Mercedes-Benz tackles tough market with wide portfolio, transparent pricing

How has that impacted dealers and retail partners for the brand?  “Just three weeks ago, we had an investor meeting in Pune. We have 25 investors in our business and not a single one has any complaints. So, they love the entire new model, and they see to a large extent the benefits that go with it. That’s, of course, our retail partners, so to say,” he said. “On the other hand, we see very strong and positive customer feedback, because customers love the transparency they get on pricing, the view that they can directly interact with the brand, and they feel how the franchise partners are focusing on them in a different way.”

One of the strongest advantages of booking directly with Mercedes is that it eliminates both the discounting mechanism as well as the lack of uniformity in prices across dealerships. “They (customers) want the best price. They don’t want the discount. All customers want the best price whether they buy a car or an apartment. They want the best possible deal and they want to know that it’s a fair price they are paying, and not that the same product is available elsewhere at a lower price.”

So, how does ROTF work for Mercedes? “The deal makes essentially the same commission between the online and the offline purchase. So, as a customer you get the same price, and then the dealer facilitates everything on it because some customers start online or they start in the showroom, it goes back and forth,” he said.

Does that mean the dealer is being reduced to becoming a delivery or logistics partner like a Swiggy for cars?

“No. You go there; you get all the consulting services. You get price information. You get product information. You get availability information. And when you order a car, the delivery is also done by our franchise partner,” he said. “So, ROTF is really about pricing and transparency on availability of vehicles with full transparency of inventory.”

There is full transparency regarding the inventory of cars at Mercedes, its showrooms, and cars in production. These are managed centrally by the OEM but facilitated by their franchise partner. The company has also set up a completely new IT system, which is known as a sales transaction system. It has many interfaces, and integrates around 15 different systems, containing all kinds of information -- product information, picture information, and more, he said.

Changing demographics and inflation

Are Mercedes’ cars too expensive for the younger millennial audience –– after all, the newly-launched C-class today costs more than what an E-class cost a few years ago. And if one factor in inflation at the rate of 6-7 percent over the next few years, it could end up costing nearly a crore of rupees?

Lalit Choudary, Chairman and Managing Director of Infinity Cars Pvt Ltd, a retailer of luxury cars, says that price increase has hit all cars. “A Toyota Innova which cost Rs 10-12 lakh in 2010 is now around Rs 35 lakh,” he said. “All manufacturers are upgrading on the basis of technology and regulations, but that comes at a cost. Car-makers need to be careful that they don’t end up in a position where they would have to reduce prices over time.”

“Inflation in the auto industry is such that today people often buy only what they can afford, particularly in the luxury segment, given the sideways movement over the last five years,” Choudary said.

But there’s more at play.

Worldwide, the age of an average Mercedes buyer is around 35 years but in India, there is a broader range of people who are interested in buying luxury cars. Here, the insight is that price or segment point isn’t always the strongest indicator of which cars sell most.

“So, when we talk about the C-class, we have sold 37,000 cars of the model over the years. That’s a very strong pillar of our overall portfolio in the sedan segment, although the E-class is the strongest. The C-class is extremely important and a very attractive model for a lot of first-time luxury car buyers.”

According to Mercedes, around 48 percent of customers for the C-class are first-time luxury car buyers.

Can increased local content be one way to offset the increasing prices of luxury cars? “I think, that is a very long shot for us and also for other manufacturers because you cannot untangle the global supply chains,” Schwenck said. “It is extremely difficult for a global manufacturer to reset the links between the different continents and countries because they are far too deep to do that, in fact, it’s almost impossible.”

He added that a company would need multiple tooling and factories to make the same component, which would not be cost-efficient.

“So, whilst that may be possible if you have a relatively simple product at high volumes, with a complex product at lower volumes, which sources for many parts of the globe and is sold eventually in many parts of the globe, what is impossible is for every country with their own Mercedes factory to produce all cars and then to produce all the components for that,” he said. “That is absolutely not doable.”