Mercedes-Benz gears up to regain market share

From being the number one (and only) luxury car brand in India in 1995, Mercedes Benz may have slipped a bit down the rankings over the last few years. But Peter Honegg, MD & CEO, Mercedes-Benz India isn’t losing sleep over it.

“Till a few years ago, we were selling 2,000-3,000 cars a year. Those were the days when we were the only players in the market. With competition coming in, clearly the market share gets divided between players. But the real story lies in volumes,” he says, putting things into perspective. To be sure, the luxury car market is estimated at about 23,000 units and Mercedes-Benz India has been growing at 30% over the last few years, selling almost 7,500 units in 2011, far more than it ever has. 

But while he may not be losing sleep over it, he most certainly isn’t taking it easy. Having spent 36 years with the German automaker across various locations, Honegg knows what he is up against. “In business you have to learn a little every day, but in India, I feel that you must learn a little bit faster.” 

Having spent a year in the country now, Honegg has come to terms with the diversity he sees here. “There is no one India, just like there’s no one China, That is what I tell our folks in Germany,” he says. At the same time, while the market is too small to have a specially tailored strategy for each region, the company does give its dealers the freedom to tweak their communication slightly to appeal more to their local audience. 

Internationally, Mercedes-Benz has a stated goal of regaining its number one position by 2020, and the same applies for India. However, Honegg makes it clear that the growth will not come at the cost of the business. “We have a philosophy of profitable growth and will not sacrifice profits to focus upon only growth. It’s fine if we sell a few cars less, but profitability is very important. We are the most premium brand and our price positioning reflects that,” he says. 

A simple back-of-the-envelope calculation shows that there is a potential to see a lot more in India. There are around 1,93,000 millionaires (in USD) in India as of 2011, says Honegg. Globally, people tend to switch cars in the luxury segment every three-four years, which means that the average market size in India ought to be close to 50,000 at present. It’s barely half that size. 

The reason is amply illustrated in another observation Honegg shares: “Most times, the whole family comes along to take the delivery of a new car. We’ll see that the son or daughter is buying a Mercedes, while the father has driven up in a mid-sized car.” Often, the father may have helped finance the car, but will not spend that money on a car for himself. “There is a definite reluctance to spend in India as compared to the rest of South-East Asia,” says Honegg, who’s spent a considerable amount of time in the region. 

But he is optimistic. “People’s attitudes towards spending are gradually changing and there are a lot of potential customers out there; we have to dig them out,” he says. And Honegg is focused on doing exactly that. Since the start of the year, the company has kicked off a series of initiatives aimed at boosting its presence in the market. 

One such has been Star Showcase, a roadshow which covered towns like Jabalpur, Bilaspur and Nellore which luxury brands have so far steered clear of. The reasoning is simple. There are a lot of rich farmers and entrepreneurs in smaller towns who have the means and desire to spend. There have been a good number of conversions over the last few weeks and over time the company hopes to benefit from the early mover advantage. It won’t be setting up dealerships in these places just yet. “It is viable to set up a dealership only if you are going to sell and service 50-100 cars a month,” explains Honegg. 

However, the company is rapidly expanding its India presence, adding 15 new outlets and 20 after-sales outlets last year, taking its presence to over 70 touchpoints in 31 cities. Earlier this year, the company launched ‘mb. Feel it!’, a call to experience the brand up close through new initiatives and a new design language. 

The company is also exploring some local customisation options. For instance, Indians use the horn far more than most other countries. The R&D Centre in Bangalore is now working on the possibility of developing a new horn customised for India. Further, while most cars have a top speed of 230-250 kmpl, almost no one drives that fast here. The brake and tyres are designed keeping these top speeds in mind. 

“In the future we may ask the customer if he would be willing to switch to slightly more reasonable tyres suited for top speeds of 180-200 kmpl while keeping the brakes the same,” says Honegg. He adds that while the HQ in Germany has given a tentative nod to explore these possibilities as long as none of the safety features are touched, nothing has been finalised yet. 

The company did get a bit of a jolt when BMW and Audi launched in India. Hormazd Sohrabjee, editor, Autocar India says, “Mercedes is fundamentally a strong brand and you can't take away from that. The issue was that it had gaps in its product range which the competition filled. The company has some new launches on the anvil which will help it bounce back but it will take a few years,” he says. The company was a bit late to bring its SUVs to India, something that worked to the advantage of the competition. It also doesn’t have a car in the rapidly growing under Rs 25 lakh segment yet. 

That would change once Mercedes launches its A and B class models in India over the next few years. The company has lined up a slew of new cars for India and intends on launching three-four new vehicles every year over the next few years. 

The one thing that bothers Honegg is that Mercs have got a image of being a stodgy car for the older generation, something he vehemently disagrees with. To reinforce that it is also a sporty brand, the company has been aggressively started marketing the AMG range, and earlier this year set up a performance driving academy in collaboration with Jaypee Associates at the Buddh International Circuit in Noida. 

He’s also made sure that the bestselling C 63 AMG is readily available for test drives at all dealerships, and consumer surveys showed that the brand perception has been gradually changing. “We are the oldest auto company in the world, and you cannot be that way unless you always reinvent yourself. If you rest on your laurels, you die,” he signs off.