Mercedes-Benz is a well-known maker of luxury vehicles, and the brand name is synonymous with distinctive prestige. The marketing team of Mercedes-Benz cultivates its reputation by targeting upper-class people who are in their thirties and up. In the past decade or so, the company has increased the type and number of cars in addition to its traditional lineup of vehicles. With competition from BMW, Jaguar Motor Company, and other car companies that are coming out with upscale models, Mercedes-Benz has to have a successful business strategy in order to support their financial goals. In this analysis, I will discuss the business strategy of Mercedes-Benz, its resource strengths and capabilities, and relevant opportunities and threats. I will also give my recommendations to the management of Mercedes-Benz regarding any improvements in the company’s competitive position in the industry and its financial performance.
Not only is Mercedes-Benz known around the globe for manufacturing luxury vehicles, but they are also responsible for many innovations in the automobile industry. Since inventing the first petrol-powered, three-wheeled, and self-propelled vehicle in 1886, Mercedes-Benz has set the bar for innovation. But their success did not happen overnight.
In analyzing Mercedes-Benz, it is necessary to take a look at the dominant economic characteristics of the luxury automotive industry. According to Philip LeBeau, the luxury auto market was sizzling just a few months ago due to a “slew of deals attracting buyers seeking lower payments” (LeBeau, 2013). In this economy, even luxury car dealers are offering lowering monthly payments. Everyone wants to save money, even the upper-class. The leases being offered with low monthly payments are one example of the industry’s driving forces of change.
Also, according to a marketing manager for General Motors' Cadillac brand, the definition of “luxury” has changed when it comes to vehicles. The Vice President in charge of marketing for Toyota's Lexus brand says that luxury “has to do with the overall experience — the car, the dealer, the reputation of the brand, the satisfaction of owning a certain brand” (Healey, Meier, and Woodyard, 2011). In addition to space, presence, and comfort, luxury also involves the feel of the vehicle.
The luxury car industry’s driving forces of change are the economy and the experience of buying a luxury vehicle. The key success factors of the industry include the offering of low monthly payments; impeccable customer experience; high-performance appeal; provenance; and heritage. Ultimately, buyers decide what a luxury item is and what is not. Now, the word “luxury” has expanded to the entire car buying process.
The generic business strategy of Mercedes-Benz involves a strengthening of its core brand values. Those values include perfection, responsibility, and fascination. Mercedes-Benz merged with Chrysler Corporation to become Daimler Chrysler in 1998. Daimler Chrysler was the parent company of Mercedes-Benz up until 2007. Now, the company is owned by Daimler AG the German car manufacturer.
In July of 2012, parent company Daimlers “expanded production capacities for the new A-Class by hiring Finnish contract manufacturer Valmet Automotive to build more than 100,000 units from 2013 through 2016” (“High Demand for New A-Class”, 2011). The business strategy of Mercedes-Benz also focuses on broadening its customer base as well as younger customers. This will be facilitated by five new models of the new-generation compact car.
Capabilities include catering to those individuals who have the money to spend on a luxury vehicle. Simply put, they know that their customers want sleekness, advanced technological capabilities, and unsurpassed style. The Mercedes-Benz 2020 growth strategy involves the company’s intentions to occupy the number one position in the luxury vehicle business. They plan to do this not only in terms of brand, products, and profitability but also in unit sales. In 2012, “the company sold 305,072 passenger vehicles in the US, representing 15.4% year-over-year growth, in addition to 20,929 Sprinters” (“About Mercedes-Benz USA,” 2013). They also broaden potential customer base and improve customer loyalty with their popular social media sites.
It is no secret that Mercedes-Benz is a prestigious brand, but what about those in lower-income brackets who may want a luxury vehicle? In this economy, it seems that the company’s failure to reconsider pricing may hinder future sales. Incidentally, the company saw lower than expected sales in China in 2012 as well.
The company also has a marketing weakness. They fail to advertise to those in the middle-class income brackets. For instance, their commercials cater to those that live a good life because they can afford to do so. When are Mercedes-Benz commercials aired other than during the Super Bowl, Academy Awards, or other prestigious events? This type of modern advertising is what draws middle-income consumers in to a product. They are rarely seen while watching talk shows during the day or family sitcoms at night. Is it possible that they assume these audiences cannot afford their products?
The major threats to Mercedes-Benz are its competitors, namely BMW and Lexus, who offer the same quality and prestige with their vehicles along with a lower monthly payment. It seems that if Mercedes-Benz does not follow in its competitors’ footsteps, their sales will continue to falter.
Mercedes-Benz has customer’s wants on their side, and this is always an opportunity for competitive advantage. More and more people want luxury cars because of their size, capacity, and technology. Mercedes is a sign of prestige, and even those who are having financial difficulties want luxurious things. If they can afford it, customers will buy as long they feel they are getting a sense of prestige along with ownership. The company is also focused on catering to younger professionals who are in the workforce and making a great living.
The competitors of Mercedes-Benz are giving the company a run for their money. Just this past August, Mercedes-Benz saw lower sales than the BMW 3 Series and the Lexus ES 350 (see chart one). While Mercedes-Benz has vowed to win the luxury vehicle in the last two years, their sales are slipping.
Conversely, according to Steve Cannon, president, and CEO of Mercedes-Benz USA, 2013 “has been an extraordinary year for the brand, embodied in two cars— the CLA and the S-Class —as stunning as they are technologically fit. With sustained momentum and compelling product across the model range, we're looking toward a record finish in the final stretch of 2013” (“Mercedes-Benz Launches into Fourth Quarter,” 2013). Sales on certain models were the defining reason for their record year.
If I was hired as a consultant who was charged with improving the company’s competitive position in the industry and its financial performance, I would recommend that Mercedes-Benz expand their marketing strategy to include upper-middle and middle-class people. The company should also follow the footsteps of their luxury car competitors by lowering their monthly payments for customers. One can gather that Mercedes-Benz has a reputation for attracting only prestigious customers, and the company may believe that lowering payments would be a step down in prestige.
Mercedes-Benz’s sales are certainly not lacking, but they are focused on being the number one luxury vehicle brand in the world. Whether or not they surpass the sales of their competitors and live up to their own claims remains to be seen, especially in an unstable economy such as this one.
About Mercedes-Benz USA | Mercedes-Benz. (2013). Mercedes-Benz USA. Retrieved November 4, 2013, from http://www.mbusa.com/mercedes/about_us/companyinfo
Healey, J., Woodyard, C., & Meier, F. (2011). USA today. USATODAY.COM. Retrieved, from http://usatoday30.usatoday.com/money/autos/story/2011-12-01/luxury-cars/51550684/1
High Demand for New A-Class Forces Mercedes to Outsource Additional Production to Valmet. (2011.). USA today: Latest world and US news. Retrieved from http://usatoday30.usatoday.com/money/autos/story/2011-12-01/luxury
LeBeau, P. (2013). Luxury auto market sizzles in August. CNBC.com. Retrieved from http://www.cnbc.com/id/101011017
Mercedes-Benz Launches Into Fourth Quarter With Highest October On Record At 30,069. (2013). -- MONTVALE, N.J., Nov. 1, 2013 /PRNewswire/ --. Retrieved from http://www.prnewswire.com/news-releases/mercedes-benz-launches-into-fourth-quarter-with-highest-october-on-record-at-30069-230225141.html