What happens after a sellout: The effect of founder involvement and operational independence on post-acquisition customer support

ABSTRACT

In the fashion industry, digital startups referred to as direct-to-consumer (DTC) brands are growing in number and popularity. Select successful ones have sold their businesses to a big company for growth. While it is a sound strategy from an operational standpoint, this strategy’s potential tradeoffs from the branding perspective received less attention. This study examined the effects of two management decisions related to acquisitions (founder involvement and operational independence) on the customer expectations toward products, which in turn was expected to influence purchase intentions. Also examined was the moderating effect of perceived fit between the acquired and acquiring companies. An online survey was conducted with 255 participants recruited on Amazon Mechanical Turk. This study employed a scenario-based approach in which the participants read a mock newspaper article about a large retail company’s acquisition of a digital fashion startup. The results showed that operational independence, rather than founder involvement, plays a key role in positively influencing the customer expectations toward post-acquisition product offerings. Perceived fit weakened the positive effect of operational independence on product expectations. Academic and practical implications are offered.

KEYWORDS:

• M&A
• consumer response
• digital start-up
• founder
• operational independence
• perceived fit
• growth strategy