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Quantifying M&A's Impact on Brand Equity: A Structural Approach

Date：2015-10-24 From：

Title：Quantifying M&A's Impact on Brand Equity: A Structural Approach

Place：Floor 3, Room A, Building 25A.

Abstract:

Consumers play a crucial role in a firm’s strategic moves. However, the literature on mergers and acquisitions (M&As) has overlooked the preference of consumers. In this paper, we provide a marketing perspective by investigating how the response of consumers to M&As influences the post-M&A performance of the firm involved. We develop a conceptual framework on how M&As affect firm profit through three channels: brand equity, cost synergies, and the product portfolio. Next, we use structural modelling in combination with the difference-in-difference approach to quantify the combined effect of these channels on firm profit. We then decompose the total effect into the main effects of each of the three mechanisms, along with their two-way and three-way interactions. This approach is applied to assess Lenovo’s acquisition of IBM’s personal computer division in China. We find that the acquisition raised consumers’ valuation of the Lenovo brand and generated significant cost synergies. The increase in brand equity contributed the most to increasing Lenovo’s profit, followed by the realized cost synergies. The gains in brand equity arose primarily from co-branding with the “Think Series”, rather than with the “IBM” brand. All three mechanisms reinforced each other in improving Lenovo’s post-acquisition profit.

Bio:

Yanlai Chu is a PhD candidate in marketing at the NUS Business School, National University of Singapore. He received his B.Eng. from Wuhan University and minor in computer science from Huazhong University of Science and Technology. His research interests include branding, e-Commerce, emerging markets, empirical industrial organization, dynamic structural models, etc.

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