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Mercedes Benz – Corporate Strategy in Emerging Markets

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    1. GLOBAL HISTORY In 1886 Carl Benz developed the world’s first automobile, the 3-wheeled “Benz PatentMotorwagen”. At the same time, Gottlieb Daimler, who never met Carl Benz in person, despite the fact that they only lived 100 km apart, produced the world’s first 4-wheeled automobile. From the very beginning, both men were committed to very high quality standards (“the best or nothing”), a prevailing characteristic that is still highly valued.

    With Deutsche Bank playing an important role, Daimler Motorengesellschaft and Benz & Cie. merged in June 1926 to create Daimler-Benz AG. World War II, in which Daimler-Benz mainly produced trucks for military use, had devastating effects on the company. The Potsdam Agreement resulted in the confiscation of all German assets abroad to pay reparations. Additional to the loss of foreign subsidiaries, affiliates and branches, the company also lost all assets in the Soviet-occupied zone of Germany.

    Hence, in 1945 Daimler-Benz was reduced to its four original plants in Southern Germany (Untertürkheim, Sindelfingen, Mannheim and Gaggenau) and Berlin-Marienfelde plus company-owned West German outlets. By 1947, production was running again in all plants and Daimler-Benz AG was able to recapture the position it had maintained before the war by 1960. To satisfy the high demand for high-quality automobiles, Daimler-Benz took over Auto-Union in 1958 and also tried to acquire Bayerische Motorenwerke AG (BMW), which failed due to the resistance of small shareholders at the BMW annual shareholders’ meeting in 1959.

    In the sixties and seventies Daimler-Benz AG continued its domestic production and centralized strategy until the second oil crisis in the late 1970s, the beginning environmental discussion, and the advance of Asian competitors changed the conditions. Operating results were declining and the commercial vehicle sector even yielded negative numbers, so that Daimler-Benz AG had to restructure itself to position the company for the future. CORPORATE STRATEGY GROUP PROJECT: GROUP 2 1 MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS

    During the course of this restructuring, Mercedes Benz AG was founded on June 29th, 1989. Taking the advancement of globalization into account and to show its global reach and importance, Daimler Benz AG obtained a listing on the New York Stock Exchange (NYSE) in 1993. Additionally, in 1996 an automobile plant was inaugurated in Tuscaloosa, Alabama, and in May 1998 the merger with Chrysler Corporation was announced. DaimlerChrysler AG was formed to protect the competitiveness of the two companies and to create a more global presence and reach.

    Furthermore, stakes in the Asian carmakers Mitsubishi Motors and Hyundai Motor Company were acquired to create a leading world automotive group. These actions were reversed when Daimler sold its majority stake in Chrysler in 2007 and also reduced its interest in Mitsubishi and Hyundai. Also while Daimler AG was diversifying into different industry fields in the late 80s and early 90s under CEO Edzard Reuter (1987-1995), this was reversed and the company refocused on the automotive sector in the late 90s.

    This is in line with its intention to withdraw from the “Deutschland AG” (historical crossholdings of major German companies in different industries), e. g. the reduction of its stake in the European Aeronautic Defence and Space Company (EADS). Today, after 125 years of history, Daimler AG stays close to its roots and the values of its founders by following a corporate strategy which rests on four pillars: global presence, strong brands, broad product range, and technology leadership. Daimler AG is now divided into five different business units (see Exhibit 1 and Exhibit 2).

    The focus of this paper will be on the Mercedes Benz Cars and its global expansion strategy in the emerging markets such as India and China. The key aspects we will look into while analysing the India and China markets are the market entry strategy, joint ventures, product diversification, distribution channels and the competitive environment. We will identify similarities between the strategies adopted in both markets, opportunities & challenges and recommendations. CORPORATE STRATEGY GROUP PROJECT: GROUP 2 2 MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS . MERCEDES-BENZ IN INDIA First Mover Advantage – Mercedes-Benz was the first luxury car maker to enter the Indian market in 1994, as a joint-venture between Daimler-Benz AG and Telco (presently Tata Motors). After Daimler merged with Chrysler, the Indian company was renamed as DaimlerChrysler India Private Ltd. In 2007, when Daimler sold out its shares in Chrysler, the company was renamed Mercedes-Benz India. Daimler-Benz India started its manufacturing facility in 1995 when the automotive regulations in India were relaxed for foreign manufacturers.

    The plant was built in Pune with a large investment of Rs 6 Billion (US$150 million) and was one of the few other manufacturing units for the company outside Germany at that time. This move showed a long term commitment of the company towards the Indian market as a future automobile hub and the reasons for this investment can be seen as per Porters 5 forces in Exhibit 3. Prior to the development of the plant all foreign manufacturers such as BMW and Audi including Mercedes-Benz were selling completely built units (CBUs) which attracted a 110% import duty.

    The plant in Pune started importing completely knocked down units (CKDs) from Europe and started assembling them to manufacture the car units. The CKDs not only attracted only a small percentage of import duties as compared to CBUs but also reduced the time of delivery to customers to a few weeks from 2-6 months for the CBUs. DaimlerChrysler executives believe that the strategy to manufacture in India gave them a competitive advantage for the C, E and S-Class models.

    Product Diversification – Initially the first production plant assembled only E-class (E220 and E250 Diesel models) while other high end models were still imported as CBUs. Mercedes believed that the E-class was the best candidate for Indian assembly due to its global recognition, wider length than C-class and higher price premium. Due to this limited product offering, Mercedes’ first few years in India were faced with many challenges. Sales plunged from approximately 1,800 units in 1996, to 734 units in 1999. Due to declining sales and CORPORATE STRATEGY GROUP PROJECT: GROUP 2 3

    MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS changes in customer demand, Mercedes introduced a series of models between 1999 and 2005 (see Exhibit 4). In 2006, BMW entered the Indian luxury car market and started expanding their product portfolio aggressively. At the same time Mercedes’ product offering became limited and it introduced very few new models between 2006 and 2009, as it seems that the focus shifted to China. There was even a time when the production of the E-class was affected for a period of 6 months, due to supply chain issues.

    To combat declining market share Mercedes expanded its product offering in 2010 by introducing new models in the Indian market at a rapid rate. Internally, Mercedes-Benz called it the 12×12 strategy: the introduction of 12 new car models / variants in the first 12 weeks of the year. Mercedes also employed a localization strategy to increase its sales volume, by introducing a stripped down version of its most popular model, the C-Class. The Mercedes-Benz C-Class Executive Edition was created to bring in not only newer customers, but also luxury fleet operators.

    By 2010 Mercedes-Benz India had the largest product portfolio in the luxury passenger car segment (see Exhibit 5). Until 2009 Mercedes maintained that it would not launch its mid-size models (B-Class) in India. But with competition intensifying Mercedes announced in 2011 that it would import CKDs for the B-Class models too. In 2011, Daimler widened its alliance with the Indian company Force Motors to allow them to also produce the Mercedes Vito van in exchange for license fees. This agreement is in addition to the Sprinter model, which is already produced by Force Motors.

    Mercedes also offers the Actros tippers (trucks) and Intercity luxury busses in India. The Actros tippers are currently imported from Germany as CKDs and assembled in India. Most other commercial vehicle components, except for batteries and in some cases the rear wheels, are also currently imported. In the bus segment Mercedes has focused largely on intercity buses. The company has so far sold 20 buses and is looking at the market for intra-city buses to grow its business. The reason CORPORATE STRATEGY GROUP PROJECT: GROUP 2 4

    MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS for entering this segment now is that metropolitan Indian cities are receiving an infrastructure upgrade with plentiful funds being made available for public transport development. The market for the luxury bus is expected to grow at around 15-20%, particularly due to the number of global sporting events taking place in the country. Competitive Environment: The luxury passenger car market is the fastest growing segment (25% YoY) in the Indian auto market and is expected to cross the 15,000 units mark in FY 2011.

    This growth in luxury car sales is driven largely by demand emanating from successful young entrepreneurs with new found financial strength (the average age of these millionaires has also come down to 35-40 from 50 years previously) and others from the upper echelons of the social strata looking to flaunt their wealth. Mercedes enjoyed a monopoly in the luxury car segment in India for more than 10 years since its launch in 1995 due to this growing population of millionaires.

    But with the entry of BMW in 2006 and Audi in 2007 the competitive environment has completely changed (see Exhibit 6). Mercedes’ market share in India has declined from 85% in 2005 to approximately 38% in 2010, with BMW taking over as the market leader since 2009 (see CORPORATE STRATEGY GROUP PROJECT: GROUP 2 5 MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS Exhibit 7 and Exhibit 8). Mercedes-Benz CEO Wilfried Aulbur said in 2010, “We lost out to BMW in 2009 because of limited availability of our E-Class car. This will be a blockbuster year for us in India.

    We have launched new cars and would import several models to build up excitement through the entire year. ” However, it is our contention that Mercedes’ loss of dominance was due to its stagnant product portfolio between 2005 & 2009, which resulted in an inability to keep pace with changing customer demands and an aggressive marketing strategy by BMW. Distribution Networks: In 1995 Mercedes had no distribution network in India: they sold their cars through their own sales office in Delhi & Mumbai. But as demand grew they were not able to adequately service other markets.

    This compelled Mercedes to develop an exclusive distributor network across the country. Initially they focused on Tier-1 cities in India with special focus on northern India as it accounted for more than 50% of their sales. But with BMW’s entry and increasing income levels in Tier-2 cities Mercedes followed a waterfall strategy and started expanding its dealership networks in Tier-2 cities such as Ludhiana, Surat, Baroda, Chandigarh, Lucknow and Jaipur. By 2010 Tier-2 cities accounted for 30% of Mercedes’ sales.

    Most dealers in Tier 1 & 2 cities were just not simply retailers but also provided further value added services for a better customer experience. These dealers were equipped with unrivalled features that are aimed to take care of all the automotive needs of the customers that include new car sales, spare parts and financing options. Mercedes-Benz now enjoys a network spread across 29 cities with 61 touch-points in India and retains the distinction of being the luxury player with the widest product portfolio and most intensive network of sales and after-sales services in India.

    Mercedes-Benz India is further widening and upgrading its distribution and marketing network by investing a sum of Rs 3 Billion (US$60 million) in 2011-12. Vertical Integration: With the help of its parent company Daimler AG, Mercedes-Benz India introduced Daimler Financial Services AG to the Indian market in July 2011. Initially, CORPORATE STRATEGY GROUP PROJECT: GROUP 2 6 MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS this new subsidiary will offer loans to customers of Mercedes-Benz luxury passenger vehicles and expand into the truck sector later.

    The financial services unit has also allied with Bajaj Allianz General Insurance Co. to provide insurance services. Another important business unit started by Mercedes-Benz is the vehicle leasing business in India with the launch of Star Lease, which will lease its entire range of cars. The new scheme will allow customers to lease vehicles on a monthly rental for a period ranging from 12 to 36 months. The lease will be provided by Daimler Financial Services India and will be offered by dealerships in Delhi, Mumbai, Pune, Bangalore and Chennai. 3. MERCEDES-BENZ IN CHINA

    When the central government decided to open China’s auto market to international companies in the mid-1990s, it was fully aware that domestic manufacturers then would not be able to compete with their more sophisticated and experienced foreign rivals. To solve this problem, foreign automakers were allowed to enter the Chinese market only through joint ventures with local partners, each no more controlled then 50% by a major foreign automotive manufacturer, to allow Chinese car producers to tap the technological and management expertise of their foreign partner.

    Joint Ventures and Product Diversification: Daimler Northeast Asia (DNEA) was founded in Beijing in 2001. This establishment was an important step for Mercedes-Benz on its way to become a leading player in the Chinese market. This newly formed entity is responsible for the operations of Mercedes-Benz Car, Vans and Financial Services not only in China, but also in Hong Kong, Taiwan and the Republic of Korea. DNEA and Beijing Automotive Industry Holding Co. , Ltd (BAIC) established a joint venture called Beijing Benz-DaimlerChrysler Automotive Co. , Ltd. BBDC) in August 2005 and opened the first production plant in China to produce CKDs in 2006 (see Exhibit 24). The plant with a capacity of 100,000 units is located at the Beijing Economic & Technological Development Area (BDA) and is producing Mercedes-Benz C- and E-Class. The plant is one CORPORATE STRATEGY GROUP PROJECT: GROUP 2 7 MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS of the most advanced automotive production facilities in the world with strict quality control, sustainable and environmentally friendly processes and a highly trained workforce.

    From 2008 till 2009 the production was transformed from CKD to part-by-part. The localization rate is depending on the model at about 45-50%. Furthermore, DNEA created the joint venture Fujian Daimler Automotive Ltd (FJDA) with Fujian Motors Group and Taiwan-based China Motors Corp to produce Vito/Viano, Sprinter multi-purpose vehicles (MPVs) and vans in 2007 at Fuzhou. At maximum capacity, FJDA has the capacity to produce up to 40,000 vehicles annually. In 2010 BYD Company Limited and Daimler AG created a 50:50 joint venture for research and technology called Shenzhen BYD Daimler New Technology Co.

    Ltd, that will develop an electric vehicle for China as Mercedes recognized that the Chinese government is setting out very attractive conditions for electric vehicles. The JV has registered capital of US$95 million invested by BYD and Daimler to be used towards the fulfillment of the JV’s goals. The new generation of electric vehicles developed by the joint venture will be based on Daimler’s know-how in electric vehicle architecture and safety as well as BYD’s skills in battery technology and e-drive systems. The vehicle will be marketed under a new brand jointly created and owned by Daimler and BYD.

    This resulted from Chinese government regulations, which require every foreign car manufacturer entering China to open a new plant or enlarge capacities and to establish a local brand in corporation with local manufacturers. In 2011, Mercedes-Benz showcased its latest product line of energy-efficient vehicles, which included the B-Class with fuel cell technology. Mercedes Benz aims to become the leader in the green luxury car segment in China. “Mercedes-Benz set the emission-free driving and accident-free driving as its top priority for future mobility,” said Dieter Zetsche, chairman of Daimler AG and the head of Mercedes-Benz Car Group.

    In 2010, 25,000 units of MercedesBenz S-Class premium sedans were sold in China; out of which 15-20% were delivered with hybrid systems including the S400 Hybrid. CORPORATE STRATEGY GROUP PROJECT: GROUP 2 8 MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS Competitive Environment – In the last five years, Mercedes has been the fastest growing company in the luxury cars segment in China, increasing its market share from 12% in 2006 to 25% in 2010 (see Exhibit 8). Mercedes still trails Audi which has 37% market share, but it has reduced the gap since 2006, when Audi had 55% of the market (see Exhibit 10 and

    CORPORATE STRATEGY GROUP PROJECT: GROUP 2 9 MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS Exhibit 11). In 2010, Mercedes sold 160,000 cars in China, representing already 12. 5% of the global sales, and it is expected that this numbers continue growing the next years. The company plans to gradually increase the proportion of its locally produced passenger cars to 70% by 2015, which currently stands at around 30%. By then China is expected to be Mercedes-Benz’s largest market with annual sales of 300,000 cars. The product line is increasingly adapted to local needs (see Exhibit 12).

    One example is a longer E-Class, the first model developed only for China. The longer vehicles appeal to the hedonic tastes of wealthy Chinese buyers, who are typically chauffeured. To increase market competitiveness Mercedes-Benz is also participating and initiating various CSR activities across China (see Exhibit 13). This helps them to have better brand equity in the minds of the luxury consumers in China. Distribution network – Mercedes Benz entered China in 1986 by creating Mercedes-Benz (China) Ltd. headquartered in Hong Kong. 20 years later headquarters were moved to Beijing due to the growing demand in China.

    Mercedes-Benz China has the distribution rights for the passenger car product line sold in China, Hong Kong and Macau. By now it has set up over 170 authorized sales and service centers, covering nearly 80 cities across the country. It now operates as a 100% subsidiary of the Daimler AG (see Exhibit 14 and Exhibit 15 for the entire Chinese distribution network). After the opening of the manufacturing plant in Beijing in 2005, the responsibility for sales of domestically produced cars (CKDs) was with Beijing-Benz, while Mercedes-Benz China was responsible for sales of imported cars (CBUs).

    Different marketing strategies of the different distribution systems resulted in conflicts and the fact that market share is divided between BBDC and Mercedes Benz China. In April 2008 DNEA founded Daimler Northeast Asia Parts Trading and Services Co. , Ltd. (DPTS) in Beijing as a 100% subsidiary to secure the Mercedes-Benz standard service level. This new entity would provide cost efficiency through synergies in warehouse, CORPORATE STRATEGY GROUP PROJECT: GROUP 2 10 MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS transportation and administration.

    Physical distribution is done via the three operating warehouses in Beijing, Shanghai and Guangzhou. Therefore DPTS integrates the spare parts logistics supply for all Daimler activities in China under one roof, including Mercedes-Benz passenger cars, vans, commercial vehicles, Maybach and Smart. Vertical Diversification – In November 2005 Daimler Financial Services was established in China. Daimler was the first automotive company in China to provide customer and dealer financing for both passenger cars and commercial vehicles. Future strategy – A new factory of Beijing Benz-Daimler Chrysler Automobile Co. s expected to commence operations in 2013 to produce 250,000 gasoline engines. The 1. 6-L, 2. 0-L and 3. 0-L engine types produced in this plant will be Mercedes’ most advanced. The advantage of this new facility will be to cut costs and raise the competitiveness of the company in the domestic market. The expansion of the current plant at Beijing, which currently only produces C and E- class models, will see the introduction of the GLK compact SUV to the production line later this year, followed by three more compact models starting from 2013.

    Daimler will also build a research and development center in Beijing, as well as introduce more types of automobiles for production in China. The entire investment of the new plant and the R&D center will reach 4. 6 billion U. S. dollars. In July 2011 Mercedes-Benz opened the Advanced Design Center in Beijing due to the growing importance of the Chinese luxury automotive market and its specific requirements. Our research findings were confirmed by the answers we received from our Mercedes-Benz interviewees (see Error! Reference source not found. nd Error! Reference source not found. ). Additionally it became clear, that commitment to the Chinese market is playing a vital role. Furthermore the company tries, by the imposed structure, to keep as much control as possible while adapting to the local requirements. The behavior shows the importance of this market and the willingness to dominate within the premium segment. CORPORATE STRATEGY GROUP PROJECT: GROUP 2 11 MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS 4. SIMILARITIES & DIFFERENCES IN EMERGING MARKET STRATEGIES

    In a climate of uncertainty across the globe with markets in Europe and US saturating Mercedes-Benz has aggressively increased their presence in emerging markets such as China & India. Although there are some differences in the two markets Mercedes-Benz has adopted very similar strategies to enter and expand in these markets (see Exhibit 16 and CORPORATE STRATEGY GROUP PROJECT: GROUP 2 12 MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS Exhibit 17): 1. Mercedes initially relied on independent general distributors to enter these markets.

    These general distributors deal with imports and work with authorized dealers at their own risk. After using this as an initial entry to markets, the company later transformed general distributors into exclusive distributors. 2. Mercedes set up production facilities with large investments to develop CKDs. This helped it bypass the high import duties which were imposed by the respective governments. 3. The local production bases also aligned with Mercedes’ strategy of increasing production at a rapid rate by utilizing cheaper inputs (human resources and raw materials). . Mercedes initially imported all the components for manufacturing due to quality issues. But now both have become exporters of assembled components for Mercedes globally. 5. Mercedes initially targeted consumers in the Tier-1 cities but as its market share grew, it expanded its presence to Tier 2 cities by setting up local distribution units. 6. Mercedes localised its product strategy to suit the needs of local consumers. This was also made possible by the large investments in R&D facilities in both the countries. 7.

    Mercedes started with a limited range of products but expanded its product portfolio due to the increasing demand and competition. There were some differences in strategy as well which can be summarised as follows: 1. First mover in the Indian Market (production in 1995) but late comer in the growing China Market (2006). This was due to the stricter government regulations in China, which required Mercedes to open their engine technology as part of JV. 2. In China Mercedes entered manufacturing with JVs (with BAIC) and maintains and xpands these JVs even today. In contrast it entered the Indian market with a JV with TELCO, but later acquired TELCO’s stake to transform that entity into its wholly owned subsidiary. CORPORATE STRATEGY GROUP PROJECT: GROUP 2 13 MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS 3. A lot of stress and campaigns on the green initiative in China which has resulted in leadership in the eco-friendly domain whereas in India these campaigns are in nascent stages. 5. OPPORTUNITIES AND CHALLENGES IN INDIA AND CHINA

    The following points can present both, opportunities to strengthen Mercedes’ position and challenges on its way to maintain dominance within the global premium car market: Market Growth – In 2010, Mercedes Benz was the fastest growing premium brand in the world, this growth of 15% in unit sales was driven mainly by China which grew by 115%. (see CORPORATE STRATEGY GROUP PROJECT: GROUP 2 14 MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS Exhibit 19). Today China is already the third largest market for Mercedes Benz, with a share of 12% and 143,800 units sold in 2010 (see Exhibit 20) and is expected to further grow rapidly.

    The market’s growth potential is tremendous, as China has a strong GDP growth, rising disposable income and still a comparatively low car density. Therefore, China will be responsible for a major part of the global car market growth in the next five years (see Exhibit 21). As compared to China, the Indian luxury car market represents only 3-4% of the total car market. Nevertheless, this market has a lot of potential as it is growing 25% annually whereas the total car market is only growing by 15-17%.

    Services & Support – An additional opportunity will be the growing after sales support & service market. Especially in China where a majority of cars will be 8 years or over in 2015 and the total market will total about 150 million cars that would require maintenance. Auto Financing – Most cars bought in India and China are through auto financing done primarily by banks. This provides great opportunities for Mercedes, which has the strongest financial services division of all global auto makers, to further strengthen its market position.

    Evolving segments – Indian customers are very fuel conscious, hence the country exhibits a higher demand for diesel engines, while the Chinese market favors eco-friendly cars. This provides automakers with an opportunity to serve these emerging segments. Rise of Tier 2/3 Cities – With saturation of the markets in the tier 1 cities such as Shanghai, Beijing (China) and Delhi, Mumbai (India) the luxury car manufacturers have started to grow and expand their presence in the interiors.

    Tier 2/3 cities such as Xi’an, Chengdu in China, and Chandigarh and Surat in India have become the new battle ground for car manufacturers to capture the maximum possible consumer base. The rise in the disposable income in these cities along with infrastructure growth within them has improved the purchasing power of individuals many a folds over the past few years (see Exhibit 22). Penetration of Internet and Digital Marketing – China has close to 400 million internet users today. A brand ignores the internet as a channel for sales and marketing at its own peril.

    CORPORATE STRATEGY GROUP PROJECT: GROUP 2 15 MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS A KPMG survey in 2011 found that 70% of people use the internet to search for luxury goods at least once a month. Other than the traditional media such as magazines, the internet plays an important role in influencing the buying decisions of consumers of luxury products. Company websites in Chinese and online community (social networking) platforms remain critical marketing channels in China, particularly among consumers aged 25-44 (see Exhibit 23).

    Attracting Younger Consumers – The Mercedes-Benz brand has struggled to attract Gen X and Gen Y customers in developing economies across Asia, due to its image as an ‘old man’s car’. It will also have to consider the effect on its positioning as an exclusive and premium brand as it continues to expand its manufacturing presence outside of its traditional European bases. Will customers accept and understand that the Mercedes-Benz brand still stands for quality, prestige and the highest levels of manufacturing excellence when more and more cars come out of non-European factories?

    Luxury means Big Sedans – Car buyers in China and India have traditionally associated smaller hatchbacks with low-end cars, whereas luxury cars have been associated with the bigger sedans with top of the line features. Mercedes-Benz has diversified its product suite in developed economies by offering the smaller A and B classes and it plans to offer these models in emerging markets too. It would be challenging for A and B class models to overcome premium buyers’ penchant for large sedans, which have traditionally been associated with greater prestige and higher status in these markets, especially in India.

    Lack of trained sales staff and managers – As the brand expands manufacturing and sales operations into emerging markets talent attraction and management becomes a major priority. Attracting and retaining talented individuals will be key to ensuring the consistent propagation of Mercedes-Benz’s core culture and values across its operations will be key to maintaining financial performance and brand pre-eminence in target markets. CORPORATE STRATEGY GROUP PROJECT: GROUP 2 16 MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS

    Sourcing high quality components locally – The identification problem also applies to the search for local suppliers for high quality raw materials. Maintaining product integrity and quality will be necessary to ensure that the brand attributes that have made Mercedes-Benz an industry leader are retained and enhanced in new markets. Increasing Competition – The competition in the luxury passenger segment will intensify further with brands such as Jaguar, Land-Rover, Fiat, Bentley and Lexus planning to enter the Indian market aggressively in 2012.

    This will require Mercedes to continue pursuing a more aggressive strategy in terms of investments in manufacturing, distribution network and product portfolio expansion to regain its leadership position. 6. RECOMMENDATIONS Based on our research about Mercedes’ strategy and future opportunities and challenges, we believe the following recommendations will help enhance Mercedes’ market position: Infrastructure – Mercedes should be careful by launching the A- and B-class in India, because of the increasing import duties on components (increase between 30-40%) as it might not be economically viable.

    Hence, they should try to source a greater part of components for all models locally, especially in India as up to date still a major parts of components is imported. Nevertheless, this can only be realized when at the same time rigid quality assurance programs are put into place in the emerging markets as the customers expect cars with the quality of a product “made in Germany”. Mercedes should partner with companies which develop infrastructure for e-cars, such as charging units and gas stations which would have charging facilities, as a functioning network of charging / refilling stations is a key condition for creating this market.

    Marketing – Mercedes Benz should create a strong connection between the brand and the customer, by selling a way of life and not only a car. They should do this by offering accessories, events and communities like member clubs. Therefore, they should also strengthen the investments in Channel and Marketing. As a luxury car purchase requires high CORPORATE STRATEGY GROUP PROJECT: GROUP 2 17 MERCEDES-BENZ – CORPORATE STRATEGY IN EMERGING MARKETS nvestment and high personal involvement, the company in general will only have one chance to meet the expectations of the customer. Hence, store experience is a key factor in securing the deal, if customers are not satisfied at their first visit, they will not come again.

    To increase store experience and let the customer feel the “premium” he gets, Mercedes Benz and its distributors should set up simulators, offer iPads/computers to create customized cars and to see all available information at one glance (crash test performance, etc. . Additionally, Mercedes should use media platforms and forums to enhance word-of-mouth propaganda (research showed that word of mouth is the primary source in China (see Exhibit 23)) on hand, but more importantly, to get information about customer insights and opinions on the other hand to be able to react quickly to changing needs and trends. Service – Mercedes-Benz should establish an after-sales service network. Due to ageing cars demand for maintenance and spare parts will increase considerably within the next years.

    An effective aftersales service network is of utmost importance in maintaining and enhancing customer satisfaction levels. This premium service level can only be achieved when local mechanics are capable of repairing and maintaining all the available products from the product line and the time when the car is under maintenance is kept as convenient as possible for customers. In this context it is important to attract the right talent and by this keeping the Mercedes-Benz premium service level also in tier 2-3 cities.

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