A company that spends enormously on research and development, raw materials and then marketing, is more likely to provide a premium product or a service. That’s exactly what Mercedes Benz does! Their superior products help them easily capture their target market. Unlike their competitors, Mercedes Benz set high profit margins by selling fewer units. They adopt the price – quality – value pricing strategy. This approach is basically that consumers get a better product by paying a little more. What is this ‘better product’ we talk about? In this context, it is the brilliant designs, the safety and their precision engineered cars. The consumers wouldn’t mind paying a premium for a product this good.
Mercedes’ fundamental strategy depended on customization and quality to suit the one of a kind needs of a specific target market. The consumers of this target market were those who are prepared and ready to meet the expenses associated. Mercedes had created a certain monopoly through its product and pricing strategies. However, over time, the increasing competition from the east, and other German car manufacturers like BMW and Audi, has propelled Mercedes to adjust its product and strategies to counter the low reliability in current market and the reduction in market share.
Their new strategy was their decision to slice prices and expand their market to the younger consumers. This led them to launch the C – Class model that was priced as low as $35k, which attempts to essentially rupture the price gap. Their strategy involved making their products more affordable to the consumers. With this they were able to target the first time clients and therefore increase the market share.
Consumers seldom get the impression that buying a cheaper product would fetch a product of lower quality. This is not even remotely true with the C – Class. Many of the upscale luxury, convenience and safety features available on the expensive and higher end cars can be had on C – Class too (Edmunds 2016). To be able to gain market share must have come with the cost of lower profit margins. This plan was therefore rolled out with the anticipation of selling more units. In 2015, the C – Class received a full redesign and hit the record breaking sale with maximum units being sold (Mercedes-Benz, 2015).
The BMW 3 series and the Mercedes C – Class are battling it out to gain maximum market share. Both these brands have adopted the low pricing strategy and are attempting to sell maximum units. With affordable price as one of the key selling proposition, the two brands come up with several variations and try to equip the cars with as many as upscale features available on high end cars. And what happens when two dogs fight over a bone? The third one carries it away. With Tesla’s Model 3 being priced even low and having just as good features, it is going to give tough competition to BMW and Mercedes (Mearian, 2016). Seems like Tesla is going to be the third dog in this fight.
What do we conclude from this? The luxury car manufacturers that initially believed in niche segmentation, are slowly pushed out of their comfort zone of depending on brand name, and impelled to adopt new product/pricing strategies in order to retain and stay relevant with the ascent in automobile technology.
Edmunds. (2016). Mercedes-Benz C-Class Review – Research New & Used Mercedes-Benz C-Class Models | Edmunds. [online] Available at: http://www.edmunds.com/mercedes-benz/c-class/ [Accessed 24 Apr. 2016].
Mearian, L. (2016). Why Tesla’s Model 3 should frighten Audi, Mercedes and BMW. [online] Computerworld. Available at: http://www.computerworld.com/article/3050936/car-tech/why-teslas-model-3-should-frighten-audi-mercedes-and-bmw.html [Accessed 23 Apr. 2016].
Mercedes-Benz, (2015). MERCEDES-BENZ DELIVERS RECORD-BREAKING 2014 SALES VOLUME OF 330,391, UP 5.7%. [online] Available at: http://www.mbusa.com/mercedes/about_us/press/pressId-292c4426cabba410VgnVCM100000ccec1e35 [Accessed 24 Apr. 2016].
Sagarayaan Khakhaar – 215354728
Wordpress username: @sagaryaan