On Mercedes Benz’ luxury

Pam Danziger In January the car companies were strutting their stuff at the industry’s big auto shows. The Greater Los Angeles Auto Show took place first from January 7-16, followed by the biggest of all in Detroit’s Cobo Hall, January 15-23. In the recent gush of automobile news, an interesting story from Mercedes Benz caught my eye. Mercedes Benz USA (MBUSA) just announced that 2004 was its best performing year in terms of sales volume with 221,610 units sold. They also announced that December 2004 was its highest sales month ever in its 40-year history.

And guess what their biggest selling model was in 2004? It was the entry-level, near-luxury C-Class model (priced $26,000-$54,000). MBUSA sold more C-Class models last year (69,251 in total) than any other, which represents a 5 percent increase over 2003 unit sales. Sales of near-luxury C Class cars accounts for 31 percent of MBUSA’s total volume.

Mercedes’ next best selling model is its E-Class ($49,000-$80,000), and trailing far behind is the M-Class ($38,000-$47,000). Four of Mercedes’ pure luxury models experienced a significant drop in unit sales in 2004: S-Class ($75,000-$125,000) down 11 percent; M-Class, down 14.4 percent; CL-Class ($90,000-$179,000) down 21 percent; and G-Class ($78,000-$100,000), down 25 percent. The super-luxury SL-Class ($90,000-$179,000) was down just a tad from previous year, 3.3 percent.

At first blush, it might look like consumers are trading down from the ‘real’ luxury Mercedes models to the lower-priced ones. Some people argue that this ultimately degrades the luxury value of the brand.

But I disagree. Rather, the net gain of nearly 70,000 new model Mercedes Benz C-Class cars out on American roads is far better for the long term success of the company and the brand. They may be sacrificing some revenues by selling fewer of the more expensive car models, but the company has attracted lots of new consumers to get ‘up close and personal’ with the brand through the more affordable C-Class model.

As a result, MBUSA is building its base of lifelong brand-loyal Mercedes drivers. The brilliance in Mercedes strategy is to position the brand as a player across a more expansive range of potential car buyers, rather than exclude a Mercedes brand car entirely from the consideration of slightly less affluent car buyers.

Delivering Mercedes-brand qualities and features at a more moderate price is a luxury marketing strategy conceived with a long range vision. Their goal is to build lifetime brand loyalty by meeting the automobile consumer at nearly every price point throughout their progress through different life stages. So the thirty-something C-class buyer turns into a forty-something E-Class driver, then on to a fifty-something S-Class consumer and then back again to a C-Class model after retirement.

The lesson is luxury marketers need to be much more expansive in how they view their target market and its overall potential

Luxury marketers need to take an expansive view in how they define the income levels of their target market and look anew at upper-mass income consumers’ overall market potential. No matter how a luxury marketer chooses to define the average income of their target market, there is a gray area where a ‘less-than’ consumer can reach up to their brand of luxury. Ultimately the marketer will gain big benefits from reaching down just a little to attract and capture that consumer.

The simple fact is the rich don’t become rich overnight. They attain wealth and affluence over time and progress through different income levels at different life stages. Creating a loyalty bond with a less affluent consumer, who tends to be younger, will pay off in the long term as their incomes grow and their affluence rises.

Also featured in the latest issue of Luxury Business newsletter are the following stories:

Enormous Market Opportunity Lies on the Borders of a Luxury Marketer’s Traditional Income Boundaries

Luxury marketers need to open their minds to the tremendous marketing opportunities that exist at the borders of their traditional market. Luxury marketers that firmly target the ‘classes’ need to seriously study the luxury potential within the ‘masses.’ A market potential analysis is provided for the affluent and upper-mass market consumers across 17 categories of luxury.

Volkswagen’s Test in Up-Marketing the Phaeton Is Finally Beginning to Produce Positive Results

As Volkswagen’s lifetime loyal brand buyers were moving onto other luxury brands as their incomes rise, Volkswagen responded with a new luxury model, called the Phaeton. They took a lot of heat in the process as the pundits criticized the strategy of enterting the luxury market.

In keeping with Volkswagen’s slightly off-center, unconventional brand personality, they identified a target market ready for a non-status luxury car, a consumer they call the transcendent buyer. Volkwagen’s Karen Maderosian explains, “There are people that can transcend the traditional trappings of luxury and make their own choices on their own terms.” Now a new auto industry survey measuring consumers’ “delight” with their new vehicle gives the Volkswagen Phaeton the industry’s highest ratings in the luxury class. The Edwards Customer Delight Scale calls Phaeton the “most delightful vehicle” due to its superior balance between luxury, performance and price.

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