Mercedes-Benz to sell cars directly to customers as a part of ‘Retail of the Future’ strategy
Mercedes-Benz has announced a complete revamp of how it does business in India with the Retail of the Future initiative. It revolutionises the retail model to benefit all the stakeholders — Mercedes Benz India, the dealer partners and the customers — across the board. The traditional model of Mercedes-Benz India Limited (MBIL) first selling to the dealer partners who then sell it to the customers is going to change, and instead MBIL is pioneering a model where dealers act as facilitators while the sales transactions take place between the company and the customer themselves. This new model will come in to effect from January 2022. Let’s dig a little deeper to understand what exactly is changing.
What is the traditional model?
This is the conventional manner in which most car and bike OEMs in the country operate. They act as wholesalers, who sell their cars to the dealer first. The dealer partners then act as retailers — they get in touch with customers and sell them the cars. At no point does the customer get in to a contract or make a transaction with the OEM (in this case MBIL), and they are forced to deal with solely the dealer.
What are drawbacks of current model?
There are quite a few. From the customer’s perspective, the stock that is limited to them is restricted to what their dealer already has in its inventory. Many a times, customers are forced to settle for variants or colours not of their choosing, simply because the dealer doesn’t have what they want in stock. The lack of a centralised sales system also means that pricing isn’t transparent. Customers often purchase a car, only to find out that another dealer was offering discounts on the same car and they feel cheated.
The drawbacks are bigger to the dealer. Firstly, the investment in inventory is massive — a dealer has to predict demand and order inventory accordingly. The dealer borrows the money to fund the inventory and pays interest on it till the car is sold. If they aren’t able to sell all the cars they order the interest burden piles up and they are eventually forced to discount cars to get rid of them. This means their profitability takes a hit. To add to the cost structure is the dealer stockyards where the cars have to be stored and the associated costs around that. The risk of this model is fairly high for dealers, while MBIL and customers are fairly insulated from said risk.
What is changing?
MBIL will be breaking this linear chain between OEM and customer, with the dealer in the middle. Instead, it will sell cars directly to the customers, with the dealers acting as local facilitators. MBIL will own all inventory across the country — whether it is stored at the factory or with a dealer. The dealer now acts as a facilitator, one that provides the brand experience, showcases Mercedes-Benz’s cars, offers sales consultation and test drives and facilitating the sales of new vehicles.
The actual sales transaction will take place between MBIL and the customer directly — something that has never been done before — while the car will be transported to the dealer, and delivery will be facilitated by the dealer. In case of exclusive and high-end cars Mercedes-Benz will actually send the car directly to the customer.
Why is this better?
For the customer, this means transparent pricing all over the country. Since MBIL will control pricing, it won’t matter which dealer you buy a car from — the price will remain the same. This holds true for discounts as well. If MBIL does choose to discount a car, the offer will be available all over the country and there will be no haggling for a better deal. In addition to this, the customer is not limited to the stock that the dealer has. MBIL will have a centralised inventory that makes all its cars all over the country available to customers. So if you want, say a red C-Class but there isn’t one in stock in Mumbai, MBIL will send a red C-Class to you from wherever it has one in stock.
It benefits the dealers too. For starters, they don’t need to buy and store inventory, since stock will completely be owned by MBIL. This means their costs are less, as is their risk. No longer will they be forced to discount stock that isn’t moving, just to recover costs. The need for inventory funding will reduce. It is likely that the margin on each sale will be less, but at the same time, the risk is less as well. This should allow for better profitability for dealers in the long run.
Meanwhile, MBIL will have complete control of what its cars sell at in the market. This should make the brand stronger, and allow cars to hold better residual values (benefiting the customer again). It will also give MBIL direct insight in to what the customer’s preferences are, and manage production to be more efficient accordingly.
If prices are the same, how will dealers compete?
By offering an enhanced customer experience! The fact that dealers don’t have to push their stock hard means they can focus on providing customers with the best possible experience. Dealer partners’ websites will have ratings based on their customer experiences, and this will be the key to competing amongst themselves.
Mercedes-Benz is looking to streamline its sales and retail division with these changes, and is gearing up for the big changes that are on the horizon, including digitisation and EVs. Mercedes-Benz launched its online shop for cars last year and has 15-20 per cent of its sales coming from online channels. This business model is pioneering in the luxury segment and Mercedes-Benz is hoping that it could help them sell more cars, with better profits in the coming future. Mercedes-Benz is not slowing down its plans for 2021, despite the second wave of Covid-19. There are 15 launches slated for the year, with the next one being the Mercedes-Maybach GLS 600 that will launch next week.