from Taiwan), consumer loyalty to Lenovo would increase signicantly. 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 image reinforcement 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 an average 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).

Managerial implications When a company endeavors to increase its market share or enter a new market, M&A is one of the fastest, easiest and valuable strategies. By using M&A, the acquirer can receive 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 when a brand with an inferior image acquires one with a superior image, which leads to a greater investment of time, money, and resources that go into protecting the image of the superior brand. Different brand images signicantly affect brand equity measures for purchase intentions and willingness to pay premium prices (Faircloth et al., 2001). Therefore, brands with a better image are associated with premium prices and higher brand equity (Lassar et al., 1995). The results of the present study demonstrate that acquiring a brand with a better image affects brand equity. That is why many companies from developing countries (i.e. low country-of-origin image) attempt to acquire companies from 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 efcient migration of the brand to the new company is important for managers in the acquiring rm, especially when it comes to the brand name (Kumar and Blomqvist, 2004). Jaju et al. (2006) found that different brand redeployment strategies after M&A create different effects on brand equity. Their research also suggests that if both brands were strong brands, an acquirer-dominant strategy is the most effective. On the other hand, Kumar and Blomqvist (2004) suggested that if the acquired brand is stronger than the acquiring brand, the latter needs to consider a combination of the two names or even abandoning its own name in favor of the acquired brand. Consequently, it is essential for managers to consider the inuence that brand redeployment decisions will have on consumers. Many acquiring rms want to preserve the acquired brand name and keep the identity and brand name of the acquired company as a subsidiary or department in the acquiring company after M&A (such as P&G acquiring Gillette) ( Jaju et al., 2006). The results of the present study show that if the difference in image between acquirer and acquired is larger, the equity of the acquired brand would signicantly decrease. To illustrate using this study, if Clevo acquires Sony, consumers may be unsure as to whether the quality of Sony will be maintained to previous standards and this could result in a sharp decline in the brand image, which could mean the brand association will be harmful to Sony. Hence, consumers could lose faith in the acquired brand, and the brand equity of the acquired brand decreases. Jaju et al. (2006) also found that acquisition leads to a decrease in brand equity for the acquired brand. The managers of the acquiring company strive to avoid decreasing the brand equity of the acquired brand. This study provides the following suggestions to assist managers seeking to increase consumer perceptions of an acquired brand: . The management team of the acquired brand should not be replaced so that consumers 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 that consumers will increase their perception of and faith in the acquired brand.

Brand image strategy


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


Limitations and directions for future research All of the respondents in this study were Taiwanese consumers who were generally quite familiar with the quality of Japanese and Chinese products. Their responses could be different from those consumers who are not familiar with Japanese and Chinese products. Hence, future research must be conducted with consumers who are not familiar with Japanese and Chinese products to illustrate brand image effects more obviously. In addition, this study only examines household electronics. Further study is needed to determine if these results can be applied to other industries, especially the service industry. The features of the service industry are quite different from other industries and thus future research could analyze consumer perceptions about M&A activities between service companies (such as banks). Different industry features might generate different effects on consumer evaluations of the new brand. Moreover, during the M&A process, managers often become too focused on some elements such as negotiations, legal and regulation issues and nancial 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 not analyze the impacts of M&A activities from a marketing perspective (Homburg and Bucerius, 2005). Therefore, future studies can use the consumer behavior perspective (including attitudes, beliefs, and involvement) or some other marketing concepts such as brand name redeployment strategy to investigate consumer perceptions about brands after M&A. Furthermore, it is very important to understand cultural problems in an international 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 the most important multicultural factors that can inuence consumer brand equity (Pappu et al., 2006; Yasin et al., 2006). Many brands that originate from countries with an inferior 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 Rover from England. It is important for a company, originating from a country with an inferior image, to reduce consumers fear about the quality or service of the brand and product in the post acquisition phase. In addition to the COO effect, consumer animosity towards a foreign product will also affect their product perceptions and purchase intentions (Klein et al., 1998). If consumers have animosity towards a certain country, they will not buy the brand or product from this country even if they think the brand 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 consumer animosity. Given the era of globalization, there are many products and brands that originate from various countries and it is very important to reduce consumer ethnocentrism. It is also very important for the acquirer to avoid a strategy of ethnocentrism when marketing their products and brands during the post-merger given the cultural differences that could be present. There are different customs, values, languages, symbols and religions in different countries and a manager should know the consumer perceptions of the brand or company after the M&A and make the

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

Brand image strategy

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1 2

Perceived quality

Brand association

Brand loyalty BL1

Notes: 1Acquirer brand; 2acquired brand

Table AI. Items in scales

Appendix 1


Standardized loading (t-value) Sources


Brand X must be of very good quality

Aaker (1991); Yoo et al. (2000), Pappu et al. (2006)





Aaker (1991), 1996a, b); Aaker (1997), Pappu et al. (2006)





Pappu et al. (2006)


0.82 0.89 1 Brand X offers products of consistent 0.72 2 quality 0.78 1 Brand X offers very durable products 0.85 2 0.84 1 Brand X offers very reliable products 0.85 2 0.89 I trust the company which makes Brand X 10.80 2 0.82 It is appropriate to describe the products (1)0.79 2 offered by Brand X as up-market 0.73 It is appropriate to describe the products 10.82 2 offered by Brand X as tough 0.86 I like the company which makes Brand X 10.85 2 0.88 I would feel proud to own products from 10.82 2 the company which makes Brand X 0.85 1 Brand X would be my rst choice 0.90 2 0.92 1 0.89 I consider myself loyal to Brand X 2 0.89 (19.86) (22.70) (18.72) (16.66) (21.19) (20.77) (20.94) (22.78) Aaker (1991), 1996) (19.03) (16.94) (19.94) (21.82) (21.24) (22.63) (20.17) (21.45) (22.71) (24.08) (22.38) (22.65)

Appendix 2



Before M&A (acquirer) BA BL

Before M&A (acquired) PQ BA


Before M&A (acquirer) (0.94, (0.71, (0.27, (0.25, (0.21, 2 7.5 2 15.6 2 15 2 15.2 2 17.2 2 16.6 2 14.4 (0.14, 0.05) (0.17, 0.05) (0.28, 0.05) 28 28 (0.85, (0.22, (0.25, (0.24, 0.02) 0.05) 0.05) 0.05) 0.01) 0.03) 0.05) 0.05) 0.05)

Before M&A (acquired)

PQ BA BL PQ BA BL 26 2 9.6 2 12.6 2 15 2 15.8

(0.92, 0.01) (0.76, 0.03)

2 5.5

(0.89, 0.02)

Brand image strategy


Table AII.