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Awan, Ho & Khan 1
Volume 12, Number 1, March 2017
Possible Effect of Merger and Acquisition on Brand Equity:
A Case Study of the IT Industry in South Korea
Mahmood A. Awan
SolBridge International School of International Business
Daejeon, South Korea
Corresponding Author: mawan14143@solbridge.ac.kr
Han Chiang Ho
Wenzhou-Kean University, Wenzhou, China
hho@kean.edu
Habib Ullah Khan
College of Business and Economics
Qatar University, Doha, Qatar
habib.khan@qu.edu.qa
ABSTRACT
This study focuses on how mergers and acquisitions (M&A) affect the consumer’s
buying behavior, specifically the consumer’s perception, of both the parent and
acquired brand in the IT industry. The empirical test of the theoretical model was
conducted using data collected through a 5-point Likert-scaled survey
administered to a sample of 512 university students in South Korea. The students
were selected as respondents in order to increase the homogeneity of the sample
and to minimize random error caused by selecting the general public. The survey
was designed using real examples. Specifically, the first version of the survey used
the “Facebook & WhatsApp” case, and the second version used the “Microsoft &
Skype” case. Quantitative methodology was employed, using multi-group path
analyses for testing the hypotheses developed. The results confirm that brand
awareness and perceived brand value are important sources of brand equity and
that the effects of these two components on brand equity after M&A are
significantly larger than before M&A. The study provides insights into important
issues regarding brand equity and how to strengthen the evaluation of M&A of
online companies, which could also be useful for brand managers.
Keywords: Brand equity, merger and acquisition, consumer behavior, customer
perception, IT mergers, perceived brand value, band awareness
DOI: 10.6702/ijbi.2017.12.1.1
2 Possible Effect of Merger and Acquisition on Brand Equity:
A Case Study of the IT Industry in South Korea
International Journal of Business and Information
1. INTRODUCTION
Brand equity (BE) is the term that marketers use to refer to the value created
by establishing customer preference for one’s brand. Keller (2013) stated that
brand equity reflects the consumer’s feelings and actions toward the brand. It has
implications on the prices and profits of the brand in the marketplace and helps
market capitalization of the company owning that brand. Strong brand equity helps
to improve the marketingg of a firm. Aaker (1991) stated that there are five assets
of brand equity for the creation of value: brand loyalty, brand awareness, perceived
value, brand association, and other proprietary brand assets. Pappu & Quester
(2006) indicated that brand equity should be considered an indicator of “the state
of health” of a brand.
Today, although there is a global trend toward consolidation and going
forward, many firms are acquiring firms that have successful brands in order to
avoid the associated risks and the high cost of product development. Over the
decades, the practice of merger and acquisition (M&A) has attained considerable
significance in the contemporary scenario, and is used broadly to reorganize
business entities.
There are many benefits of M&A. Srivastava (2012) stated that M&A can
improve cost efficiency through economies of scale. Others have shown that M&A
can increase sales by gaining market share. Through M&A, firms can also buy new
technologies, products, and distribution channels and can thus achieve a desirable
position in the market. The principal benefit of M&A is increased value generation.
Evans (2000) observed that the best mergers seem to have four strategic reasons:
positioning (to take advantage of future opportunities), gap filling (to cover
weaknesses), organizational competencies, and broader market access.
Mergermarket (2014) reported that global M&A value is worth $599.1 billion,
with the technology sector contributing around $54.3 billion during the first quarter
of 2014. Two recent cases of M&A involving major brands are Microsoft with
Skype (Microsoft, 2012; Khan et al., 2014a; Khan, 2016) and Facebook with
Whatsapp (Reuters, 2014). Microsoft, which had previously hesitated to engage in
significant acquisitions, bought Skype for more than $8.56 billion in cash.
Facebook purchased the mobile messaging service Whatsapp for around $22
billion in cash and stock, in the firm’s largest acquisition ever. Since both Skype
and Whatsapp are online services, it is important to study how brand equity is
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Volume 12, Number 1, March 2017
affected after the M&A of these organizations. No such study has been conducted
to date for the M&A of such online organizations.
Rios & Riquelme (2008) proved that brand awareness/brand recognition is an
important source of brand equity and that brand awareness/recognition contributes
to brand equity directly and indirectly in influencing customers. Their study
showed, however, that the impact of such a relationship is less than that of trust
and loyalty.
There are few studies in the literature on the relationship of M&A and
measurement of brand equity. Similarly, very little research is available on online
organizations and the information technology (IT) sector. The current study
examines the effects of brand equity on M&As in IT/online brands, focusing on
two recent cases of M&A in the IT industry. One is the acquisition of Skype by
Microsoft, and the other is the acquisition of Whatsapp by Facebook. In addition,
this study examines how consumer attitude changes toward the acquiring and
acquired brand after M&A, using a survey to measure the perceptions of
consumers about these two successful brands. Dean (2002) pointed out that the
balance theory is useful in explaining attitude formation and attitude change. This
study, therefore, uses balance theory to develop its hypotheses.
The rest of the paper is organized as follows. Section 2 contains a literature
review focusing on online brand equity and its application in the scenario of
information technology M&A. Section 3 presents the research methodology, and
Section 4 discusses data analysis. Section 5 presents the findings, and Section 6
offers conclusions and a discussion of limitations and suggestions for future
research.
2. LITERATURE REVIEW
In this study, four major constructs that influence brand equity are identified
and discussed in detail with regard to building the research model. They are brand
awareness, perceived brand value, functionality, and customer service.
2.1 Brand Awareness Brand awareness is “the ability of a buyer to recognize or recall that a brand
is a member of a certain product category” (Aaker, 1991). Keller (1993) pointed
out that brand awareness includes brand recognition and brand recall. Brand
recognition is associated with consumer experience and memory about having
heard or seen a brand. Brand recall is relevant to whether consumers can remember
a brand from memory. The customer’s awareness, in turn, insulates the brand from
4 Possible Effect of Merger and Acquisition on Brand Equity:
A Case Study of the IT Industry in South Korea
International Journal of Business and Information
its rivals and fosters loyalty for the brand. This attitude makes the brand conscious
of promising quality and persuades customers to pay a higher price for the product
(Halabi et al., 2014; Hakala et al., 2012; Khan, 2012; Bankole et al., 2017).
Hossein & Zeinab (2011) mentioned significant reasons for studying brand
equity, especially in the case of merging companies. They felt that brand equity is
useful not only to comprehend the level of awareness the customer has about the
strategic decisions and the brands, but also to forecast the financial throughput of
the corresponding venture (Hossein & Zeinab, 2011; Khan et al., 2013; Smuts et
al., 2017). According to Boo et al. (2009), the brand awareness of customers
assures them of the quality of the product and hence increases brand equity.
Baigi (2014) developed a model to ascertain the influence of brand awareness.
His study found that brand awareness is part and parcel of brand equity, which
increases the relationship with customers through the brand and makes them accept
the business decisions of the organization (Baigi, 2014).
While discussing the importance of customer awareness on a community
basis, Casaló et al. (2010) stated that the level of brand knowledge that the
members of the community possess is vital for improving brand equity. This
awareness is mandatory particularly in the case of the members of virtual
communities and social networking groups because opinion, ease of access, and
the behavior of one person influence the others. Research in this area, however, is
not sufficient to understand these constructs.
Bertea & Miosescu (2010) noted that irrespective of the other constraints that
can alleviate the position of the brand in the intensely competitive market,
“differential effect” can be created only through awareness of the product/brand.
2.2 Perceived Brand Value
Perceived value is conceptualized by Gill & Dawra (2010) as an important
construct to form the mix of brand experience. Kotler& Armstrong (2015) noted
that perceived value is “the customer’s evaluation of the difference between all the
benefits and all the costs of a marketing offer relative to those of competing offers.”
In terms of services companies, if they satisfy their customers’ needs and wants,
they will receive benefit from their services and will be pushed into a stronger
position in the long term (Hartnett, 1988; Ho et al., 2016; Khan & Ejike, 2017).
Lee et al. (2011) discussed the effect of perceived value in the case of the
merger of a brand. They inferred from their work that, if a low-image brand merged
with a high-image brand, the perceived value of the low-image brand would go up.
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Volume 12, Number 1, March 2017
Considering the branding strategies of online companies, Rios & Riquelme (2010)
found that customers perceived value works as an antecedent in the case of the
branding strategies of Internet-based companies.
According to Fernández-Sabiote & Roman (2012), in a multi-channel context
of customer service, the perceived value of offline services is more than that of
online services. Yet, the former leads to the latter. So, traditional offline services
can lay the groundwork for customer relationships and hence brand equity.
Huang et al. (2011) considered 260 customers in their study to determine the
role of perceived value as a moderator in the decisive process of the purchase.
They found that perceived value influenced brand equity. Gill & Dawra (2010)
established that developing brand awareness and hence nurturing quality
consciousness and value creation are prerequisites for building brand equity.
2.3 Functionality
In the process of merging, it is very important that companies assess the level
of functionality of the brands both before and after the merger (Basu, 2006).
Functionality is broadly defined in terms of software that provides a memorable
and easy-to-use experience for users (Dabholkar, 1996; Rios & Riquelme, 2010;
Uwemi et al., 2016; Ejike et al., 2017). Petruzzellis (2010) noted that knowledge
of the brand through its functionality causes a change in the thought process of the
customer, thus attracting him or her to the brand. Ratnatunga & Ewing (2009)
posited that brand equity must be given enough prominence in the mergers.
Since the functionality of a brand is described as the combination of its focus,
attention, skill, knowledge, freedom, control, and interactivity (Hamzah et al.,
2014), understanding the customer’s view of brand equity with respect to these
constructs can help management to tailor its strategies (Hakala et al., 2012;
Omonaiye et al., 2015; Hassan et al., 2015; Bashir et al., 2016).
Klaus & Maklan (2013) highlighted the importance of interaction and
freedom of technology so that the brand equity of the technology-oriented
organization is fostered among its customers. Although much of the literature
stresses just the brand equity of companies, Yoo et al. (2000) revealed a dearth of
research for understanding brand equity in the case of mergers.
In their analysis and discussion of the prerequisite of Internet marketing
activities and the influence of those activities, Rios & Riquelme (2010) noted that,
in the case of online companies, confidence and knowledge about the service is
fostered by functionality, which further develops brand equity. Biedenbach (2012)
6 Possible Effect of Merger and Acquisition on Brand Equity:
A Case Study of the IT Industry in South Korea
International Journal of Business and Information
pointed out that the attitude of managers, being more concerned about functionality
alone, leads to the scarcity of research pertaining to other constructs of branding.
2.4 Customer Service
Customer service is identified as one of the important constructs for
evaluating a company (Chait et al., 2000; Khan & Alhusseini, 2015). Ivanovic &
Collin (2003) defined customer service as “a service given to customers once they
have made their decision to buy, including delivery, after-sales service, installation,
training, etc.” Customer service focuses on the interpersonal relationship between
employees and customers (Bitner et al., 1990; Uwemi & Khan, 2016). Vu &
Moisescu (2013) discussed the case of the organization Diageo Plc, the world’s
biggest alcohol producer, which was created by the merger of two market giants.
The problems that occurred during the evolution of this organization were resolved
by supporting customers financially. It is clear, therefore, that customer service
strategies can help a business to soar, irrespective of business decisions (merger,
acquisition, or some other decision).
Over the years, many studies have been done on customer-based brand equity,
but only a scant number of these studies have been related to a web based (online
technology) environment (Khan, 2013a; Awan et al., 2012; Rios & Riquelme,
2008). Brand experiences of the customer dictate his or her favoritism toward a
brand and constitute brand equity (Warraich et al., 2014). Brand equity can be
achieved not only by upgrading technology, but also by updating the customer
through pertinent promotional campaigns (Sadek et al., 2014; Bashir & Khan,
2016). Alwi & Kitchen (2014) indicated that widening the purview of service
transactions apart from sheer customer service could be the best way to create
brand differentiation and hence brand equity.
Fernández -Sabiote & Roman (2012) found that, in the online environment,
advanced technologies like “virtual agents” play a vital role in addressing customer
needs through the human touch and are therefore able to create a niche in the
market. On the whole, researchers have found that value-based strategies can boost
customer response for the products and services of all classes (Huang et al., 2011).
As a matter of fact, brand equity is one of the most important concepts in the
study of a brand, which has been researched by many researchers and marketers.
Brand and brand equity are considered buzz words in the competitive marketing
world because they provide identity for the company/organization. Aaker (1991)
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Volume 12, Number 1, March 2017
defined brand equity as “a set of assets and liabilities linked to a brand, its name
and symbol that add to or subtract from the value provided by a product or service
to a firm and/or that firm’s customers.”
In a general sense, brand equity involves two approaches; namely, customer-
based brand equity (Keller, 1993) and financial-based brand equity (Simon &
Sullivan, 1993; Najmi et al., 2015; Askoul et al., 2016). Keller (1993) described
brand equity as the differential impact of brand knowledge on the responses of
consumers of the brand.
Simon & Sullivan (1993) pointed out that brand equity can be measured by
the financial value of the brand to the company. Although the term is frequently
used in business environments, the perspective toward it and the defined mix for
brand equity are domain-specific (Rios & Riquelme, 2010; Heang & Khan, 2015;
Hassan et al., 2016). The fact is that brand equity is the amalgam of customer
perception, the value that the product has accrued, and the good will of the brand,
which stands as a specific identity and breadwinner for the company (Kumar et al.,
2013; Khan, 2013b; Khan et al., 2014b).
Concepts related to brand equity include time and technology upgrades,
which make the process of brand management a complex artifact (Hamzah et al.,
2014; Musa et al., 2015; Awan & Khan, 2016). Added to this complexity are
internal factors such as mergers and acquisitions that play a significant role in the
brand equity of a company, which will generally pay more by neglecting the
perceptions of customers in this regard (Lee et al., 2011; Awan et al., 2016; Faisal
& Khan, 2016).
Studying brand equity provides the basis for strategic decisions such as
merger or acquisition; hence, assessing and forecasting brand equity are mandatory
for companies in designing future business plans (Khan & Faisal, 2015; Chen &
Green, 2011).
The current study, however, focuses on customer-based brand equity because
customers’ opinions toward the mergers and acquisitions (M&A) of high-tech
companies are the main goal of this study.
This study compares the difference between before and after M&A of a parent
and acquired brand in the IT industry. It explores the relationship among the
dimensions of brand equity (Aaker, 1991; Keller, 2008; Khan et al., 2016) and
product functionality, customer service, brand awareness, and perceived brand
value. As shown in the empirical model in Figure 1, product functionality (Func)
and customer service (CS) are considered independent variables, and brand
8 Possible Effect of Merger and Acquisition on Brand Equity:
A Case Study of the IT Industry in South Korea
International Journal of Business and Information
awareness, perceived brand value (PV), and brand equity (BE) are considered
dependent variables.
Figure 1. The Empirical Model for Current Study
In the early 1990s, researchers pointed out that a firm’s customer service is
very relevant to consumers’ perceived brand value (Cronin & Taylor, 1992; Khan
& Fournier-Bonilla, 2016). Brand awareness plays an essential role in determining
the evaluation of brand equity (Huan & Sarigollu, 2012). At present, there is not
enough knowledge in the literature relating to how these dimensions impact
consumers to form an opinion about one dimension over others.
The present study focuses on how consumer preferences toward brand equity
are affected by brand awareness, perceived brand value, functionality, and
customer service. Based on their limited literature review and their understanding
of the nomology of the concepts, the authors designed the empirical model shown
above in Figure 1. Based on the preceding discussion, the authors formulated the
following six hypotheses for this study:
H1: According to customer perception, the brand awareness of the products
will cause a significant increase in the influence on brand equity, after M&A.
H2: According to customer perception, the perceived brand value of the
products will cause a significant increase in the influence on brand equity,
after M&A.
H3: According to customer perception, the functionality of the products will
cause a significant increase in the influence on brand awareness, after M&A.
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Volume 12, Number 1, March 2017
H4: According to customer perception, the functionality of the products will
cause a significant increase in the influence on perceived brand value, after
M&A.
H5: According to customer perception, the customer service of alliance
companies will cause a significant increase in the influence on brand
awareness, after M&A.
H6: According to customer perception, the customer service of alliance
companies will cause a significant increase in the influence on perceived
brand value, after M&A.
3. METHODOLOGY This section discusses the data collection process, presents a profile of the
survey respondents, and describes methods and procedures for this study.
3.1 Data Collection Process To verify the consistency of their empirical tests, the authors conducted two
surveys to collect consumer responses. The empirical test of the theoretical model
was conducted using data collected from the survey of a sample of university
students. The survey was designed using real examples. Specifically, the first
version of the survey used the “Facebook & WhatsApp” case, whereas the second
version used the “Microsoft & Skype” case. The merger and acquisition strategies
of the four companies in the study were chosen because of the market spread of
the companies and hence the ease of evaluating the brand equity by customers.
Respondents were randomly assigned to one of the two versions of the
questionnaire. The independent t-tests showed that consumers’ attitudes were
indifferent toward the two acquirers – Microsoft and Facebook – (t = -0.90, df =
522, p = 0.90), and the two acquired companies – Skype and WhatsApp – (t = 0.05,
df = 522, p = 0.96). Consumers’ brand familiarity toward the four companies used
in these studies was tested because respondents who were familiar with the
companies could easily evaluate the “equal” contributions of each company
(Simonin & Ruth, 1998). Results showed that, on average, the brand familiarity of
the two main companies, Microsoft (M = 4.26) and Facebook (M = 4.33), and the
two merged companies, Skype (M = 3.14) and WhatsApp (M = 2.98), was similar.
10 Possible Effect of Merger and Acquisition on Brand Equity:
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International Journal of Business and Information
3.2 Profile of Respondents
Korean university students were selected as respondents in order to increase
the homogeneity of the sample and to minimize random error that would be caused
by selecting the general public (Calder et al., 1981; Das & Khan, 2016). Students
are ideal respondents for this study because research shows that a large proportion
(91%) of university students use messaging apps such as Facebook to
communicate and share photos with others, on an average of 10 to 30 minutes daily
(Wiley & Sisson, 2006; Ellison et al., 2007).
In addition, the student sample was selected based on its internal validity for
consumer behavior analysis, as recognized in previous related academic work on
attitude formation (Sicilia et al., 2006; Backhaus et al., 2001). According to
Stevens (2011), most objections to the use of student samples focus on the lack of
generalizability. When there is no theoretical reason to expect that one specific
sample would react in a different way than another and when the research priority
is accurate to establish causal relationships, internal validity justifies the use of a
student sample. Peterson (2001), in his meta-analysis, found that college students
tend to be more homogeneous than non-student samples.
Students completed the surveys as partial fulfillment of their marketing
courses. A sample of 428 surveys was obtained. After excluding invalid items, the
authors kept 374 valid surveys for the study. Of the total, 47% of the respondents
were male (nmale = 178, nfemale = 196). The ratios of the sample size to survey items
(15 items) for the sample satisfied the minimum requirements specified by both
Gorsuch (1983) and Thompson (2000). A detailed demographic profile of
respondents is shown in Table 1.
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Volume 12, Number 1, March 2017
Table 1. Demographic Profile of Respondents
Total sample size n = 374 Male (nmale = 178) Female (nfemale = 196)
Frequency % Frequency %
Gender
1 Male 178 45
2 Female 196 55
Education
1 Some college 0 0 0 0
2 University undergraduate 161 90.5 178 90.6
3 University graduate 17 9.5 18 9.4
Age
1 Under 20 years 91 51.2 119 60.9
2 21-30 years 87 48.8 77 39.1
3 31 or older 0 0 0 0
Annual Household Income
1 Under $10,000 11 6.0 12 6.3
2 $10,000 - $29,999 53 29.8 44 22.7
3 $30,000 - $49,999 49 27.4 35 18.0
4 $50,000 - $69,999 28 15.5 54 27.3
5 $70,000 - $99,000 17 9.5 31 15.6
6 $100,000 or more 21 11.9 20 10.2
How long have you been using messaging
app?
1 1 - 2 years 42 23.8 54 27.3
2 3 - 4 years 78 44.0 87 44.5
3 5 – 6 years 42 23.8 43 21.9
4 7 years or longer 15 8.3 12 6.3
What is the frequency that you use
messaging app to contact someone?
1 1 - 5 times one month 0 0 3 1.6
2 1 - 5 times one week 28 15.5 15 7.8
3 1 - 5 times one day 55 31.0 70 35.9
4 More than 6 times one day 95 53.6 107 54.7
How many messaging apps do you have in
your device(s)?
1 1 messaging app 4 2.4 2 0.8
2 2 messaging apps 21 11.9 23 11.7
3 3 messaging apps 55 31.0 46 23.4
4 4 messaging apps 80 45.2 104 53.1
5 5 messaging apps or more 17 9.5 21 10.9
12 Possible Effect of Merger and Acquisition on Brand Equity:
A Case Study of the IT Industry in South Korea
International Journal of Business and Information
3.3 Measures and Procedures
Both versions of the survey contained company logos, names, and a brief
introduction on the M&A of the acquirer company and the acquired company. The
beginning of each survey presented a definition of M&A and messaging app and
listed the M&A events of the acquirer companies (Facebook and Microsoft) and
the acquired companies (WhatsApp and Skype). Each survey contained three
questions each relating to the six variables in this study: brand familiarity, brand
awareness, perceived brand value, functionality, customer service, and brand
equity (see Appendix). Each question was on a 5-point Likert scale, ranging from
1 (strongly disagree agree) to 5 (strongly agree). Only respondents with an average
sum of more than 3 were considered valid responses.
First, respondents were tested on their familiarity with each brand.
Respondents were asked to express their opinion about before/after M&A of the
acquirer company and the acquired company. To ensure reliability and validity,
the authors adapted the measurement items from previous studies. To measure
brand awareness, the authors used the scale developed by Yoo et al. (2000). The
authors used the scale by Sweeney & Soutar, (2001) to measure perceived brand
value. To measure product functionality, the authors used items from Suppehellen
& Nysveen (2001). Consumer service was measured using items from Burke
(2002). Brand equity was measured using a scale developed by Yoo et al. (2000).
For the sake of consistency, easy understanding, and context fitness of the
measurement items, the authors conducted a pilot test with 50 respondents in order
to pre-test reliability, convergent validity, and discriminant validity. After all
measurement items showed the fitness of the constructs, the authors adopted those
items into formal empirical tests.
Table 2 presents the results of the assessment of internal consistency and
convergent validity. Regarding the formal empirical test, the table indicates that
the Cronbach’s alphas (α) for all constructs were above 0.6, which is considered
an acceptable level (Bagozzi & Yi, 1988). All items of composite reliability (CR)
exceeded the threshold value of 0.7 of internal consistency (Fornell & Larcker,
1981). In addition, the average variance extracted (AVE) values were above the
recommended threshold value 0.5 for all constructs (Fornell & Larcker, 1981).
Therefore, convergent validity is accepted.
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Volume 12, Number 1, March 2017
Table 2. Assessment of Internal Consistency and Convergent Validity
Cronbach’
s Alpha
(α)
Composite
Reliability
(CR)
Average
Variance
Extracted (AVE)
Facebook (F)
Functionality 0.84 0.90 0.73
Consumer service 0.76 0.89 0.75
Awareness 0.91 0.94 0.77
Perceived value 0.91 0.94 0.74
Brand equity 0.93 0.95 0.80
WhatsApp (W)
Functionality 0.96 0.96 0.68
Consumer service 0.96 0.96 0.73
Awareness 0.95 0.95 0.84
Perceived value 0.96 0.96 0.81
Brand equity 0.95 0.95 0.82
Microsoft (M)
Functionality 0.87 0.87 0.83
Consumer service 0.92 0.92 0.79
Awareness 0.94 0.94 0.65
Perceived value 0.89 0.89 0.86
Brand equity 0.92 0.92 0.87
Skype (S)
Functionality 0.89 0.89 0.75
Consumer service 0.90 0.90 0.81
Awareness 0.92 0.92 0.79
Perceived value 0.92 0.92 0.89
Brand equity 0.92 0.92 0.87
The authors measured discriminant validity using the test suggested by
Fornell & Larcker (1981). Good discriminant validity is represented as all square
roots of the AVE (diagonal elements), which are greater than the correlations
between constructs (off-diagonal). Table 3 shows the mean and standard deviations
(SD) and assessment of the discriminant validity of each construct.
14 Possible Effect of Merger and Acquisition on Brand Equity:
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International Journal of Business and Information
Table 3. Assessment of Discriminant Validity
Mean SD A BE C F PV
A 4.33 0.95 0.77
BE 3.41 1.03 0.33 0.80
C 3.26 1.01 0.10 0.51 0.75
F 3.64 0.95 0.41 0.49 0.42 0.73
PV 3.64 0.87 0.65 0.49 0.36 0.56 0.74
Microsoft
Mean SD A BE C F PV
A 4.26 0.93 0.65
BE 3.49 0.94 0.63 0.87
C 3.29 0.96 0.32 0.54 0.79
F 3.66 0.83 0.50 0.59 0.54 0.83
PV 3.78 0.80 0.68 0.46 0.47 0.47 0.86
Skype
Mean SD A BE C F PV
A 3.14 0.99 0.79
BE 3.23 0.98 0.37 0.87
C 3.27 0.95 0.43 0.57 0.81
F 3.45 0.91 0.53 0.47 0.59 0.75
PV 3.51 3.51 0.52 0.56 0.48 0.58 0.89
A = Awareness; BE = Brand Equity; C = Customer service; F = Functionality; PV =
Perceived Value
Mean SD A BE C F PV
A 2.98 1.46 0.84
BE 2.33 1.19 0.53 0.82
C 2.65 1.25 0.55 0.62 0.73
F 2.71 1.27 0.63 0.59 0.65 0.68
PV 2.81 1.19 0.62 0.43 0.59 0.57 0.81
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Diagonal elements represent the square root of AVE for each construct; off-diagonal
elements are correlations among constructs.
4. RESULTS AMOS™ 22 software was used to perform four multi-group path analyses to
test the conceptual model. In terms of the indices of model fit, the values of
goodness of fit (GFI), comparative fit index (CFI), and incremental fit index (IFI)
were above 0.9 (Bagozzi & Yi, 1988). The root mean square error of
approximation (RMSEA), which is another important index of measurement of fit,
had a value of less than 0.05, representing a good model fit (Baumgartner &
Homburg, 1996). This was a saturated model; therefore, it fit the data perfectly.
Some of the hypothesized paths were found to be non-significant at the 5%
significance level and the significant model. The result was the models shown later
in Figure 2 through Figure 5, following tables 4, 5, and 6.
These models are constrained versions of the theoretical model displayed in
Figure 1, with some direct paths fixed to zero. The fits of the resulting sample
model are excellent. The result for each company shows that the p-value χ2 (chi-
square test) is larger than 0.05:
Facebook: 2(9) = 8.911, p = 0.55; GFI = 0.98; CFI = 0.99; IFI = 0.98;
RMSEA = 0.00
WhatsApp: 2(9) = 9.163, p = 0.57; GFI = 0.99; CFI = 0.99; IFI = 0.98;
RMSEA = 0.00
Microsoft: 2(9) = 7.946, p = 0.46; GFI = 0.98; CFI = 0.98; IFI = 0.99;
RMSEA = 0.01
Skype: 2(9) = 9.732, p = 0.63; GFI = 0.99; CFI = 0.99; IFI = 0.98; RMSEA
= 0.00)
Consequently, all descriptive goodness of fit indices show that the data fit
the model well. Table 4 shows the summary of fitness indices for each model.
Table 4. Summary of Fitness Index for Each Model
Company 2 (d.f.) p GFI CFI IFI RMSEA
Facebook 8.911 (9) 0.55 0.98 0.99 0.98 0.00
WhatsApp 9.163 (9) 0.57 0.99 0.99 0.98 0.00
Microsoft 7.946 (9) 0.46 0.98 0.98 0.99 0.00
Skype 9.732 (9) 0.63 0.99 0.99 0.98 0.00
16 Possible Effect of Merger and Acquisition on Brand Equity:
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International Journal of Business and Information
Table 5 presents the empirical results for before/after M&A for each of the four
companies.
Table 5. Empirical Results for Each of the Four Companies
Before M&A
After M&A
Critical
Ratios for
Coefficient
Differences
Proposed Path Coef. p Coef. p |z|
H1 Awareness →
BE
0.35 0.000 * 0.53 0.000 * -0.62
H2 PV → BE 0.65 0.000 * 0.73 0.000 * -0.73
H3 Func →
Awareness
0.49 0.000 * 0.56 0.000 * -0.81
H4 Func → PV 0.51 0.000 * 0.58 0.000 * -1.18
H5 CS →
Awareness
0.31 0.000 * 0.07 0.444 3.67 ††
H6 CS → PV 0.14 0.027 * 0.13 0.042 * -0.07
H1 Awareness →
BE
0.01 0.908 0.20 0.025 * -1.75 ††
H2 PV → BE 0.53 0.000 * 0.64 0.000 * 1.54
H3 Func →
Awareness
0.57 0.000 * 0.61 0.000 * -0.25
H4 Func → PV 0.55 0.000 * 0.64 0.000 * -1.05
H5 CS →
Awareness
0.22 0.189 0.34 0.022 * 0.56
H6 CS → PV 0.27 0.003 * 0.48 0.000 * 1.53
--Continued
Table 5 (Cont’d). Empirical Results for Each of the Four Companies
Awan, Ho & Khan 17
Volume 12, Number 1, March 2017
Before M&A
After M&A
Critical Ratios
for
Coefficient
Differences
Proposed Path Coef. p Coef. p |z|
Microsoft
H1 Awareness →
BE
0.46 0.000 * 0.54 0.000 * 0.32
H2 PV → BE 0.72 0.000 * 0.83 0.000 * -0.23
H3 Func →
Awareness
0.51 0.000 * 0.59 0.000 * 0.72
H4 Func → PV 0.53 0.000 * 0.81 0.000 * 3.89 ††
H5 CS →
Awareness
0.19 0.026 * 0.11 0.296 0.66
H6 CS → PV 0.18 0.006 * 0.07 0.363 -2.49 ††
Skype
H1 Awareness →
BE
0.31 0.000 * 0.53 0.000 * 0.56
H2 PV → BE 0.64 0.000 * 0.69 0.000 * -0.87
H3 Func →
Awareness
0.43 0.000 * 0.46 0.000 * 0.34
H4 Func → PV 0.56 0.000 * 0.58 0.000 * 0.40
H5 CS →
Awareness
0.19 0.060 *
*
0.15 0.119 -0.32
H6 CS → PV 0.35 0.000 * 0.26 0.000 * 0.13
* p < 0.05; ** p < 0.10; ††: |z| > 1.645, p <0.10
As hypothesized, the data in Table 5 indicates that brand awareness plays a
significant role in affecting brand equity for Facebook, Microsoft, and Skype. The
effect after M&A for each company is larger than before M&A:
F_ABE(Before) = 0.35, p < 0.01) < (F_ABE(After) = 0.53, p < 0.01.
M_ ABE(Before) = 0.46, p < 0.01) < (M_ ABE(After) = 0.54, p < 0.01.
S_ ABE(Before) = 0.31, p < 0.01) < (S_ ABE(After) = 0.53, p < 0.01.
Furthermore, there is an improved effect of brand awareness on brand equity in
WhatsApp, which is insignificant in before M&A and significant in after M&A:
W_ABE(Before) = 0.01, p = 0.908, W_ABE(After) = 0.20, p < 0.05.
H1 is thus confirmed.
18 Possible Effect of Merger and Acquisition on Brand Equity:
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International Journal of Business and Information
Perceived brand values significantly affect brand equity in all four companies.
In addition, the effect of after M&A is larger than before M&A for each company:
F_PVBE(Before) = 0.65, p < 0.01) < (F_PVBE(After) = 0.73, p < 0.01.
W_ PVBE(Before) = 0.53, p < 0.01) < (W_PVBE(After) = 0.64, p < 0.01.
M_ PVBE(Before) = 0.72, p < 0.01) < (M_ PVBE(After) = 0.83, p < 0.01.
S_ PVBE(Before) = 0.64, p < 0.01) < (S_ PVBE(After) = 0.69, p < 0.01.
H2 is therefore supported.
The effect of product functionality on brand awareness for each company is
significant for both before and after M&A, as shown in Table 5. The effects of
after M&A are all larger than before M&A:
F_FuncA(Before) = 0.49, p < 0.01, F_FuncA(After) = 0.56, p < 0.01.
W_ FuncA(Before) = 0.57, p < 0.01, W_ FuncA(After) = 0.61, p < 0.01.
M_ FuncA(Before) = 0.51, p < 0.01, M_ FuncA(After) = 0.59, p < 0.01.
S_ FuncA(Before) = 0.43, p < 0.01, S_ FuncA(After) = 0.46, p < 0.01).
Therefore, H3 is supported.
The effect of product functionality on perceived brand value for each
company is also significant between before and after M&A, and the effect of after
M&A is bigger than before M&A:
F_FuncPV(Before) = 0.51, p < 0.01, F_FuncPV(After) = 0.58, p < 0.01.
W_ FuncPV(Before) = 0.55, p < 0.01, W_ FuncPV(After) = 0.64, p < 0.01.
M_ FuncA(Before) = 0.53, p < 0.01, M_ FuncA(After) = 0.81, p < 0.01.
S_ FuncA(Before) = 0.56, p < 0.01, S_ FuncA(After) = 0.58, p < 0.01).
HA is therefore supported.
Regarding H5, the effects of customer service on brand awareness of
Facebook, Microsoft, and Skype are significant in before M&A:
F_CSA(Before) = 0.31, p < 0.01.
M_CSA(Before) = -0.19, p < 0.05.
S_CSA(Before) = 0.19, p < 0.10.
The effects of customer service on brand awareness are insignificant, however, in
after M&A for Facebook, Microsoft, and Skype:
F_CSA(After) = 0.07, p = 0.444.
M_CSA(After) = 0.11, p = 0.296.
S_CSA(After) = 0.15, p = 0.119.
Awan, Ho & Khan 19
Volume 12, Number 1, March 2017
The improved effect is only in WhatsApp, where customer service does not play
an important role in influencing brand awareness efore M&A (W_CSA(Before) = 0.22,
p < 0.189), but does play an important role after M&A (W_CSA(After) = 0.35, p <
0.05). Hence, H5 is not supported.
The effect of customer service on perceived brand value is improved only in
WhatsApp, whose effect of customer service on perceived brand value in after
M&A (W_CSPV(After) = 0.48, p < 0.01) is larger than before M&A (W_CSPV(Before)
= 0.27, p < 0.05). The effects for the other three companies are not supported.
Either the effect of before M&A is larger than after M&A, or there is an
insignificant result in after M&A:
Facebook: (F_CSPV(before) = 0.14, p < 0.05) > (F_CSPV(After) = 0.13, p < 0.05);
Microsoft: (M_CSPV(before) = 0.18, p < 0.05; M_CSPV(After) = 0.07, p = 0.363);
Skype: (S_CSPV(before) = 0.35, p < 0.01) > (S_CSPV(After) = 0.26, p < 0.01)).
H6, therefore, is not supported.
Table 6 summarizes the empirical results for each of the six hypotheses in this
study.
Table 6. Summary of Results for Each Hypotheses in Study
Hypothesis Brief Description Relation Results
H1 Brand Awareness Brand Equity + Not Supported
H2 Perceived Brand Value Brand Equity + Supported
H3 Product Functionality Brand
Awareness
+ Supported
H4 Product Functionality Perceived
Brand Value
+ Supported
H5 Customer Service Brand Awareness + Not Supported
H6 Customer Service Perceived Brand
Value
+ Not Supported
Apart from the total (direct) effect shown earlier in Table 5, it is necessary to
consider the indirect effects of components on brand equity. These indirect effects
are explored by adding product functionality and customer service via whole
possible paths to brand equity. The AMOS results indicate that all indirect effects
20 Possible Effect of Merger and Acquisition on Brand Equity:
A Case Study of the IT Industry in South Korea
International Journal of Business and Information
of product functionality are larger than the effects of customer service on brand
equity, even though part effects are not significant:
F_IndieffFunc_BE(Before) = 1.308 > F_IndieffCS_BE(Before) = 0.374,
F_IndieffFunc_BE(After) = 1.146 > F_IndieffCS_BE(After) = 0.425;
W_IndieffFunc_BE(Before) = 0.725 > W_IndieffCS_BE(Before) = 0.664,
W_IndieffFunc_BE(After) = 0.889 > W_IndieffCS_BE(After) = 0.380;
M_IndieffFunc_BE(Before) = 1.308 > M_IndieffCS_BE(Before) = 0.374,
M_IndieffFunc_BE(After) = 1.298 > M_IndieffCS_BE(After) = 0.058;
S_IndieffFunc_BE(Before) = 1.029 > S_IndieffCS_BE(Before) = 0.464,
S_IndieffFunc_BE(After) = 1.149 > S_IndieffCS_BE(After) = 0.538).
(Before M&A)
(After M&A)
*Only significant relationships are presented.
Figure 2. Results for Facebook, Before and After M&A
Awan, Ho & Khan 21
Volume 12, Number 1, March 2017
(Before M&A)
(After M&A)
*Only significant relationships are presented.
Figure 3. Results for WhatsApp, Before and After M&A
22 Possible Effect of Merger and Acquisition on Brand Equity:
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International Journal of Business and Information
(Before M&A)
(After M&A)
*Only significant relationships are presented.
Figure 4. Results for Microsoft, Before and After M&A
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Volume 12, Number 1, March 2017
(Before M&A)
(After M&A)
*Only significant relationships are presented.
Figure 5. Results for Skype, Before and After M&A
5. DISCUSSION
The central aim of this study is to identify the drivers of brand equity,
especially for the M&A of online companies. The study provides new insights into
important issues regarding brand equity and the exact direction for strengthening
the evaluation of the M&A of online companies. Most of the previous research on
brand equity dealt mainly with analyzing the impact of unilateral antecedents on
consumer evaluation, without extending the different periods through which the
same successful drivers of brand equity before/after M&A may impact consumer
evaluation differently.
24 Possible Effect of Merger and Acquisition on Brand Equity:
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International Journal of Business and Information
By decomposing M&A activities into two periods, this paper sheds light on
the subtle routes underlying consumer evaluation in the online company cases of
brand equity between before and after M&A. The results from both before and
after M&A of these companies also offer significant theoretical and managerial
contributions to the literature on brand equity, in several ways.
In this study, brand awareness and perceived brand value are proved to be
important sources of brand equity, a finding that coincides with the results of
research by Keller (2013) and Rios & Riquelme (2008). The current study shows
that, among the four companies studied, the effects of brand awareness and
perceived brand value on brand equity after M&A are significantly larger than
before M&A for three of the companies (WhatsApp, Microsoft, and Skype). The
positive effects on the brand equity of the parent and acquired companies reflect
why the parent brand originally intended to implement M&A. It should be noted
that the importance of perceived brand value in terms of its total effect on brand
equity is about four times larger than that of brand awareness. The result implies
that perceived brand value is more important in the consumers’ minds than brand
awareness when they are faced with this M&A operation. This result supports
previous research by Yoo et al. (2000), who pointed out the existing, significantly
weak relation between brand awareness and brand equity.
Product functionality is a major component directly and indirectly affecting
the importance of brand awareness and perceived brand value in building brand
equity. Functionality has significantly improved effects on brand awareness after
M&A for all four companies in this study. These results coincide with those of
Berry (2000) and Chiu & Wang (2000). The results show that the effects of
functionality on perceived brand value are almost larger than its effects on brand
awareness for three of the companies, but is a bit smaller before M&A for
WhatsApp. Some of the results are consistent with those of Page & Lepkowska-
White (2002), who found that, by providing reliable functionality, online
companies generally increase consumers’ perceived brand value. Although the
current study does not directly measure hypotheses between product functionality
and brand equity, such effects are assessed by examining alternative paths in the
empirical model and by checking the importance through indirect effect. The
results confirm the importance of product functionality in terms of its indirect
effects on brand equity through brand awareness and perceived brand value. Hence,
the importance of product functionality cannot be underestimated.
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Volume 12, Number 1, March 2017
In the current study, customer service, the other interesting marketing
component, does not show consistent effects on brand awareness and perceived
brand value. Regarding the two acquirer companies (Facebook and Microsoft), it
was found that customer service after M&A does not maintain/improve the effects
on brand awareness and perceived brand value, and may, in fact, worsen the effects.
For the two acquired companies (WhatsApp and Skype), customer service after
M&A almost maintains/improves the effects on brand awareness and perceived
brand value, especially for WhatsApp. It is possible that consumers perceive that,
after M&A, the acquirer companies need to help the acquired companies solve
increased technical problems and relevant product problems from new consumers.
On the other hand, it is also possible that acquired companies could receive support
from acquirers, a situation that would cause consumers to have more confidence
in their customer service. In this situation, there are two tasks for managers. The
first task is to put more effort in exploring the means to improve customer service
in order to increase consumer identification toward the company’s brand
awareness and perceived brand value. The second task is to transfer company
resources from customer service to other departments, an action that could enhance
the company’s brand awareness and perceived brand value in the mind of its
consumers. In-depth business analyses are required to determine which business
strategy is suitable for the company.
The effects of customer service on brand awareness and perceived value have
a significantly improved contribution only in the case of WhatsApp. The other
three companies (Facebook, Microsoft, and Skype) do not benefit from customer
service. Because of the special characteristics of customer service, its quality is
often inconsistent (Kerin et al., 2015). Inconsistency is sometimes a bigger
problem in customer service than it is in product functionality. Different
consumers may have different perceptions of service quality, whereas different
companies may provide distinct customer service quality. Inconsistency, therefore,
may be one of reasons for inconsistent results regarding customer service in the
four companies.
In sum, the empirical results of the current study indicate that the M&A of
online companies could help the companies enhance their brand equity.
5.1 Managerial Implications
The findings of this study have several implications for marketing managers
in the IT industry. The study provides new insights into important issues regarding
26 Possible Effect of Merger and Acquisition on Brand Equity:
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International Journal of Business and Information
brand equity and the exact direction for strengthening the evaluation of M&A of
online companies, which could be useful for brand managers.
The finding that M&A in the IT industry influences functionality and
customer service indicates that brand awareness and perceived brand value are
important in increasing the positive perception of brand equity. Marketers should
concentrate on strengthening those elements in order to achieve the desired
perception. They should enhance their promotion strategy of the M&A in terms of
process and staff so as to attain highly positive images.
Because positive functionality and customer service generate a positive level
of increasing brand awareness and perceived brand value directly and brand equity
indirectly, marketers in parent companies should concentrate on improving the
quality of IT products and customer service in light of tangible and intangible
attributes. These efforts will create a high level of brand equity in the minds of
consumers.
In the IT industry, marketing strategy may not be effective sometimes in
influencing brand equity for consumers. Likewise, product functionality and the
customer service of social media or online communications software may not have
much influence on consumers in terms of choosing it as the only online tool they
want to use. A strong product functionality and good customer service are
favorable, however, with regard to creating a high level of brand equity for
consumers To maximize synergy from the M&A process, therefore, marketers
should discreetly care about the paths from product functionality and customer
service to brand awareness and perceived brand value, and from brand awareness
and perceived value to brand equity.
Compared with tangible products such as cars or books, it is not easy to
maintain the quality of customer service at the same level. Different customers
may have varied responses to the level of service. To enhance the brand equity of
a company, therefore, staff should be educated and encouraged to maintain a
similar or identical level of customer service.
Furthermore, to create a high level of recognition for the M&A, marketers
must have strong and positive management of the relationship with customers. In
so doing, they have an excellent opportunity to achieve a successful M&A.
Awan, Ho & Khan 27
Volume 12, Number 1, March 2017
5.2 Limitations and Future Research
Apart from its contributions, this study has several limitations. First, it targets
only one segment. Further studies might incorporate other segments and include
more professionals from different countries.
Second, the current study focuses only on the IT industry. Future studies
could be enlarged to include other industries.
Third, the current study uses a convenience sample of university students as
respondents. Although student samples reduce problems of heterogeneity, this
method may limit generalization. A student sample might be appropriate to test
and develop students because they are the users of the software. Future research
could test this model with the general public for generalizability.
Fourth, the observable variables in the current study may not be
comprehensive enough. For a more in-depth exploration, future research could
define and measure broader observable variables – e.g., sustainable competitive
advantage or company image (Kim et al., 2011).
Fifth, this study was designed to perform cross-sectional analysis to discuss
consumer attitudes toward M&A, before and after. For reasons of completeness
and robustness, future studies might adopt longitudinal analysis in order to gain a
deep understanding of consumer attitudes.
28 Possible Effect of Merger and Acquisition on Brand Equity:
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International Journal of Business and Information
APPENDIX:
SURVEY QUESTIONS FOR EACH VARIABLE
Brand Familiarity
No. Question
1 I am extremely familiar with the Facebook brand name.
2 I definitely recognize the Facebook brand name.
3 I definitely have heard of the Facebook brand name before.
Brand Awareness
No. Question
1 I can recognize Facebook among competing brands.
2 I am aware of Facebook.
3 I can quickly recall the symbol or logo of Facebook.
Perceived Brand Value
No. Question
1 Facebook has consistent quality.
2 Facebook has an acceptable standard of quality.
3 Facebook would perform consistently.
Functionality
No. Question
1 I have a preference for Facebook because it is easy to use.
2 I like Facebook because it offers consistent accessibility.
3 I like Facebook because it remembers my preferences.
Customer Service
No. Question
1 I like Facebook because it offers alternative customer support (call center, toll
free, e-mail, or “live individuals”).
2 I have a preference for Facebook because it offers specialized customer support.
Brand Equity
No. Question
1 Even if another brand has the same features as Facebook, I would prefer to use
Facebook.
2 If another brand is not different from Facebook in any way, it seems smarter to
purchase Facebook.
3 Even if there is another brand as good as Facebook, I prefer to use Facebook.
4 It makes sense to use Facebook instead of any other brand, even if they are the
same in quality.
Awan, Ho & Khan 29
Volume 12, Number 1, March 2017
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ABOUT THE AUTHORS
38 Possible Effect of Merger and Acquisition on Brand Equity:
A Case Study of the IT Industry in South Korea
International Journal of Business and Information
Mahmood A. Awan is an associate professor at SolBridge International School of
Business, Daejeon, South Korea. He received his Ph.D. from North Central
University in Arizona, USA. He received his undergraduate from McGill University,
Montreal, and his MBA from Alabama A&M University, USA. He is also a
Chartered Marketer (CM). His research interests include Internet marketing, branding,
and e-government.. He can be contacted at mawan14143@solbridge.ac.kr
Habib Ullah Khan is an associate professor of MIS in the Department of Accounting &
Information Systems, College of Business and Economics, Qatar University, Qatar.
He completed his Ph.D. in management information systems from Leeds
Metropolitan University, U.K. He has nearly 18 years of industry, teaching, and
research experience. His research interests include IT adoption in supply chain
management, Internet addiction, mobile commerce, computer-mediated
communication, IT outsourcing, big data, and IT security.
Han-Chiang Ho is an assistant professor at Wenzhou-Kean University, Wenzhou, China.
He received his Ph.D. in quantitative methods and business administration with a
specialization in marketing from Carlos III University of Madrid in Madrid, Spain.
His research interests include marketing strategies of gender and cross-cultural
difference and co-branding strategy.
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