What is a potential disadvantage of a de-merger?

What is a potential disadvantage of a de-merger?

• A. Customers may be put off by the de-merger and abandon the business
• B. It reduces branding costs
• C. It guarantees lower transaction costs
• D. It ensures enhanced cross-selling between components

Answer: (A)

The main idea here is that splitting a single business into separate entities can disrupt customer relationships and the value they associate with the whole brand. When a de-merger happens, customers who relied on an integrated range of products or a single, familiar point of contact may feel confused or less confident in the new structure. They might perceive higher friction, changes in service levels, or altered billing and support arrangements, which can lead them to take their business elsewhere. That risk of customer attrition is a genuine disadvantage of de-merging. The other options describe potential outcomes that aren’t reliable drawbacks. Branding costs don’t automatically fall and aren’t a guaranteed disadvantage, and transaction costs aren’t guaranteed to decrease after a de-merger; in many cases they can rise due to duplications and new coordination needs. Likewise, cross-selling can suffer after a split because the natural synergies within one united offering are harder to maintain.

The main idea here is that splitting a single business into separate entities can disrupt customer relationships and the value they associate with the whole brand. When a de-merger happens, customers who relied on an integrated range of products or a single, familiar point of contact may feel confused or less confident in the new structure. They might perceive higher friction, changes in service levels, or altered billing and support arrangements, which can lead them to take their business elsewhere. That risk of customer attrition is a genuine disadvantage of de-merging.

The other options describe potential outcomes that aren’t reliable drawbacks. Branding costs don’t automatically fall and aren’t a guaranteed disadvantage, and transaction costs aren’t guaranteed to decrease after a de-merger; in many cases they can rise due to duplications and new coordination needs. Likewise, cross-selling can suffer after a split because the natural synergies within one united offering are harder to maintain.