Mercedes-Benz has said it will cut its entry-level offerings to better prioritize premium cars with higher margins. Although this strategy has become relatively unusual throughout the industry, even among some major brands, Mercedes has historically been synonymous with high-end luxury cars. One wonders why this bothered the pursuit of volume, especially since it doesn’t seem to have brought the company.
While executives have previously hinted at a revised strategy in interviews, Mercedes officially unveiled its plan to investors on Thursday. The German brand will focus investments on top models, such as the S-Class, through entry-level products that have failed to make juicy profits.
“What has always been the core of our brand is now also the core of our strategy: the luxury segment. We further sharpen the focus of our business model and product portfolio to maximize [sic] the potential of Mercedes-Benz even in difficult conditions. At the heart of this is our goal of creating the world’s most coveted cars, ”said Ola Kelenius, Chairman of the Board of Mercedes-Benz Group.
The company largely takes into account the limitations of today’s supply chain (e.g., chip shortages, bottlenecks, rising costs), realizing that volume-focused models with lower MSRPs won’t bring the same profits as several six-digit G 550s. only financial figures this year to see this plan in action. In the first quarter of 2022, Mercedes sold 10 percent fewer cars than in the same period in 2021 (it was already a poor year). However, its profits grew by a whopping 20 percent over the same time period.
Mercedes-Benz is recalibrating its product portfolio, allocating more than 75 [percent] its investment in product development for the most lucrative market segments. As part of this sharpened strategy, Mercedes-Benz aims to increase the share of sales of its Top-End cars by about 60 [percent] by 2026 compared to 2019 and intends to achieve higher quality and further significantly increase profitability and sustainability, aiming for a target operating margin of approximately 14 [percent] to the middle of the decade in auspicious [sic] market conditions. This greater focus on the top of the market should allow the company to provide a strong financial result even in more challenging market conditions. The company’s strategic decision to switch to full electricity by 2030 – wherever market conditions allow – and the drive to become neutral by 2039 are integral elements to improving the link between luxury and sustainability.
In 2021, the Mercedes-Benz S-Class grew by 40 percent. Meanwhile, the high-performance AMG and the ultimate in luxury Maybach set their own records. Mercedes believes that the market for premium cars will remain strong, and entry-level products – no.
To take this into account, it is going to restructure its product portfolio and development team to focus on Mercedes-AMG, Mercedes-Maybach, the “top” models from Mercedes-EQ, S-Class, G-Class and GLS. There will also be space for limited series models and exclusive cars to work together, although the company has failed to specify.
At the same time its more modest products, such as the A-Class, will see fewer options. We may even witness that some models will be removed from the lineup in the coming years. Customers who decide to order from Mercedes will soon notice that some individual options will replace sweeping equipment packages. The company said the reduction in complexity would allow it to offer compression packs based on regional trends, ridding itself of many problems during production. It also allows the brand in most cases to charge more, increasing profits.
However, this will require some adjustments at the factory. The executives explained that they are not interested in the pursuit of volume, but they will still need to re-equip some facilities to optimize new production procedures. Although your author will argue that there is nothing luxurious in giving up cars built to order.
This was quoted by Marcus Schaefer, head of development at Daimler Automotive newsthat the transition to reduced complexity will dramatically change logistics in virtually every market it currently occupies. But he remained confident that it would ultimately benefit Mercedes.
“There’s a willingness to pay,” he said. “Many, many customers are willing to pay an extra price for luxury.”
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