News outlets are reporting today that OfficeMax and Office Depot are apparently considering a merger.
The move makes sense for many reasons. The combination will result in significant cost reductions. The new entity will have a stronger negotiating position with suppliers. And competition in the brutal office-products industry will decrease at least a bit.
The biggest benefit, I suspect, will be branding.
OfficeMax and Office Depot have long had a simple problem. The names are so similar that people get them confused. The stores are similar, too. I suspect many people visit OfficeMax and walk out thinking they just went to Office Depot, and vice-versa. One of the stores is very near my house. I visit it often but I have no idea which one it is.
This is a major problem for the companies. Differentiation is critical; you have to be unique to justify premium pricing. But how do you differentiate a brand when consumers constantly confuse you with your competitor?
The beauty of the merger is that it ends the confusion. One brand will emerge when the dust settles.
This is really the only way the branding situation could end happily. In theory, one of the companies could have moved to a different brand but this wasn’t likely to happen; the company that made the change would have incurred significant costs while the company that didn’t change enjoyed significant benefits. A merger, though, is a solution that benefits both companies.
Over the next few days analysts will calculate all the cost savings that will come from this merger. The biggest benefit, however, is the resolution of a difficult branding problem.
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