An Approach to Assess the Importance of Brand Equity in Acquisition Decisions

Abstract

Many firms acquire other firms with well‐known and proven brands to hedge against the high costs and risks of new product development. A critical question in these acquisition decisions involves the assessment of the importance of brand equity to the acquiring firm. Since the brand equity benefits can vary by firm (and also by the decision maker within a firm) a critical question is how can one systematically decipher the effect of brand equity in acquisition decisions. Using the balance model [8,15], Vijay Mahajan, Vithala Rao, and Rajendra Srivastava present a methodology to determine the importance of brand equity in acquisition decisions. By capturing the idiosyncratic perceived importance of brand equity of every decision maker involved in acquisition decisions, the methodology enables members of a committee within a firm to understand and reconcile their differences in evaluating potential acquisitions. This methodology is applied in a pilot study for the all‐suites segment of the hotel industry with data collected from senior executives of five major hotel chains. The authors also discuss benefits, limitations, and further extensions of the suggested approach.