The Importance of Testing in a Post-Merger EnvironmentApril 12th, 2017 | Posted by in Retail
In recent years, there have been many mergers and acquisitions (M&A) in the retail industry. Examples range from Albertsons’ merger with Safeway to Kroger’s acquisitions of Harris Teeter and Roundy’s, to Alimentation Couche-Tarde’s acquisition of CST Brands and Chilean operator COPEC’s acquisition of all MAPCO stores. In a post-merger environment, there are inevitably competing business priorities; this period is one of the most critical times to cross-pollinate ideas from both organizations and identify where there are winning strategies. Failing to evaluate the best ideas across the organization can be a big missed opportunity for many companies.
In post-merger upheaval, it is often unclear which strategies will be most effective moving forward, and implementing any new program or initiative involves both a financial and reputational risk. Merely continuing along the path of the acquiring company can lead organizations to overlook key ways to refine programs across the business. By learning from both companies’ existing programs, successes, and past approaches, the new company can optimize its go-forward strategy and realize the initial investment thesis.
The best way to figure out which ideas will be most effective is through experimentation. An organization can test new ideas in a subset of stores, and measure their performance against that of a group of similar stores that carry on business as usual. This approach allows the company to accurately measure how a new program affects the company’s bottom line, as well as where or with whom it is most successful, and how it can be improved.
Some of these “tests” will happen naturally, as they begin to convert banners and implement strategies in some locations and not others, as it is impossible to remodel all locations simultaneously. Testing and quickly identifying the effectiveness of changes in different stores and markets before committing the necessary resources to a broader deployment will empower companies to make the best possible rollout decisions – backed by data, not politics.
For example, consider a convenience retailer that acquires another chain that is heavily focused on food service. While the acquiring company sees strong potential in the food service component of the business, building on these food service programs would significantly increase operational expenses. As the two brands integrate, leveraging testing would allow the new company to test the acquired company’s food service offerings more broadly, and enable the company to implement the program only where it would add value.
In the period following a merger, the new company should conduct tests in many functional areas across the business. Each potential change to these programs raises key questions that newly merged organizations must answer as they strive to capitalize on the most profitable ideas from each company. Some examples of programs to test across functional areas include remodel initiatives, marketing campaigns, and assortment strategies.
Another functional area where there are testing opportunities is the store network. For example, which locations should the new company close? In the markets where they do close stores, how can they drive as much business as possible from those locations to other, nearby stores? Which stores should be rebranded, and in what order of priority to maximize outcomes? Especially following a merger or acquisition, organizations must be able to address these considerations and determine the right depth of closures to achieve optimal cross-brand synergies.
Additionally, M&A is often driven by two common goals: Expansion to new markets and customer groups. Testing can help address considerations accompanying both of these strategies. For example, the organization may want to determine: How do customer characteristics and shopping habits at newly acquired stores compare to shopping habits of the core brand? What is the likelihood of the combined organization losing customers who are loyal to the original brand? What is the likelihood that they will maintain customers who are loyal to the acquiring brand?
Leveraging insights revealed by testing, companies can target their marketing campaigns to maintain as much existing business and drive as much new business as possible. For example, testing different campaigns can help organizations pinpoint which combination of levers across platforms – mobile, email, direct mail – will be most effective, and with which types of customers. They can apply the same method to learn which types of promotions and offers most successfully drive traffic to the new company, and examine any existing loyalty programs to then expand on the most effective components. One example is Safeway’s “Just for U” personalized coupons; after Albertsons acquired the chain, they recognized the program’s value in driving customer loyalty, and decided to implement it in a subset of their network.
Although there are many important business considerations following a merger, using testing to unlock critical insights from both organizations’ existing strategies is the best and most reliable approach for the new company to optimize its go-forward plan.
Watch this video from APT SVP Jonathan Marek for more details on the importance of testing in a post-merger environment.
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