Mercedes-Benz said it will reduce its entry-level offerings to better prioritize higher-margin premium cars. Although this strategy is relatively rare in the industry, even among some mainstream brands, Mercedes-Benz has always been synonymous with high-end luxury cars. One wonders why it bothered to study the book in the first place, especially since it doesn’t seem to be useful to the company.
While executives have previously hinted at its revised strategy in interviews, Mercedes officially unveiled its plans to investors on Thursday. The German brand will focus investment on high-end models such as the S-Class to the detriment of entry-level offerings that have failed to generate huge profits.
“What has always been at the heart of our brand is now also at the heart of our strategy: the luxury segment. We are further refining the direction of our business model and product portfolio to maximize [sic] Mercedes-Benz’s potential, even in difficult conditions. At its core is our aim to build the most desirable cars in the world,” said Ola Källenius, Chairman of the Board of Directors of the Mercedes-Benz Group.
The company basically took into account current supply chain constraints (e.g. chip shortages, bottlenecks, rising costs), realizing that a volume-driven model with a lower MSRP wouldn’t give him the same performance as some six-figure G 550s. Profits. We only need this year’s financial measures to see the plan in action. In the first quarter of 2022, Mercedes’ car sales were 10% lower than in the same period in 2021, already a sluggish year. However, its profits rose 20% over the same period.
Mercedes-Benz will realign its product portfolio, allocating more than 75 [percent] Its investments are used to develop products for the most lucrative market segments. As part of this improvement strategy, Mercedes-Benz aims to increase its sales share of premium cars by around 60% [percent] Deliver higher quality growth by 2026 compared to 2019 and further significantly improve profitability and resilience, targeting an operating margin target of around 14x [percent] Mid-decade under favorable conditions [sic] market conditions. This greater concentration on the high end of the market should allow the company to achieve solid financial performance even in more difficult market conditions. The company’s strategic decision to go fully electrified by 2030 – as long as market conditions allow – and its ambition to be CO2 neutral by 2039, are key elements in strengthening the link between luxury and durability.
In 2021, the Mercedes-Benz S-Class is up 40 percent. Meanwhile, the high-performance AMG and ultra-luxury Maybach arm set records of its own. Mercedes believes that, unlike entry-level offerings, the premium car market will remain strong.
To accommodate this, it will revamp its product portfolio and development team to focus on Mercedes-AMG, Mercedes-Maybach, Mercedes-EQ “premium” models, S-Class, G-Class and GLs. There will also be room for limited-edition models and exclusive collaboration cars, though the company didn’t elaborate.
Meanwhile, its more humble offerings, like the A-Class, will see fewer variants. We might even see some models disappear from the lineup in the next few years. Customers who decide to order from Mercedes will soon notice that the full equipment package will replace some individual options. The company says the reduced complexity will allow it to offer compressible packaging based on regional trends, while saving itself a lot of hassle in the production process. It also allows brands to charge more in most cases, expanding their profit margins.
However, this will require some factory adjustments. Executives explained that they were not interested in chasing output, but still needed to restructure some facilities to optimize new production procedures. Although your author will say there is no luxury in giving up build-to-order vehicles.
Markus Schäfer, Head of Development at Daimler, said: car news, the transition to reduced complexity will dramatically alter logistics in nearly every market it currently occupies. But he still believes it will ultimately benefit Mercedes’ bottom line.
“The willingness to pay is there,” he said. “Many, many customers are willing to pay extra for luxury goods. »
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