How Mercedes Benz, a Division of Daimler AG Has Applied Its Marketing Mix in Major Global Markets - Essay Example

?LIST OF CONTENTS LIST OF CONTENTS EXECUTIVESUMMARY 2 This report examines how Mercedes Benz, a division of Daimler AG has applied its marketing mix in major global markets, namely: the US, China, Germany and Western Europe. It looks into the internationalization process applied by the division; the factors affecting the COO Effect, and how these factors relate to Mercedes Benz. 2 INTRODUCTION 2 Background Information 3 Mercedes Benz: Goals and Aims 3 MARKETING STRATEGY 4 What is Standardization and Adaptation? 4 Product: Quality, Quantity and Brand Consistency 4 Price: Profits 5 Promotion: Brand Awareness and PR 5 Summary of Mercedes Benz Marketing Mix 6 Defining Internationalization 7 Internationalization Process Theories 7 Internationalization Process Theory Applied by Mercedes Benz 8 COO EFFECT ON MERCEDES BENZ 9 Defining COO 9 Investigating Factors Affecting COO Effect 10 The relationship between Factors Affecting COO Effect and Mercedes Benz 12 CONCLUSION 13 REFERENCES 14 EXECUTIVE SUMMARY This report examines how Mercedes Benz, a division of Daimler AG has applied its marketing mix in major global markets, namely: the US, China, Germany and Western Europe. It looks into the internationalization process applied by the division; the factors affecting the COO Effect, and how these factors relate to Mercedes Benz. INTRODUCTION Mercedes Benz is a German located manufacturer of automobiles, which is currently a division of Daimler AG, which is the parent company of the Daimler Group. Daimler AG is situated in Stuttgart, Germany and is involved in the advancement, construction and dissemination of cars, trucks and vans within Germany and the management of the Daimler Group. The Mercedes Benz division supplies products ranging from the first class small cars to the luxury vehicles of the Mercedes Benz brand. The main country of production of the Mercedes Benz brand is Germany, however; the division also has manufacturing plants in the United States, China, France, South Africa, India, Vietnam and Indonesia. This report analyses Mercedes Benz main objectives being: to determine the marketing mix strategy employed by the company in its international markets, to pinpoint the particular Internationalization Process Theory (IPT) that best describes the internationalization process undertaken by Mercedes and to analyze the extent to which the Country Of Origin (COO) effect affects the consumer perception of the Mercedes Benz brand. Background Information The Mercedes Benz first came to be in the year 1886, when Gottlieb Daimler and Carl Benz, on the 29th of January applied to the Berlin patent office to have his vehicle with gas-engine propulsion patented. This marked the beginning of a new era in the automobile industry (Daimler report, 2011). In the year 2011, the company marked its 125th anniversary, since its beginning in the year 1886. This year was a successful year for the company as it was marked by several key events. The company premiered its new C-Class coupe at the Geneva motor show, where it was able to gain a uniquely sporty entry into the Mercedes coupe world; it presented its concept for the A-Class in Shanghai, which features the new Mercedes Benz design; it introduced a new truck brand into the Indian market, the BharatBenz; achieved greatly in its first quarter and made record earnings in its second quarter (Daimler report, 2011). Mercedes Benz: Goals and Aims The aim of the Daimler AG company is to play a revolutionary role in the ongoing advancements in automobile mobility. The company is dedicated to making the mobility of future generations safe and sustainable; while focusing on their customer’s needs. Daimler AG seeks to stir its consumers with invigorating luxury automobiles, that are pioneers in their design, safety, comfort, perceived value, environment friendliness and dependability; competitive vehicles that are leaders in their respective competitive niches; extraordinary service packages and; innovative mobility solutions oriented towards customers needs (Daimler, 2012) Daimler AG’s goal is to achieve sustainable profitable growth and as such increase the overall value of the group and to achieve the leading position in all their businesses (Daimler, 2012). MARKETING STRATEGY Mercedes Benz strategy involves the following procedure that has made it a substantial giant in the market. This includes understanding what the customer wants and producing a product line that suite the customer needs. Analysing the market so as to manufacture different product car lines that fit the market share of customers. Analysing competition, where they have produced product lines that fit even the middle class people. Implementing the marketing mix strategy where they have considered the 4P’s, that is place, promotion, price and product differentiation. By doing a financial analysis of its company and producing cars that are readily purchasable by the consumers. Thus this is a strategy that has worked for Mercedes Benz. What is Standardization and Adaptation? According to Deirdre (1999), standardization refers to the situation in which identical products are offered to consumers at identical prices, through identical distribution systems and promotional concepts, adoption on the other hand is where completely localized marketing strategies, with no common elements are applied in different regions/countries (Bradley, 1995). Product: Quality, Quantity and Brand Consistency Mercedes Benz is recognized as a luxury brand. In 2011, the company achieved a new world record and hold leading positions in the global markets with the sales of their new and innovative S-Class, C-Class and CLS sedans. The sales of these models have been high globally, with the greatest profit being realized in China. Place: Market entry, POS and Distribution Channels Mercedes Benz has 17 production plants globally, and in 2011 ventured into Hungary to cater for the division’s extensions of its products’ range in the compact car segment. In the anticipation of a global increase in demand for vehicles and above average growth in the high-class car sector; the division is engaged in the creation of additional production capacities. The division wishes to continue increasing its global production network in order to facilitate more ease in its distribution channels across the world (Daimler report, 2011). Price: Profits Mercedes Benz has been making increased profits from the third quarter of the year 2009. This increase in profits is attributed to the strong increase promoted by the highest sales volume in all regions, particularly China, the positive exchange rate, favorable product mix and pricing. In 2011, the Mercedes Benz global product line up consisted of passenger cars namely: the E-Class sedan, E-Class Coupe, S-Class sedan, C-Class sedan, GLK and the GL-Class. This line-up had a particularly strong sales momentum in South Africa, USA,Canada, Brazil, Russia, India, China, Korea and the Pacific (Schmidt, 2010). Promotion: Brand Awareness and PR Mercedes Benz follows a stepwise procedure of product design, body construction, prototyping, engineering and implementation of the product line in the market (Kutschker, 1994). After ensuring brand consistency, the company then formally introduces its new products to its stakeholders at reputable automobile expos, first-class lunches and dinners, golf sponsorships, and other events through which it can get in touch with its high-paying target consumers (Daimler report, 2011). Summary of Mercedes Benz Marketing Mix Adoption of standardization has enabled Mercedes Benz be a top leader in the automotive industry and it remains a distinct brand. For Mercedes Benz, the brand is well recognizable, the price range of all its products is high in all its market (as it is considered a luxury commodity and has a target market that it has penetrated in over the years). Mercedes Benz marketing mix strategy is both standardized and adapted in the international place evidence is in the way they do their pricing, promotions and products lines, that is the Mercedes classes of cars. Product differentiation: Mercedes Benz has successfully implemented this strategy and has managed to be the best producer of products that stand out in that market over the years up to today. Price differentiation: Differentiated pricing allows for average competition and standardisation allows for coverage of larger markets and brand image recognition in the market. INTERNATIONALIZATION PROCESS THEORIES Defining Internationalization According to Welch and Luostarinen (1988), it is the process in which companies increase the level of their involvement in cross-border operations; a definition supported by Johansson and Vahlne (1977). Internationalization Process Theories They include: Traditional marketing approach – Consumers are viewed as rational decision makers who are concerned with the functional features and benefits of a product (Schmitt, 2010). Uppsala school approach –Certain stages are followed in order to enter into successive foreign markets; resulting in a continuous increase in commitment to each market. This approach can also be conceptualized as the distribution of resources to foreign activities which may hold a particular risk, but bring about experiential learning that results in market-specific knowledge (Johansson and Vahlne 1977; 1990). According to Eriksson et al. (1997), this accumulated market specific knowledge reduces the risks in the respective foreign market, leading to additional distribution of resources. Transaction cost approach –According to Ronald Coase (1937), in order to carry out a market transaction, it is necessary to investigate the person that one wishes to deal with, to conduct negotiations, draw up a contract etc.; implying that market prices are what determine the relationships between firms, but within firms, decisions are made that is not with regards to maximizing profit subject market prices. Born Global – According to McDougall and Oviatt (1994), this approach considers a firm as being involved international activities from the start; instead of gradually starting from the bottom up. These firms are characterized by activities such as entering international markets upon conception, engaging in trade with very distant markets immediately, entering multiple countries at once, forming joint ventures without prior experience, etc. International entrepreneurship approach – is the integration of state-of-the-art, hands on and risk seeking behavior on an international level; whose main purpose is to create value in organizations (McDougall and Oviatt, 1994) Internationalization Process Theory Applied by Mercedes Benz Mercedes Benz have adopted the Uppsala school approach. Daimler AG used this approach to introduce its various division products into the international market. Similarly, Mercedes Benz applied the Uppsala school approach in the introduction of its new S-Class into the global market. The S-Class Mercedes Benz was first introduced in 1991-1992 through an old chronological process design. It followed the procedural steps of: product design, body construction, prototyping, engineering and implementation of the product line, field tests and formal market introduction (Kutschker, 1994). Mercedes Benz followed its conventional international co-orientation by opening the formal international display of its new S-Class to its foreign subsidiaries by first presenting the strategy for the German market introduction. Recently Mercedes Benz shifted from its customary approach to the international entrepreneurship approach in a bid to freshen up their business tactics (Kutschker, 1994). In the creation of the ‘Baby Benz’, the division decided that they would not follow their usual procedural approach but instead; involved consumers and managers from around the world such that the technical product development and market introduction worked hand-in-hand (Kutschker, 1994). In this approach, the division integrated its innovative skills with a proactive consumer experience; creating potential for the risk of suffering many problems, due to the involvement of consumers; as well as losing money by holding many time consuming and costly meetings, to occur. Advantages of Uppsala School Approach: Results in a reduction of uncertainty while entering a new market Disadvantages of Uppsala School Approach: The Uppsala approach is too deterministic Uppsala approach does not take interdependencies among nations into account, making it invalid for service industries. Uppsala approach is not valid in cases of highly internationalized firms and industries. COO EFFECT ON MERCEDES BENZ Defining COO The Country of Origin Effect (COO) is described as the stereotype/ reputation attached to the products from a particular region, according to Nagashima (1970) this is usually brought about by representative products, national characteristics, economic and political background, the country’s history as well as traditions. COO can also be thought as the general thoughts of consumers concerning the products from a specific region/country, based on their prior views of the country’s/regions marketing strength (Roth and Romeo 1992). Investigations carried out to determine the link between consumers' perception of a product’s country of origin and the sale of the product revealed that consumers tend to evaluate products and make choices with regards to COO (Bilky and Nes, 1982). Additionally; it was also discovered that COO may have a halo effect in which a consumer's attention and assessment of other products’ features is affected, such that it results in the formation of country stereotyping when other product specific information is not readily present (Han, 1989). Investigating Factors Affecting COO Effect This report analyzed the COO effect on Mercedes Benz’s major consumer market, namely; the United States, China, Germany and Western Europe. The analysis of the COO effect was done through comparisons with the results of research done on ‘Luxury brands and the country of origin effect’. The main aims of the study was to: Carry out research on the effects of COO, while focusing on other countries in addition to the US; contrary to previous studies in the field that are only concerned with consumers in the US. To fulfill the need for cross-border validity of research, by overcoming the geographical restrictions of the study To determine whether of tot consumers still attach importance to the country of origin of a product To make an addition to the relatively few COO studies referring to luxury goods available According to empirical analyses the significance of the country of origin to the consumer is inversely proportional to the degree of involvement of the consumer in the purchasing process. That is, to the consumer; the significance of the country of origin decreases with the increase in their involvement, which was first suggested (Ahmed, d’ Astous and Mostafa, 1994). Further analyses also showed that the significance of information regarding the product of origin increases proportionally with the increase in risk perceived to be connected to the purchase; as a result consumers’ perceive a lower risk when purchasing products from their country of origin (Lumpkin et al. 1985). More recent studies regarding the relationship between economic development of a country and their product typology (Manrai, Lascu and Manrai 1998) have revealed that the relationship is more severe for luxury goods and that the severity decreases whilst shopping for convenience goods. In accordance with Pecotich and Ward (2007) the brand of a product slowly takes on the function of summarizing a concept in the consumer's mind such that, as the consumer becomes more familiar with the product’s brand, they become less likely to consider outside information that constitutes the COO effect, however, an increase with brand familiarity is also likely to increase the COO effect towards a particular product. According to Zara (1997), a brand is usually structured on three fundamental components: identification, perception and trust. The identification component refers to the brand’s capability to be easily recognized and associated with a particular group of products by consumers. Perceptual aspect alludes to the set of thoughts, opinions, values and emotions evoked in consumers when exposed to the brand. These perceptions may be abstract or concrete (Peter and Olson, 1987). Trust regards the confirmation of expectations that a consumer developed before purchasing a product. Kapferer and Thoenig (1991) also associated the COO effect with certain utility functions unique to a particular brand. When viewed in terms of being beneficial to the consumer, brands perform the following utility functions: Orientation – the brand brings put the presence of particular features, thus providing guidance for consumers, enabling them to choose based on their preferences. Guarantee – the brand identifies a particular manufacturer/company, obligating them to guarantee a particular level of quality for each of their products. Personalization – the brand brings out the consumer value system, thus acting as a means through which the consumer can express themselves. Practicality – the brand acts as a means of summarizing certain features and characteristics associated with the product and producer of the product. Ludic functions – upon the fulfillment of basic needs, the brand fulfills the requirements of novelty, surprise, risk, complexity, etc. The relationship between Factors Affecting COO Effect and Mercedes Benz According to the research, Germany scored the highest when it came to workmanship. The students from the four regions, namely: USA, China, Western Europe and Germany, considered the country’s product niche to be characterized by high levels of workmanship in addition to reliability, durability, craftsmanship and production quality. This relates to Roth and Romeo’s (1992) notion that consumers tie products to the country of origin marketing strength. The consumers associated Germany with products that have good workmanship. To the consumers, Mercedes Benz fulfilled the three basic components of products, namely: the identification, perceptual and trust components (Zara, 1997). According to the research the students associated Germany with cars, beer, industry, etc. those who took part in the study implied that they would purchase a Mercedes Benz because of the notion that they had on Germany, of being historical producers of cars, and also because German cars are associated worldwide with superior engineering technology, superior workmanship and luxury (Aiello et al., 2007) In accordance with Kapferer and Thoenig (1991) consumers associated Mercedes Benz with fulfilling their brand needs of: orientation, guarantee, personalization, novelty and practicality. Lastly, many of the students who took part in the study admitted that the fact that Germany is a developed country gives them more reason to purchase a Mercedes Benz. Students from Germany, who took part in the research, said that the fact that Mercedes Benz was from the country of their origin gave them more confidence in purchasing the brand (Aiello et al., 2007). This is in accordance with Lumpkin et al. (1985) ideology. CONCLUSION This report has analyzed the Mercedes Benz division’s marketing mix, the appropriateness of the IPT approach/model followed by the company; and COO effect experienced by the Mercedes Benz brand. Through the use of a standardized marketing mix and the Uppsala approach throughout its history, and the adaptation of the international Entrepreneurship approach; the division has been able to maintain its market dominance and experience increasing profits from the year 2009. Consequently, it can be concluded that the division followed the right path in its approach towards business by Mercedes Benz. REFERENCES Aiello, G., Donvito, R., Godey, B., Pederzoli, D., Wiedmann Klaus-Peter, Hennings, N., Siebels, A., 2007. 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