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Merc’s Make Over Mode

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My dad owns a BMW 5-series, but I am a big fan of the Mercedes-Benz," says Ajay Lohia, a 27-year old Delhi-based entrepreneur who has just bought a Mercedes S-350. His earlier car was a Mercedes too, the ML-350. Lohia can't stop gushing about the Merc. "It comes with a spare tyre, which a BMW does not have. And spares are a strong focus area for Mercedes." He is already zeroed in on his next buy —the Mercedes S-500; for Lohia, only a Merc can beat a Merc.

Sawan Gandhi, a 26-year-old fashion designer in Delhi, is happiest when behind the wheel of his Mercedes E-250. "My dream was to own the three-pointed star." Ask him about his Merc and he goes into raptures. "It goes from 0-100 in just 7 seconds," he raves.

Lohia and Gandhi are, however, more the exceptions than the rule when it comes to the profile of a typical Mercedes owner. The brand is still perceived to be the choice of the middle-aged chief executive/president of a company —in short a "dad's car" that junior will prefer not to be seen driving. With the rich getting younger, Mercedes is seeing its market share drop. This, despite its first-mover advantage in the luxury car segment in India.

It set up shop in India in 1996, and initially fed off both the nostalgia and aspirational values attached to Brand Mercedes. In 2007, when BMW drove in, a new India had already taken shape — not only had it got richer, many who had made it big were in their 20s and 30s. The staid image of Mercedes held no appeal for them as it did for the earlier generation.

BMW, with its tagline ‘Ultimate Driving Machine' — unchanged since 1975 — tapped right into this generational shift with its sportier offerings. It did not hurt that it came up with innovative marketing techniques like sponsoring professional golf tournaments, wine tasting sessions and events with fashion designers — just the stuff a young and affluent India toasted. In 2009-10 undisputed leader Mercedes sold 3,975 units. A year on, BMW's numbers stood at 7,079 units, with Merc selling 6,753 units. BMW grew at close to 70 per cent annually in sales. In January-December 2011, BMW sold 9,371 units; Mercedes notched up 7,430.

Murad Ali Baig, a leading auto analyst, blames the shift in people's perception of the brand for it slipping from the number 1 position. "A young man looks for a car that is rugged and loaded with features,"says Baig. "Mercedes lost out to the competition because of its image. Earlier, the rich and famous only used to drive Mercs. Today, the young lot who have just passed out of B-schools want to buy something else, something a lot sportier."

Back In The Race
With the luxury car market showing double digit growth in the past two to three years — it grew at 35-38 per cent in 2010-11 —  and with a great many in their 30s and 40s making it big, Mercedes has realised the need to play off the demographic dividend.  The company set up a Star Lounge at Delhi's Indira Gandhi International Airport in 2011 where car lovers can check out models and features in an exclusive cafe setting. Three more such lounges are set to open in Bangalore, Hyderabad and Mumbai this year. Besides, there is the StarDrive programme to tom-tom the brand's safety and engineering features. Launched two years ago, it now covers a dozen cities; nearly 3,000 potential customers have seen the Merc being put through the paces.

To get the message out loud and clear that Mercedes is a league apart, the company's campaigns revolve around the "Best or Nothing" philosophy. "We are way ahead in terms of technology and design aesthetics," says Neeraj Pratap Sangani, senior partner at R.K. SWAMY BBDO, which handles the Mercedes account. "The buying age of luxury cars has come down to 30 years from 50 years. There's a new chunk we need to address," says Sangani about the campaign. Says Debashis Mitra, director, sales & marketing, Mercedes-Benz India, "There is a known face of Mercedes-Benz (classy and iconic) and there is an unknown face (sporty). We are trying to unveil the unknown face. Indian consumers are still unaware of the sportiness of the brand." In this connection, Mercedes entered into a partnership with the Buddh International Circuit to coincide with the F1 race in October 2011. "To showcase a performance car, we need a great track to drive it on. The availability of the F1 track has made a significant change," says Mitra. Mercedes did not stop there. To highlight the design aspect of its cars, it changed its logo — mb Inspired! — and teamed up with MTV in ‘Date With Speed' where over a 100 Mercs and AMG cars roared down Mumbai's busy streets.

"We want to shed the image of an old man's car," says Peter Honegg MD & CEO, Mercedes-Benz India

Mercedes also plans to open Trendz outlets in malls in "a strategy to connect with the youth", says Mitra. The first Trendz store will open in Bangalore soon. It has invested Rs 200 crore in a new paint shop at its Chakan plant, which will be ready this year. This will help it offer a choice of colours. At present, it operates from a paint shop hired from Tata Motors. Mercedes intends to open 15 new outlets every year for the next 3-4 years. In terms of investment, it has already pumped in Rs 600-650 crore into India so far.

The results of the makeover are already showing. It has sold around 20 SLS AMG sports cars priced between Rs 2.5 and Rs 3.5 crore since their launch in 2010, and around 40 G-55 AMG Sports SUVs priced at Rs 1.3 crore in the past year. In effect, the one-time leader is now following the pack in terms of its hunting strategy. BMW India boss Andreas Schaaf's boast that "all through our history, we have always put pressure on our competition" has only served to rev Mercedes into putting its makeover into top gear. Peter Honegg, MD & CEO of Mercedes-Benz India, has pledged to make "Mercedes a young brand".

How BMW And Audi Scored
"There is no problem with the styling of Mercs. Market research and trend-spotting are done before designing a car. However, it lost out to BMW in terms of the pricing of the X1. Audi is following the trend," says Baig.

The X1, a compact SUV priced at Rs 22.5 lakh (ex-showroom Delhi) was launched in December 2010. It sold 2,144 units till September 2011. BMW's top seller — the 5-series — sold 2,464 units. "Our company is able to recognise trends in customer behaviour earlier than others do," says Schaaf. In terms of technology too, the BMW has scored. The embedded ‘idrive console' in BMW cars gives the driver complete control over many of the vehicle's functions while allowing him to concentrate on the road. 

Audi, from the Volkswagen group, looks to grab the number two slot. "We are the fastest growing luxury carmaker in India and globally we are second. We are optimistic about overtaking Mercedes in the next 18 to 24 months," says Michael Perschke, head, Audi India.

"Audi is clearly young at heart and progressive. We target people who are not show-offs who want a Mercedes-Benz, a BMW or a Porsche as a status symbol," says Sajan Raj Kurup, founder and creative chairman at Creativeland Asia, the agency that handles branding and communication for Audi India.

Strategic Shift
Globally, Mercedes-Benz faces stiff competition from Audi and BMW. At present, it is placed third and sells 1.26 million units to BMW's 1.38 million and Audi's 1.30 million. The company, which has always showcased the safety, luxury and precision engineering of its cars, is now stressing on their "fun" aspects. The company is focused on introducing more cars from its performance brand, AMG — the C63 AMG, the E63 AMG and the CLS63 AMG, among others.

"We have always put pressure on our competition," says Andreas Schaaf, President, BMW India

While Mercedes offers nothing below its C-Class — priced at Rs 26 lakh (ex-showroom Delhi) at present in India, it plans to launch nearly 10 models in the next three years. These include the B-Class large hatch, which will be on offer by end of this year and priced a shade below Rs 25 lakh, to be followed by the A-Class in early 2013 and the GLC compact SUV by 2014, which are likely to give a formidable competition to BMW's X1 and the Audi Q3.

"As of today, we are the undisputed market leader if you take out the X1 figures from BMW. On a model-to-model basis (C-Class, M-Class, S class) we are leaders. We are far above BMW and Audi," says Mitra. That can be passed off as hardsell, but come 2016 the picture will be clear. Mercedes, BMW and Audi will showcase a range of models in India by then and a winner will be decided beyond any shadow of doubt.

"Mercedes-Benz as a brand just needs to shape up. At present, there is a huge swing in favour of BMW and Audi, tomorrow it might just swing back. It's not permanent," says Baig.

Can the Merc emerge as the car of first choice for the young and affluent? "The brand has been a pioneer in the luxury segment from 1996. For such a popular brand, changing its strategy will not be an issue," says Abdul Majeed, leader automotive practice, PwC. Mercedes is stepping on the gas. Is India ready?


(This story was published in Businessworld Issue Dated 02-04-2012)