In the 1990s, Mercedes-Benz had a classic car commercial.
A husband arrives home late and tells his wife, "My car broke down." The wife slaps him in the face. She does not believe her husband's Mercedes could break down.
Today, nobody would understand the advertisement. For many Mercedes drivers nowadays, breaking down is part of the ownership experience.
It took 90 years to build Mercedes' image of quality, and less than 10 years to damage it severely.
Dieter Zetsche has been directing the brand's fate for a year. The quality of Mercedes cars has noticeably improved over that period, but a year is much too short a time to expect lasting results.
Renewing Mercedes
Zetsche has cut jobs and operating costs at Mercedes, but that was relatively easy compared to what now lies ahead. His most important job is to renew the Mercedes brand.
The star emblem on every Mercedes model once signified that customers were getting the safest and most reliable cars that money could buy. Mercedes owners also knew they were buying a car with the highest level of workmanship.
But this unique image was needlessly abandoned in favor of excessive sportiness and a gratuitous pursuit of horsepower records, coupled with dubious model decisions and an unrestrained niche strategy.
Mercedes has wasted its energy on new vehicles such as the A-, B-, R- and GL-class models and the SLR McLaren.
No one really knows what the brand stands for anymore.
Chasing niches
The Maybach ultraluxury sedan highlighted the misguided trend of chasing niches.
The Maybach damaged Mercedes' claim that the S-class upper-premium sedan was the best luxury car in the world. It also maneuvered the company into an awkward situation: Mercedes cannot quietly close the limping Maybach brand. Its customers are important people, and they are not likely to go along with this.
Until recently, Mercedes, with its Smart and Maybach brands, risked losing its way. The task now is to raise the profile of the core Mercedes brand.
Mercedes has to build the most reliable car -- not the fastest.
Zetsche's statements over the past few months are an indication he has recognized this. But it takes years, not months, to turn around the image of a brand such as Mercedes. There will be setbacks along the way.
Guido Reinking is editor of Automobilwoche. You may e-mail him at snipped-for-privacy@craincom.de
The scribbler makes good, but obvious, points. We sure know about the quality issue and the vast number of models blurs the brand image.
Our prosperity (even if debt financed), owners' lack of technical knowledge and cars' increasing complexity make all brands a "throwaway" item, not something to be repaired and overhauled. 1950s M-B models had a lot of oil cups, grease fittings and mechanical adjustments; their maintenance was extensive and very expensive - something that's overlooked when hearkening back to days of yore.
Cars' high technology and robot manufacturing have shifted some production costs from variable to fixed so there's huge volume incentive to move product out the door at ever thinner margins. And customers have to be created to buy all this stuff. So market niches get chased to "do something". It may strike gold or make as much sense as when RCA bought Hertz Rent-A-Car. The Smart Car a case in point, IMHO.
Even though Dr. Z's Chrysler ads go over the top of too many heads I believe he'll be able to focus M-B's marketing into a more unified brand image (although an economic recession may be needed to force some decisions).
Rob wrote: (cited Guido Reinking, editor of Automobilwoche)
No, not quite:
- A-Class sells well
- B-Class is an A-Class derivate only, sales here in Germany better than I thought
- GL was needed, it is the _new G-model_, the original G-model still in production due to mainly demand of military buyers
- R-Class was a foreseeable flop
- SLR mainly was a McLaren development. Is also built at McLaren in the UK.
What is definitely missing is the Vaneo (W414) flop.
No, it was the DC attempt to proof they could be better than Bentley and especially Rolls-Royce. However, DC grossly misjudged the brand name and the potential number of buyers, especially as VW (Bentley) and BMW (Rolls-Royce) did better jobs than obviously expected by DC.
That was a claim by DC only - nothing more. And yes, I know that a special kind of S-Class drivers suddenly felt their "best luxury car" which they even now were very proud of turned into a second-class product. But they felt to realize that at that time MB S-Class wasn't the leader in the segment.
Of course they could close the brand anytime. But they will not do (in the next 5 years or so).
Smart is a desaster - not only financially (more than
7000 million (seven thousand millions) Euro burned), but also from an engineering, marketing and sales point of view; same desaster BMW had with Rover, only Smart was (and is) much more expensive.
The days of the most reliable car are over since the W123 models went out of production. And with overly-complex modern cars and buyers only wanting more power and more luxury and gimmicks that situation can not be re-vitalized.
Z is the right man at the right place at the right time - but it's not easy to change things within such a huge corporation like DC.
Yes, it will take up to ca. ten years until all models (then) are what they should be (now).
Mercedes is losing its strategic position as a manufacturer of superior-engineered, highly reliable automobiles, at a premium price. This position was unique and valuable for its targeted customers for so many years, allowing the company to prosper, until now.
In today's hypercompetition however, managers in general, are constantly tempted to take incremental steps that surpass the limits of the company distinctive position, bluring it. Eventually, pressure to grow or apparent saturation of the target market leads managers to broaden its position by extending product lines, adding new features, imitating competitor's popular products, matching processes, making acquisitions, etc.
Through incremental additions of products varieties, incremental efforts to serve new customers groups, and emulation of rival's activities, MB has begun weakening its value proposition, and eroding its clear competitive position.
MB has to do the opposite of what has been doing lately. It has to look at its core of uniqueness, and to deepen it. And this is not about nostalgia for the "good ol' days", it's about the company's future profitability.
Daimler-Benz originally wanted to buy Rolls-Royce in the 1990s. They even had the 'new' Rolls-Royce Silver Spirit built with W140 chassis. However, Rolls-Royce had better idea and sold its soul to BMW. Even though Phantom was so ostentatious and so monstrous, it was well-received than Maybach.
I surmised the failure of Maybach was from the design and equipment perspectives as well as from name. Maybach hadn't been used since its demise in 1930s whilst Rolls-Royce continued albeit ageing and stale chassis and design. People associate Rolls-Royce with ultimate attention to the detail and quality as well as reputation for luxury. With Maybach, it's more of 'what's that'?
When I looked at the Maybach for the first time, the first impression I got was that it was none other than the 'W220 with fur coat'. I saw lot of equipment commonality between W220 and Maybach that I didn't see the justification of paying more for the 'name'. Steering wheel, control buttons, front seats are from S-Class and SL-Class. Now, W221 has inherited that 'Maybach' hump.
I must give BMW credit of keeping the part commonality between Rolls-Royce and its lesser BMW products as invisible as possible. I know the Phantom has BMW V12 motor enlarged to 6,75 litres and tuned specifically for opulent performance. Yet, I don't see any of BMW equipment in the interior other than iDrive which is gratefully can be stowed away.
Whilst Phantom has its unique body chassis, Maybach 57 and 62 are from the old W140 body chassis which was extensively modified. Originally, DaimlerChrysler wanted to use W220 body chassis and dressed it up for Maybach, but it was too 'weak' structurally (?). It was also originally called 'Mercedes Maybach', but the survey amongst the wealthy clients showed otherwise.
Now the W221 S600 is more technologically advanced and better equipped than Maybach 57 or 62 so I don't see the justification of paying almost more than twice the price of S600 for obscure Maybach. With designo programme, I can have all of fantasies done within the reasons...
If I was Dieter Zetsche, I would order the extensive change to the design and equipment as to separate Maybach ever further from the common Mercedes-Benz products. Perhaps a first-ever modern V16 motor in the offer? A sidenote: no V16 motor has been offered officially since the last one in 1940 with Cadillac Series 90. (No, Cizeta-Moroder V16 T from
I have never seen that advert but the sentiments were commonly applied to Rolls-Royce (in the UK at least). One apocryphal story that did the rounds many years ago was something about a Brit who broke down in France (or somewhere abroad), called RR, who came to collect the car put the man in a fancy hotel for a night or two. Eventually the car was returned and at the end of his trip the man expected to see a bill for repairs and accommodation.
Being the honest chap he was he called RR after a period of not seeing an invoice. At RR nobody knew about an outstanding bill or admitted to anything, and he was told, "Sir, a Rolls-Royce does not break down."....
About 25 years ago (that's a guess) I remember reading that three-quarters of all Rolls ever made were still on the road, a record. Whether that's true today is doubtful.
As regards niches, I remember reading that the successful automobile company of the future would be one with a large number of smaller (niche?) model runs, not with just a few huge selling models (which was the business model at the time). DC is a major proponent of this philosophy and does turn a profit, even if at the top (Maybach) and bottom ends (Smart, a special story, however) it has made big mistakes.
In my opiniont the Maybach is nothing but an ego trip for the then management.
MB's real and major business disasters were not car mistakes but excursions into business areas about which it knew nothing but thought it could handle, and I am talkimg about houdehold good and aerospace. Huge sums of money were wasted and management time diverted.
Did this management forget that MB was already a very large company making a big range of products for various market segments? (Cars, lorries, vans and buses). They used to bleat about the government subsidies for private companies in aerospace, then they bought in and went cap in hand for subsidies. The (German) government could not refuse and so poured tax-payers' money into MB's bottomless pit. The argument for aerospace was "synergy" (management's fig-leaf when they have no real reason), when Saab Cars' exit from aircraft (and BMW's absence) proved you did not need to produce jets to produce good cars.
It is not that long ago since aerospace became unimportant for MB and maybe some lessons have been learned. Maybe Zetsche will succeed but, as Juergen indicated, as a big job for one man, so we have to hope he has a large team of sensible managers behind him.
And... I have had my CLK for 5 years -- admittedly only for 21 000 miles -- but has performed pretty well. No major issues. Started first time every time even after long breaks (e.g. two weeks+).
My 190 is from 1993, so it does not count as being from the 'new' times, I suppose. It had some major repairs but is still running nicely. Its low mileage (75 000) and running rate is against it (short journeys mostly) but, so far, so good...
DAS
For direct contact replace nospam with schmetterling
What I believe you are referring to is an extremely in depth study done in the early 1990s for the industry as a whole trying to give them some sense of where the industry was going in the future, and the resultant advice to the entire industry was that brand loyalties were going to break down and older brands who relied on their past brand identity would be competed into oblivion. The result was the fragmentation of the industry by not just Mercedes but pretty much every car company with Toyota attacking Buick, VW trying to be Mercedes with the Phaeton, Hyundai moving into the mid-level price range. It isn't just Mercedes, and the result of this strategy by all who followed it was the over production of products that no one wanted from the manufacturers who made them. Smart was the attempt to reopen a closed class once dominated by the FIAT 500/600 and the Mini. Personally, I think that it was a good idea, but the margins are thin, and they disn't pursue the niche with new designs fast enough. It was a design driven model.
Agreed. Mercedes couldn't let BMW [Rolls] and VW [Bentley] have a super-luxe if they didn't have one. The problem with the Maybach over the Roller is that it didn't have the brand loyalty, and Bentley was a driver's car so not a direct competitor with Rolls. The Maybach also looked far too much like an S Class Mercedes which was damaging to both brands.
I am happy that your CLK has worked well for you. My mother-in-law's CLK 55 AMG needed an entirely new block within 2,000 miles of ownership, a new infrared key start system at 5,000 or so, the electric brakes are constantly scewing up and sending messages to the message board, it has eaten half a dozen ignition coils and the car just turned
30K.
But this is the thing. She went out and bought a new Mercedes C Class as a spare car last week. No matter how much I have tried to convince her that just about anything would be a better car icluding and especially a Cadillac, she bought another Mercedes anyway, and that is the thing about Branding. People still key on "German Engineered" which as a phrase is about as influential as "A diamond is forever". It is complete BS today to aggrandize German engineering because the German car companies universally are building the worste product in the world particularly if you think of value for money.
The entire point of a brand, and the reason you bother to brand a product ahs changed in the last twenty years. 80 years ago brands were created to make sure that a factory could consistently sell its output and build market share against other factories whose products weren't as good. The point of brand today is to capitalize on the locked in value of that 80 years of good will, unlock it for short term profit and leave the brand in the dust as the current officers retire to Majorca. The failure of course is with the boards of these companies who have failed to hire officers who will not destroy the company and the boards also fail to manage the officers whom they have hired.
Of course there is one other major driving force behind the funneling down of the German auto industry, and that is the insanely high cost of labor in that country. Entry level assemblers to the most highly compensated machinists are all paid multiples on the scale of similar positions in other industrialized nations such as the United States, but that isn't really the problem. Germans now get standardly over month's vacation a year, and the cost of socialized medecine and education, creating a class of permanent students, have placed burdens on the German economy that burdens the car industry as a part of it. That fact made necessary Robot manufacture, which has not been nearly as successful for the German as they would have liked.
I met a couple recently who are in their late sixties and who have many hundreds of millions of dollars. Five years ago they bought their first Mercedes to replace and aging Oldsmobile. They had always bought and been happy with GM cars, but their children convinced them to buy a Mercedes S Class. They loved how it drove, but it was towed to the dealer multiple times in the 5 years 60,000 miles they had it, and at
60,000 the air ride suspension went, a major brake failure, and the fuel injection or computer system ate itself (the dealer was unable to determine what the actual problem was). They traded it on a lexus. It isn't surprising that they traded in on a lexus. What surprised me was that if Oldsmobile was still in business, they would have bought another one, but their children again convinced them to buy Lexus instead of Cadillac.
I think what I am trying to get at is that brand loyalty is a very powerful thing because it means that people don't have to think about the products that they buy, and they can concetrate on those thihgs which actually interest them like their jobs or families. How damaged Mercedes will be by the time that it is able to stabilize its tremendous manufacturing and engineering issues can only be known once they have solved those issues which will be many, many years from now. Mercedeses problems are driven by fundemental economic and social problems in Germany and in their corporate structure. Those sorts of issues are not resolved by simply the Chairman simply willing them away.
Maybe I mean the study you mention, though the thrust that I remember was not so much about brand loyalty but about the ability to produce a lot of different products or maybe just versions, and react quickly with new versions.
In this sense perhaps MB has made a better fist of it than GM, which (in the US) has so many confusing legacy brands. And who is making more money? Not Ford and GM.
The article was an attempt to predict which way things have to go to continue a strong position in the market. Well, I suppose there are as many opinions as there are auto industry analysts...
Sometimes I wonder how MB would have done if they had kept the number of models down, e.g. no CLK and spin-offs, no CLS etc, and kept the quality up. Many years ago (>20?) (I don't seem to do anything these days...) I read that in Germany every third German wanted a Merc but only every tenth had one. Maybe this had something to do with Merc gearing up production and reducing waiting periods. Buying a car out of showromm was practically unheard of...
But, we must not forget, MB car sales have been and are still rising, breast-beating and rants in this NG notwithstanding. Maybe this has something to do with the brand loyalty 'inertia' you mention, maybe not.
DAS
For direct contact replace nospam with schmetterling
Yes, we are talking about the same study. It reccomended the movement of manufacturers from their traditional manufacturing positions, say luxury cars, into other niches, say lower cost high volume vehicles, because their brand images did not resonate with the younger consumers who were coming of age in the market place. That is a break down of brand image. In other words, older Middle class buyers saw owning a Mercedes as a tacky showy car, and they would never buy one. Their kids didn't have that hang up about Mercs. The problem with this cahnge in brand identity is that if a manufacturer is in the wrong segment, and the segment dies then the manufacturer would go with it. The safety net is for all manufacturers to be in all categories. It's costly, but it would mean that they would have an offering ready whereever the market went, but the study also opened opportunities for manufacturers to gain market share in categories that they had never been able to compete in before say mercedes in the $25,000 category where their cars had traditionally been seen, at least in the US, as tacky and showy and nice people drove Oldsmobiles. Well, we see what happened to Olds, however, I believe that this study was correct in that it is no longer considered tacky or showy to own a Mercedes and lots of people are gravitating to the percieved status and feeling OK about showing off by owning one a Merc, but the fragmentation in product that the study implicitly advocated led to the dissolution of focus for the companies who went that route. That's what I was trying to say, and I'll drop it. I also won't bother going into GM because it would be difficult to explain to a non-American, but GM is an interesting case in the way that they handled that study.
Indeed, sales have been rising lately. For instance, the Mercedes Car Group sold 325,500 vehicles in the second quarter of this year, surpassing the figure for Q2 2005 by 6%. The Mercedes-Benz brand increased its second-quarter unit sales by 6% to 291,000 vehicles.
That third who wanted a Mercedes years ago, now seems to be getting one.
But reliability is deteriorating. In a recent US based, independent report, MB´s reliability scored poorly, with 327 problems per 1000 vehicles, well above the 269 / 1000 industry average.
Efforts to grow could be bluring MB's uniqueness, and undemining its competitive advantage.
That's what I think, but despite the ease of getting a Merc and its lack of exclusivity the brand is still selling well. C-Class is in top 3 in Germany, for example (the BMW 3 is up there, too, of course).
At the end of the day what matters is rising profits, not rising exclusivity.
(I say that even against the background of MB's fluctuating profitability).
DAS
For direct contact replace nospam with schmetterling
Yes. If this growth leads to profitability (sustainable over time, and over industry average), even sacrificing reliability and exclusivity, then M-B will be creating enough value for its customers and shareholders with its new strategic position.
If this is the case, the reliable car´s days are probably gone. Maybe forever, and for good a darwinian could add.
We will see... Meanwhile I will have to take better care of my - at risk of extintion -durable Mercedes.
Yes, what you are describing is precisely the process of brand debasement and the unlocking of built up brand good will by selling a not so good car for too much money.
However, I quibble with this statement in one small facet. Mercedes is absolutely unlocking short term value for its shareholders, and consequently its officers whose compensation is tied to share value, but it is not unlocking value for its customers. Make no bones about it, the customers are being fleeced for the benefit of the shareholders.
mercedes had the major stuff years ago and started integrating more and more gadgets which were cutting edge likely to cause probs.
nowadays you can get a single din car stereo with slide out 7" touch screen and 80gig hard disk for £140 on ebay. that gives you dvd and divx player, as well as a massive mp3 sound system, i would guess the only thing stopping it offering satnav would be a way to get a gps position{1} and some programming.
now if you can fit all that functionality into a box the size of a car stereo at a £140 retail imagine how much trouble shooting can be avoided. Any one of them goes wrong and rather than have mercedes workshop staff checking out stuff on the clock at £80 an hour then they can swap over the stereo in a few mins and send the whole unit back to the chinese sweatshop for repair/refurbishment.
The more they modularise the electronic gimics the easier trouble shooting and swapping out bits becomes, i can only imagine what sort of probs the selfdrive stuff is going to cause. unfortunately if the really critical stuff isnt well made then you may as well buy a toyota.
The rate of electronics/software development is so rapid that any idea mercedes comes up with will be in every other cars next year model, hell if they thought it was good business they could even release patches for current models.
{1} if cell phones have i the internal chips must be tiny,so such a unit would only require an external aerial link
No. If superior (above industry's average) profitability is achieved AND maintained, then the company will be actually creating long term value. Maybe not the same value that M-B usually delivered (and the one that we liked), but value at the end. To both, customers and shareholders.
But yes. Probably M-B is more near the situation you described than the ideal one I do. It´s the growth trap. The desire to grow has perhaps the most perverse effect on strategic positioning. Often managers are more focused on short term stock price performance rather than on long term return on invested capital which, of course, in this case includes the huge brand's value.
Yes, this is true. If value is created and MAINTAINED then there is long term value created for the company and the shareholders, but I still disagree that the customers necessarily see a gain from the creation of long term value for shareholders. They should but it isn't necessarily true. It could be the customers will be purchasing a product of lower quality for more money. That is using a brand, and it can easily be seen in companies such as Louis Vuitton, but this strategy finds the balance for the company between what the market will accept and cost, maximizing profit potential. That's fine.
However, I doubt if long term value is being created here at all. Mercedes has certainly increased its sales, but I think that there is a long term cost in their current strategy to their core brand values that will damage long term profitability. I have spoken to more than one long term multicar Mercedes owner who is leaving the brand, and when the brand becomes tarnished, the new buyers will find the brand du jour and move to that brand leaving Mercedes without its core customer base. That's my opinion and I'm stickin' to it.
I saw clearly your point and I'm agreeing with you. Buyers do not pay for signals of value per se, and it seems that lately the Mercedes emblem on the hood of new cars is no longer signaling the presence of durability and reliability. The sales growth figures could be healthful so far, but with the reliability of its vehicles currently at 8% below the average of the automotive industry, the long term financial perfromance of the company is compromised. That way they are not creating so much value. In fact it is the opposite: the value that was built throughout almost a century is now possibly being partially destroyed. Or maybe to a certain extent transfered, as you suggested before, to the pockets of some officers through compensations tied to short-term share prices performance.
However, that vision seems somewhat catastrophic, and although disasters in business are not infrequent, this formidable company deserves a little consideration. That´s why I would wait and see for some time the consistency of its profitability in the balance sheet, before a definitive condemnatory sentence, for the destruction of a so valuable brand.
Oh don't mind me. I have a tendancy to get very involved in analyses like these. (I think that I am driving my mechanic nuts because although all of the Mercedeses that I have a personal interest in are older, he has a late model C class and hates hearing my theories on Mercedes corporate practices, although he doesn't disagree and is the source of a certain amount of my factual bases.) Also, don't think that I am saying that Mercedes is going to go out of business from this sort of practice. Brands that are built so well are fairly resilient, and this also isn't the first time that Mercedes has had below industry average quality. In 1968 Mercedes addressed severe engineering quality issues along with out moded design in the /8 program where they reengineered their entire model line up, and they then entered what is today felt to be the period of greatest quality and product for them in the post world war two period. Prior to that, my father had a 1962 Mercedes that was probably the worste piece of junk in the history of the world (it would only drive in reverse periodically; the radiator would be fine for six weeks then all of the water would just disappear with no warning; it was under powered; and according to the dealership it was irrepairable), and he left the brand in a huff. He also returned in 1972 when his Peugeot left him in the dust and his Rover, which he loved, dropped its fuel pump on the highway. That's the thing with brand debasement and why managements do it on purpose. It can unlock short term value that injures the long term value of the company, but that good will can be rebuilt later. What could drive mercedes out of business isn't building bad cars or debasing its brand; it's labor costs, and that is what has been driving alot of Mercedeses problems over the last fifteen years. That's a real problem.
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