CLIM/011

IBS Center for Management Research

Mercedes-Benz: Exploring Non-premium Segments

This caselet was written by Smitha Moganty, under the direction of D.G. Prasad, IBS
Center for Management Research. Caselets are intended to be used as a basis for class
discussion rather than to illustrate either effective or ineffective handling of a management
situation.

Prof. Sunil Pillai

License to use for IBS Bengaluru
Mid-Semester: I&III (2021)
Course: Services Management

 2005, IBS Center for Management Research. All rights reserved.

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 CLIM/011

Mercedes-Benz: Exploring Non-premium Segments

Daimler-Benz AG popularly known as Mercedes-Benz was a company known for

producing world class luxury cars. The company came into existence in 1926 after the
merger of two German competitors, Daimler-Motoren-Gesellschat (DMG) and Benz
& Cie (Benz). Gottlieb Daimler and Karl Benz were the founders of DMG and Benz
respectively. Both were recognized for their huge contributions to the development of
automobile technology. Mercedes-Benz, a major player in the executive car market,
launched one of its most popular and prestigious cars in 1930 known as the 770
Grosser. Since then, the company produced many models that were not only
successful at car races like the Grand Prix but also became hugely popular among
the elitists.
For a long time, Mercedes-Benz targeted and catered only to rich and elitist
consumers. The company had no offering for other segments of the car market. The
company started entering other segments in the early 1990s, when it faced declining
sales as a result of the economic recession in Europe at that time. Further, the
company also found that considering the price of the luxury cars there were only few
takers for its products.
Thus, the 100-year-old luxury car company finally began shifting its focus from only
the premium segment to newer segments in the car market. In fact, the efforts to
change the brand image began in 1993 when it introduced a cheaper version of its C-
Class Mercedes. In 1997-98, the company launched the ‘Smart’ version of its A-Class

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 Mercedes-Benz: Exploring Non-premium Segments

car and also entered the small car (i.e. two-seater cars) segment. Later, the company
entered the sports utility segment by introducing the M-Class car. However, some
analysts were skeptical about its move to target all segments in the car market.
In 1997, Mercedes-Benz set up a manufacturing facility in the US realizing the
potential for sports utility vehicles (SUV) in the US market. In 1998, the company
merged with Chrysler Corp. of the USA, an automobile manufacturer, and thus
became Daimler-Chrysler. In 2002, Daimler-Chrysler also took a 43 percent stake in
the Commercial Vehicles business of Mitsubishi Motors of Japan, to widen its
market. In 1997, the company produced a new model known as ‘Smart’ car in a joint
venture with Swatch, a Swiss watch company. The joint venture was known as Micro
Compact Car AG (MCC).
The company also adopted a new pricing strategy. Until then, the company had been
following a ‘cost plus’ pricing strategy. But with a view to making the price range
more affordable, it shifted to a ‘market price’ policy. The company designed and
manufactured cars after fixing the price of the product. It was thus able to incur costs
accordingly.
The company adopted a different marketing strategy to know whether the product
would be acceptable in the market. For example, the company’s US subsidiary
Mercedes-Benz USA conducted a marketing survey before launching its new car M-
class SUV. Mercedes-Benz USA (MBUSA) was previously known as Mercedes-
Benz of North America. Mercedes-Benz of North America was established in 1965.
The company initially undertook sales and servicing of Mercedes-Benz cars. It also
set up a manufacturing facility for the M-class SUV in early 1997. Later in April
1999, it was renamed MBUSA to ensure it accurately reflected the scope of the
company’s activities and responsibilities. Before the introduction of M-Class SUV,
the company conducted market research to know the market. As a part of this
exercise, the company tracked down all sports utility vehicle owners as well as
existing Mercedes-Benz car owners in the country. The head of the company sent
everyone (people who owned sports utility vehicles) a personally addressed letter
with a questionnaire enclosed requesting the addressees to express their opinion on
the design of the car. To the surprise of the management, the company received
overwhelming responses and surprisingly it also received advance orders. The
company’s advance sales of M-Class SUVs were a whopping 35,000 vehicles. This
had a positive effect on the overall sales of the company.

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 Mercedes-Benz: Exploring Non-premium Segments

Interestingly, the total share of the sales of the flagship super luxury S – class and the
E – class during the period 1990-95 was 71 percent. But during the period 1995-2000,
their share of total sales declined to 32 percent. While some analysts were of the
opinion that the company could make up for the decline in sales in the premium
segment with the help of its sales from the other segments, others were of the opinion
that entering the other segments of car market could dilute its premier brand image.

Questions for Discussion:

1. Do you think the 100-year-old luxury car company is right in shifting its target
audience from the upper-class segment to all segments in the car market? Justify
your stand.
2. What are the various marketing strategies followed by Mercedes-Benz to increase
its sales?

Additional Readings / Reference Material:

1. “Mercedes Benz USA - Design and Launch of the new 'M' Class Off-roader”,
Case Archive, Brandingasia.com,
2. Ashish Aggarwal, “Benz it like Merc”, Corporate Jungle, iimcal.ac.in/imz,
February 08, 2004. < http://www.iimcal.ac.in/imz/article.asp?code=febcorp04>
3. “Mercedes-Benz USA LLC”, Company Search, Careerbuilder.com.
<http://www.careerbuilder.com/jobseeker/companies/companydetails.aspx?comp
_did=C30Z567FCQNDPB4K6J&cbRecursionCnt=2&cbsid=50245b1f083343dd
b7afd217271d413b-175238107-w5-2>
4. Owens, Mike, “The History of Mercedes-Benz”, Wheels, cyberparent.com,
5. “Our Company”, Mercedes in Depth, About Us, Our Company, Mbusa.com
6. “Mercedes-Benz”, En.wikipedia.org. <http://en.wikipedia.org/wiki/Mercedes-
Benz#History>
7. “Daimler-Chrysler Heritage”, Heritage, Daimlerchrysler.com