How Can a Company Merger Affect Consumers?
A merger might present a wide variety of cost-containment, product line and economies of scale benefits for two businesses, but whether the union is a good idea also comes down to how the public accepts it. Before you consider combining two companies, review the effects the merger will have on your customers and how likely they will be to stay with you based on what the merger means to them.
If a marketplace has three or more competitors, with perceived value and brand image important to consumers, a merger that results in the absorption of one company can send consumers to a competitor. If you merge two companies and keep only one name and product, you won’t necessarily get all of the customers from both merged companies shopping with you. The company name you keep might have been the third choice of many customers of the brand you shut down, causing them to begin shopping at their former second choice, a remaining competitor.
When you merge two companies, warranties, guarantees and other customer service issues can affect your customers. If customers shopped at one business because of the proximity of its stores, they might move to your competitor if you close stores near them and require them to travel farther for service issues. If you lay off redundant customer service reps and salespeople, your customers might not feel the personal connection to your business they once did. Your customers might have to re-register at your website, create new passwords and activate new accounts, causing you to lose customers who don’t take time to do so.
Some mergers result in both brands continuing to operate, sharing back office functions such as marketing, accounting and human resources. When mergers result in one brand ending or one set of products leaving the marketplace, consumers have fewer options. This may not be a problem with particular products or services consumers need, such as oil changes or landscaping services, but it might make them more willing to look at a larger shopping area to find more options. Post-merger price decreases benefit consumers but make it more difficult for competitors to stay in business or for new businesses to enter the market.
Less competition means more of an opportunity for you to raise your prices. If customers are willing to expand their geographic shopping area because of fewer choices, their willingness to travel becomes more likely if less competition leads to higher prices. If the only two providers in a marketplace merge, the temptation to raise prices makes it easier for a competitor to enter the market. If a merger results in reduced operating expenses, the new business can increase gross profits by lowering prices and increasing sales volumes.