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German automotive brand Mercedes Benz has just announced a new strategic course that will focus on profitable growth in the luxury vehicle segment and target leadership in electric drive and car software.
“We intend to build the world’s most desirable cars. It’s about leveraging our strengths as a luxury brand to grow economic value and enhancing the mix and positioning of our product portfolio. We will unlock the full potential of our unique sub-brands – AMG, Maybach, G and EQ,” shares Ola Källenius, Chairman of the Board of Management of Daimler AG and Mercedes Benz AG.
With regards to the new strategy that Mercedes Benz announced, Källenius comments: “With this new strategy we are announcing our clear commitment to the full electrification of our product portfolio and our determination to ensure the business is fully carbon-neutral, in line with our Ambition 2039 target.”
Mercedes Benz’ new strategy is a comprehensive program designed to propel the company forward both technologically and financially. It has six pillars:
1. Think and act like a luxury brand
Mercedes Benz has always been a luxury brand. Moving forward, the brand is focused on being more connected to its luxury roots, making it an integral part of all products in their range, a part of customer interactions, as well as digital technologies. The brand is set to reshape its whole playbook, which includes their product portfolio, brand communications, and its sales network in order to deliver the true luxury experience to its customers: a luxury experience that the brand claims will be “electric, software-driven and sustainable.”
2. Focus on profitable growth
The brand will also focus on taking actions to improve and recalibrate its market strategy. Part of these will focus on optimizing the balance between volume, price, and channel mix in order to ensure improved contribution margins from Mercedes Benz’ current and future portfolio. The brand will also focus its resources and capital on the most profitable parts of the market and the segments in which it competes, in order to ensure structurally higher profitability.
3. Expand customer base by growing sub-brands
According to Interbrand, Mercedes Benz is currently the most valuable luxury car brand in the world, and the brand wants it to stay that way. But Mercedes Benz’ new strategy also aims to improve their sub-brands: AMG, Maybach, G and EQ, with clear and targeted plans to fully realize their potential.
Mercedes Benz’ AMG brand is ready to go to the next level with its high-performance electrification plans, all set to start in 2021. AMG’s ties with Formula 1 will also intensify next year, to reflect its identity as Mercedes’ high performance sub-brand. Maybach, a luxury car brand acquired by Mercedes Benz in the 60s, will focus on global opportunities, aiming to double its size and go electric. With the EQ brand, Mercedes Benz will address a new audience with progressive high-technology products, which will be built on dedicated electric architectures.
4. Embrace customers and grow recurrent revenues
Aside from boosting sales performance and renewing their lineup, Mercedes Benz is also committed to fostering life-long relationships with its customers. The brand aims for customers to love owning a Mercedes Benz and to be so satisfied by the brand-customer relationship that they stay with the marque for a long-time, ideally forever.
In a press release, the brand said: “Mercedes Benz will aim for even stronger loyalty, higher repeat purchases and rapid growth in recurrent revenues – from services and parts and also increasingly from Over-the-Air (OTA) updates and subscription services. The growing number of connected cars provides very significant revenue opportunities in the future, as the Mercedes Benz fleet will reach 20 million fully connected vehicles in total by 2025.”
5. Lead in electric drive and car software
As is the growing trend with automakers nowadays, Mercedes Benz is aiming to take the lead in electric drive and car software with its “ambitious product development targets and the accelerated introduction of cutting edge technology.” As part of its “Electric First” strategy, Mercedes Benz has announced four new electric vehicles based on its upcoming large-car Electric Vehicle Architecture, or EVA. The EQS luxury sedan is the first vehicle to come out of this new dedicated architecture and is set to reach the market in 2021 with an electric range of more than 700 kms on a single charge. The EQS will be followed by the EQE, the EQS-SUV and the EQE-SUV. In addition to this, AMG, Maybach and G will also feature all electric models.
Starting from 2025, multiple further models will be added to the electric vehicles portfolio on the second all-new dedicated electric platform, the Mercedes Benz Modular Architecture (MMA) designed for compact and medium-sized cars.
6. Lower cost base and improve industrial footprint
Mercedes Benz will also improve its profitability and cash generation, as well as take actions to prepare for the future of the company and to accelerate its transition to an electric lineup.”2020’s events have confirmed that the company’s break-even point is too high and, with the transformational challenges ahead, further actions will be needed,” says the company. “Mercedes Benz will therefore take significant new steps to reduce the cost base and improve the industrial footprint in the period to 2025.”
The new Mercedes Benz strategy and its financial ambitions
With its newly refocused approach, the new strategy of the company should deliver an improvement in commercial performance through better pricing, an improved product portfolio and growth in recurrent revenues. These developments, when paired with the substantial actions on costs and industrial footprint, should lead to a structurally higher level of profitability.
By the year 2025, Mercedes Benz AG is aiming for a return on sales (RoS) level within a mid to high single-digit range, even under unfavorable market conditions. The company’s goal is to achieve a double-digit margin in a strong market environment.
“The foundation of our new strategy is our highly qualified and motivated team. All of us at Mercedes Benz are determined to deliver on our ambitions. We will build the world‘s most desirable cars. That’s our mission, that’s what we want to deliver to our customers. We will make a leap forward in technology. We will invest where we can win, grow more intelligently, and reshape our industrial footprint. As a result, we will be able to improve profitability and lift shareholder value,” said Källenius.
Photo/s from Mercedes Benz
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