To Merge or Not to Merge? Why Some Mergers Generate Positive Consumer Reactions and Others Do Not

THE PROBLEM
Mergers and acquisitions often generate significant media attention and strong consumer reactions. While some mergers and acquisitions engender a lot of support, excitement, and approval, most incite negative responses and harsh criticism. What makes one merger different from another? Why are some greeted with positive energy and others condemned? To explore this question, GICR researchers Kurt Carlson, Ishani Banerji, Christopher Hydock, Sam Skowronek, and Anne Wilson conducted a study in which they investigated consumers’ reactions to hypothetical firm mergers.
The study examined consumer’s responses to mergers between two airlines. The researchers systematically varied two factors that were expected to influence consumers’ perceptions of the merged firm: size and financial performance of the airlines.
Consumers first learned about the size of four airlines, reflected by their relative market share. Then they were shown the financial status of two of the airlines. In each case, one airline was doing well and the other was struggling. Following this information, participants were asked to report their attitudes toward all four airlines and to predict what would happen in the next year to ticket prices and quality.
Next, consumers were told that the two airlines they were given financial information for had merged. Given this information, consumers reported their attitude toward the newly merged airline. They also predicted what would happen in the next year to ticket prices and quality for the merged airline.
Thus, participants were presented with one of the following scenarios:
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By comparing participants’ responses before they learned about the merger to their responses after they learned about the merger, the researchers were able to determine how consumers perceive mergers that involve airlines of varying sizes and financial success levels.
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IMPLICATIONS & CONCLUSIONS
The results of the study indicate that consumers respond negatively to any merger that is seen as helping a large, but struggling firm, and positively to mergers helping struggling small firms. This suggests that the size and financial state of the merging firms affects consumers’ overall attitude toward the newly formed airline. These factors also affect consumers’ expectations for quality of service and prices for the year following the merger. While the study focused on only two factors—the size of the merging firms and their financial success—there are clear implications for industry. In particular, these findings are valuable for marketers to consider when deciding how to frame an upcoming or imminent merger. Communications that lead to the perception that a larger, struggling firm is being “helped” should be avoided. Moreover, statements about any upcoming changes to prices should be made early so that consumers don’t develop their own (perhaps inaccurate) expectations that prices will increase.

Kurt Carlson

Researcher at the Georgetown Institute for Consumer Research and Professor of Marketing, McDonough School of Business

Kurt Carlson is the Associate Dean at the Raymond A. Mason Business School. He received his bachelor’s and master’s degrees from the University of Wisconsin and his Ph.D. in marketing from Cornell University. Prior to joining William and Mary, Carlson was on the faculty of the Fuqua School of Business at Duke University from 2001 to 2009 and the faculty of McDonough School of Business at Georgetown University from 2009-2017.

Chris Hydock

Assistant Professor of Research

Chris Hydock is an Assistant Professor of Research and the Research Director of the Georgetown Institute for Consumer Research. He earned a PhD in Cognitive Neuroscience from the Psychology Department at George Washington University and BA in Psychology at the University of Colorado, Boulder.  In addition to conducting research on consumer behavior, he is helping to further develop the behavioral research lab for the McDonough School of Business.

Anne Wilson

Research Associate

Anne Wilson is a Research Associate for the Georgetown Institute for Consumer Research. Anne aids in the development, design, and implementation of research. Anne also supports other various initiatives and projects within the Georgetown Institute for Consumer Research. Anne earned her BA in Psychology and English from Georgetown University in 2013.

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