By Dave Wendland, as seen in Chain Drug Review, November 7, 2016
Editor’s note: This is the final article in a four-part series.
Even as this four-part series of articles has been written, the rate of mergers and acquisitions has not subsided.
Outside the retail health care industry, but perhaps one of the larger mergers of the year, the deal between Microsoft and Linkedln ($26.2 billion) was announced in June. And, although it was rejected, the Mondelez International and Hershey’s marriage would have been a major industry disruptor. Sherwin Williams painted a deal with its major competitor, Valspar, for a sweet $11.3 billion. Verizon acquired Yahoo! and Oracle gobbled up NetSuite, representing deals valued at $4.8 billion and $9.3 billion, respectively. In the pharmacy and health industry, the emergence of Quintiles IMS originated with a $12.8 billion price tag. And within health and wellness, it would now appear the Walgreens Boots Alliance Inc. (WBA) and Rite Aid Corp. merger will get the green light. Unilever’s acquisition of Dollar Shave Club should also be viewed as a game changer.
I began the series discussing M&A activity at a macro level, introduced innovation as a competitive response, and then moved through retail pricing strategies. This closing column will address service levels.
If customers experience a degradation of service levels, or other changes that they are not happy with, they’ll take their business elsewhere. One of the key success factors for post M&A integration is customer retention as well as perceived customer value.
However, companies in the midst of M&A activities often focus too much on cost savings and fail to deliver the improved benefits they promise. According to findings released as part of a 2011 Thorbjørnsen and Dahlén study on the subject titled “Customer reactions to acquirer-dominant mergers and acquisitions,” customers tend to perceive corporate acquisitions negatively and may intentionally switch brands after the announcement.
Competitive responses can become fierce when integration starts. An unstable post-M&A business environment can create service disruptions, which opens the door to competitive attacks. The effects are well summarized in the following argument posed by Christine Meyer in the April 2008 issue of Long Range Planning: “...the best time to attack your competitor is when he is in the middle of a complex merger process. This is when his customers are neglected, his key employees are likely to leave...and this is the time when he is least likely to be able to muster a coordinated response...”
The bottom line is to avoid merely settling for the status quo. The magnitude of the acquisition may create vulnerabilities, causing competitors to step up to the plate and entice customers to abandon former allegiances. Let others worry about whether they can disrupt the industry, or deal with being disrupted while you focus on innovation to enhance your market position.
CVS Health’s introduction of curbside pickup is one example of an attempt to enhance service levels. A disruptor in its own right, given the acquisition of Target’s pharmacy operation and recent integration into the Target stores, CVS Health responded to competitive pressure and put a focus on the customer experience. The desire to attract new customers in this way may have been reactionary to the mounting pressure by Wal-mart’s delivery option and the ever-expanding reach of Amazon Prime.
If the WBA transition is any indicator of what may result from the approaching WBA and Rite Aid integration, I would expect rivals to step up their service levels and attempt to woo former Rite Aid shoppers. It will be interesting to see the types of innovation competitors unveil, and whether Walgreens will reveal any vulnerability during this process.
Offering exceptional customer service amid tumult can be as simple as sending thank you gifts or cards to enhance loyalty. Or it could be as elaborate as what one national retailer once considered: sending limousines to the houses of each of its top 20 customers in key cities affected by competitive acquisitions and allowing them an exclusive shopping experience in one of their stores.
Other examples include special discounts and contests; customer appreciation events; the addition of new services or technology solutions; and expanded retail alliances and product offerings that add value.
As highlighted at the onset of this series, “With very few exceptions, the aftermath of mergers and acquisitions may cause market disruption.” Competing based on service is one way to draw customers away from the chaos and into your stores.
The focus of this editorial series is on retail reactions to competitive mergers and acquisitions and addresses such issues as internal change, in-store innovation, and pricing strategies.