Marketing Decision Mercedes

By: Chik Kwok On, Roy

Case Study

21 November 2011

TABLE OF CONTENTS Executive Summary ..

1 2 3 4 5 6 INTRODUCTION... DECISION TO BE MADE BY MERCEDES. IMPORTANT FACTORS .. ALTERNATIVES ... RECOMMENDATIONS .... IMPLEMENTATION PLAN..

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REFERENCE LIST....

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EXECUTIVE SUMMARY

Mercedes plans to use its new Blue technology for its five-seat GLK compact SUV, which will be a diesel-electric hybrid. The factors which are important in understanding the decision situation are:

A. Macro and External environments sociocultural environment technological environment economic environment political and legal environment

B. Consumers wants and needs C. Competitive environment D. Internal environment E. Marketing Mix

And then, alternatives Mercedes may consider include: A. a new brand name other than Mercedes can be used B. joint development of electric hybrid SUV with Toyota and or Honda

The option of developing a new brand name for the five-seat GLK compact SUV is recommended because it is much easier to handle and manage. And, the intellectual property of Mercedes is also protected.

Last but not the least, suggestions such as setting marketing objectives, developing marketing strategies, marketing plan of implementation, and contingency plan on implementing the recommendation is made.

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1. INTRODUCTION
The Germany-based Daimler-Benz company founded in the 1880s designs, produces, and sells highquality luxury vehicles. It is a global player and renowned for its production of luxury and high performance automobiles, trucks, buses, and engines. Its brand name is an identity of high-class, quality and innovation.

2. DECISION TO BE MADE BY MERCEDES

Two hybrid automobiles, the S400 Blue-Hybrid and ML450, of Mercedes were produced and launched in the market. New technology enables these two models of hybrid automobiles to provide fuel efficiency for the consumers such that consumption of gasoline or diesel will be minimized. The decision facing Mercedes is whether the company should use its new Blue technology for its fiveseat GLK compact SUV, which will be a diesel-electric hybrid and compete in the hybrid car market against hybrid leaders Honda and Toyota?

3. IMPORTANT FACTORS
This is a strategic as well as tactic issues to be faced by Mercedes. Mercedes has to seek answers to the following questions in order to identify important factors in understanding the decision situation: A. B. What do the macro/external, and internal environments look like? What are the key success factors of its five-seat GLK compact SUV with diesel-electric hybrid engine? C. D. What are the strengths and weaknesses of Mercedes? How should the five-seat GLK compact SUV be positioned in the market without damaging its luxury image?

3.1

External environment of Mercedes

Macro/External Environment has significant influences or impacts on the performance of companies. A STEP or PEST model can be used to analyse the macro environment Mercedes faces with. STEP

stands for Sociocultural (S), Technological (T), Economical (E), and Political (P) forces. And, the competitive environment has to be checked by models such as Porters Five Forces Analysis and competition analysis.

Sociocultural Environment Demographical data have to be used to measure observable aspects of population, including size, age, gender, ethnic group, income, education, occupation, and family structure. In the case of Mercedes, this demographical information is very useful for Mercedes to predict the size of markets and then to have a corresponding plan for launching its new product.

And then, the cultural value, norms and customs of the markets have to be evaluated such that the products to be launched will not have anything or features which are in conflict with the cultural value, norms and customs of the markets.

Technological Environment Today, technology is seen as one of the most important factors, which provides companies with competitive advantage. Are there any other complementary technologies, which can strengthen the usage and operation of diesel-electric hybrid engine?

Besides, Diesel-electric hybrid engine is not the only technology designed for improving fuel efficiency of automobiles. There are a number of other technologies, which performance may be even better than the hybrid technology in the future. As Solomon et al. (2009, pp. 101) mentioned in the book changes in technology can dramatically transform an industry.

Economic Environment Solomon et al. (2009, pp 96) said that understanding the economy of a country in which a firm does business is vital to the success of marketing plans. Mercedes is a Germany-based company and its major target markets for this model of high-performance SUV should be in the countries of the Western Europe, U.S.A, Japan, and other rich countries in the Northern Europe and the Middle East. According to Solomon et al. (2009), two perspectives of the state of economy have to be known: the overall economic health and level of development of a country and the current stage of its business cycle. If, for example, the economy of a country is in a state of downturn or suffering from recession

or even depression, Mercedes may then have to postpone its plan of launching this high quality and high priced product in that country.

Political and Legal Environment Mercedes has to know exactly what policies a country or market has from the perspective of airpollution and environmental protection. The developed countries have much more concerns about their environment that the regulations and policies would give incentive to encourage the consumers to buy electrical car or car with hybrid diesel-electric engine.

In addition, Mercedes also has to know whether there is any trade barrier in the countries or markets in which it would like to launch its high-tech product. If Mercedes has to have production facilities in the target market, would there be any policies such as exchange in foreign currency, labour policy, tax policy, etc. that may put Mercedes in risk?

3.2

Consumers Wants and needs, and Key Success Factor

Satisfying customers needs and wants is central to achieving value creation and competitive advantage. Mercedes has to know if the new five-seat GLK compact SUV with hybrid engine is a product wanted by the customers. What value do the customers perceive from this product? In a marketing term, a five-seat compact SUV with hybrid engine is a value proposition to the customers. Does this value proposition match with the value, needs and wants of the customers?

Unlike new brands Mercedes should have a huge database of customers which Mercedes should make use of to know its customers needs and wants. Mercedes has to check if consumers in general and luxury car market in particular accept the idea that Mercedes as a brand of high quality luxury car produce and supply high quality but smaller hybrid SUVs. The case mentioned that Mercedes might face a tough sell with its hybrid cars (SUVs). Were the two comments raised by consumers if you can afford the car, you dont worry about the gas prices and Americans might not be willing to settle for a small SUV after having enjoyed a love affair with big gas-guzzling SUVs for years a true reflection of their attitudes towards small SUV with hybrid engine?

Would the changes in political, economic, technological and sociocultural environments make the consumers change their buying behaviours and decisions? Would this change in buying decision last 3

for long? If the answer is no, should Mercedes ceases the project of producing five-seat GLK compact SUV with hybrid engine? Or, what should Mercedes do from the marketing point of view to influence the consumers buying decisions?

It is believed that there are still some obstacles to the adoption of hybrids. This situation is shown by the fact that the number of hybrid vehicles sold were still very small compared to traditional automobiles. These obstacles will even be bigger in the SUV market.

3.3

Competitive environment of Mercedes

The above discussion gives us some ideas on the potential for profit of the industry of SUV with hybrid engine. If Mercedes determines to go ahead with the project, Mercedes has to consider the competitive environment it will encounter. Competition between Mercedes and other participants in this industry is a war for competitive advantage. It is critical for Mercedes to identify factors within this market that determine its ability to survive competition and prosper.

Competitive Environment Mercedes has to know what the competitions are doing in the target markets. It is crucial for Mercedes to understand how its brand is perceived or its brand reputation is in the target markets. It is obvious that the SUV automobile market is what economists describe as oligopoly market. In this type of market, only a small number of suppliers are in the market and each of them hold a substantial share of the market. This situation of high supplier concentration will certainly affect the pricing strategy of Mercedes and any other competitors.

Besides, what special in this case is that Mercedes has to find out whether this new five-seat GLK compact SUV with hybrid engine has any negative impacts on the sales of its current five-seat SUV with traditional diesel engine. Would it happen that the consumers who buy the five-seat GLK compact SUV with hybrid engine are also the potential consumers of current five-seat SUV with traditional diesel engine. If it is the case, the net gain is not so attractive or a net loss may happen if the original Mercedes SUV buyers switch their choice to other hybrid automobile suppliers such as Toyota and Honda.

Therefore, a detailed competitor analysis is instrumental to the successful launch of the product. In the analysis, the following questions have to be kept in minds and answered: 4

Who are the competitors and what market strategies are they pursuing? What market segments exist, and which market segments are being served by which competitors? What are the potential sources of value creation within the industry? How do the competitors respond to competitive threats? What are the key capabilities of the competitors identified?

In addition, a SWOT analysis will give Mercedes some more information on the external as well as internal factors, which are important in understanding the decision situation. The more we know about the competitors and competitions the better we are able to position ourselves in the market.

3.4

Internal Environment of Mercedes

Mercedes was not the only automobile company in the world which designs and produce dieselelectric hybrid engine. According to the case, both Toyota and Honda were also the market leaders in hybrid technology. Mercedes has to keep a close look at the status of technological development of hybrid engine in the world, especially that of the development by its major competitors. Mercedes has to know its position from the technological point of view. The question is whether the technology of hybrid diesel-electric engine from the perspective of Mercedes is a competencedestroying innovation or competence-enhancing innovation. Mercedes has to critically evaluate if it is able to obtain and then sustain its competitive advantage in the long run in terms of continuous development and production of this new product.

3.5

Marketing Mix

Mercedes has to consider the following factors in understanding the decision situation: What is the total product to be offered to the consumers? What are the Core product, actual product, and augmented product? Will there be a product line with products satisfying different market segments when this product is accepted by the consumers and get into the stage of Growth in product life cycle? What brand name will this product use? What image will the customers get from the brand name? What additional services such as battery purchase or battery charging should also be provided by Mercedes? 5

How should this product be priced? What is the price elasticity of demand for this product? What is the price strategy for this product? What message should Mercedes convey to the market and target customers? By what means should this message be conveyed to the customers? What distribution channel should be used to deliver the product?

In summary, five different types of factors external environment, Consumers Wants and needs, Competitive environment, Internal Environment, and marketing mix are important in understanding the decision situation.

4. ALTERNATIVES
The selection of alternatives depends on the vision, mission and strategy of Mercedes. It is unknown what drove this move. Is it because Mercedes believed that battery was the future of luxury car industry? Therefore, it would obtain the first mover advantage to use its new Blue technology for its five-seat GLK compact SUV. Or, it knew from the feedbacks of its customers that there was a market segment which had strong demand for battery-powered compact SUV. Is it because this was Mercedes tactics to show to its customers that Mercedes was the leader in the innovation of car battery technology?

It is very sure that Mercedes fully understood the risk of damaging its luxury image once the new SUV was launched. One of the alternatives Mercedes might have to consider is to develop a new brand name for this car. It is exactly Toyotas and Hondas strategy that Toyota used the brand name of Lexus and Honda used the brand name of Primus to get into the luxury car market.

Mercedes may also consider working together with either Toyota or Honda or both to produce SUVs with diesel-electric hybrid engine. All of them can learn from one and other to speed up the maturity and acceptance of this technology and the electrical car market.

5. RECOMMENDATIONS
Each alternative has its advantages and disadvantages. One of the factors which will surely affect the final decision is how capable in terms of technology management and market management Mercedes 6

believes and perceives itself. Let us assume that Mercedes is very confident of its capabilities and competence in technology management and market management. Then, the option of developing a new brand name for the five-seat GLK compact SUV is recommended because it is much easier to handle and manage. And, the intellectual property of Mercedes is also protected.

6. IMPLEMENTATION PLAN
a. Marketing objectives have to be set Marketing objectives are essentially about the match between the five-seat GLK compact SUV with hybrid engine and the selected markets the five-seat GLK compact SUV has to be in what position in what markets - so the objectives must be based on realistic customer behaviour in those markets. What market segment(s) should be selected as the target market? Sales volume, money value, and market share should be measured.

b. Marketing strategies have to be developed A marketing strategy is essentially a pattern or plan that integrates Mercedes (or new brand names) major goals, policies, and action sequences into a cohesive whole. Marketing strategies are generally concerned with the Four Ps: Product - New brand name other than Mercedes Benz - The core product: the new Blue Technology Lithium-ion battery - The actual product: the five-seat GLK compact SUV with hybrid engine - What are the augmented products? Pricing strategies - What price should be charged for the five-seat GLK compact SUV with hybrid engine? - Will there be any pricing tactics in order to differentiate this product from traditional SUV? Promotional Strategies - Designing an appropriate and appealing message to the target customers or market - Specifying the advertising platform and media - Deciding the public relations brief - Organizing the sales force to cover new products and services or markets Supply Chain Strategies - Choosing the channel

- Deciding levels of customer service

c. Marketing Plan of implementation Action plans and responsibility Time line Budget Measurement and control

d. Contingency Plan Few marketing plans are ever implemented exactly as intended; the marketing environment is a particularly uncertain one, so it is essential to include full back-up plans in case some of the assumptions are proved incorrect.

REFERENCE LIST
Solomon, MR, Marshall, GW and Stuart, EW (2009) Marketing: Real People Real Choices, Sixth Edition, Pearson Education Inc., Upper Saddle River, New Jersey, USA.