pricing strategy of luxury car makers from “classes” to “masses

Journal of Management Engineering and Information Technology (JMEIT) Volume -2, Issue- 5, Oct. 2015, ISSN: 2394 - 8124

Website: www.jmeit.com | E-mail: [email protected]|[email protected]

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Pricing Strategy of Luxury Car Makers from “Classes” to “Masses” with Special Case of

Mercedes in Indian Scenario Pawan Kalyani Pawan Kalyani, MRES

[email protected]

Abstract: From the era of walking on the foot to the modern era of driving the car, mankind has evolved from generation to generation to make the life comfortable. Automobile manufacturing is one of the major innovation in this regard, by making automobile mankind has cut down the distance problem and there is a continuous effort to make the journey safe and comfortable. Automobile manufacturers are in the continuous efforts to make this happen, there are many automobile companies in India who are making cars, from Maruti to Mercedes customer has lots of choices according to the paying capacity, everyman’s dream is to own a car, most of them are satisfied to the economy range of cars and that’s is the reason behind the success of Maruti cars, but there are some people who can afford the high priced cars but in earlier days there are very few, and in today’s era, there are not too many, there is no doubt that there is a certain increase in the people who can buy a high priced car, there is an option of taking bank loan for that, due to banking industry many of them are making their dream came true. In this paper the author is exploring the pricing and promotion strategy of luxury car manufacture like Mercedes who is targeting the masses after targeting the classes. The strategy to capture the untapped market and inner desire to have a luxury car after having the economy class cars.

Keywords: Promotion strategy, pricing, luxury cars, Mercedes, “classes to masses”, marketing, rent, buy, lease.

I. INTRODUCTION

Mankind has evolved from scratch to the top in many areas, invention of the wheel was the first step in this side, after inventing the wheel mankind never looked behind. Invention of the wheel has cut down the problem of distance and make the places connected lower down the traveling time from months to days, from the era of walking on the foot to the comfortable journey on wheels as the time goes the comfort zone in the journey came in demand. Buying a Car is the dream of every person in this world, there is an internal desire to own a car for ourselves and family. From the earlier model of the car, to the today’s car there is a drastic change in the interior and outer body, travelling and comfort zone, having feeling of luxury. India has a price sensitive market and in such market to introduce a car and make the people to purchase at the owners cost is a tedious task. Indian customer are price sensitive and

bargain seekers, they want all the desired features but at the lowest price. Yet there are people who can afford the luxury, most of the car manufacturer in India are targeting on the masses manufacturers like from Maruti to Mercedes. In India after Independence, the Automobile Business was almost checked and controlled by the government till 1981. There were compelled choices were open to the auto buyers due to the limited producers and tight supply, Hindustan Motors (HM) and Premier Automobile (PAL) that were set up in 1940's directed the vehicle business part and industry for a long time. In the 1950s, the arrival of Tata Engines, Bajaj Auto, and Mahindra & Mahindra provoked perseveringly extending vehicle creation in India. Amidst 1970 to the monetary liberalization of 1991, the auto business continued creating at a moderate pace in light of the various organization constraints. Then again, the auto business saw immense improvement after the entry of Maruti Udyog in the 1980s. In 1981 the Government decided to lifting the licensing and allowing in 1993 by government, 17 new players came up, of which 16 are for amassing of cars. Today, the many dominant players are accessible in India. The auto business is today one of a key segment of the Indian economy and a foremost outside exchange earner for the country. Due to liberation the consumers, in turn, have benefited from wide choice of models, technologically advanced cars and better service from the car manufacturers. As the competition raises there is an improvement in the quality, safety and luxury in cars.

A few examples of major car manufacturers in Automobile Industry and their Cars, it is a just indicative list there are more models of the cars and every year new ones are coming.

Table: Showing major car manufacturers Car Manuf. Model

Maruti Maruti 800, Omni, Zen, Esteem, WagonR, Swift, SX4, Alto, Ritz, Grand Vitara

Tata Motors Indica, Indigo Marina, Safari, Sumo, Nano

Hyundai Santro, Accent, Sonata, Verna, Getz, Elantra, Tuscon, i10, i20

Honda Honda City, Civic, Accord

Mercedes A class, B Class, C Class, S Class

BMW 3 Series, 5 Series, 6 Series, 7 Series, X3, and X5

Other Automobile Companies

Skoda, Toyota, Hindustan Motors, Ford, Mahindra and Mahindra, General Motors




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II. THE CONCEPT / PROBLEM STATEMENT The point to ponder regarding the advertisement of Mercedes floated in various medias, offering the Mercedes in installments, buy back offer after purchase or lease / rent. Following are few highly attractive, tempting and mouthwatering offers given by Mercedes. The author is able to get a few advertisements of Mercedes that offers brand new Mercedes with EMI or lease option, below are few examples of the same.

Lease a 2015 Mercedes-Benz CLA250 Coupe $329/month for 36 months with 10k/year – source:

http://www.searsimports.com/mercedes-benz-monthly-lease-offers

Advertised 36 months lease payment based on MSRP of $60,705. Amount due at signing is $5,293. Excludes title, taxes, registration,

license fees, insurance, dealer prep and additional options. No security deposit required.

http://www.searsimports.com/mercedes-benz-monthly-lease-offers/ Fig. Showing various advertisements of Mercedes Leasing advertisements




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III. WHY – MERCEDES IS OFFERING SUCH

MOUTHWATERING OPTION TO THE PUBLIC

In India advertisements of cars are very attractive and they are not new along with various offers like free insurance, insurance in 1 rupee, gold coin etc., but when a car manufacturer like Mercedes gives the lucrative offer like in above mentioned figures everyone will tend to see and attracted, in this paper the author is trying to find out the marketing strategy behind the offerings. The concept of buying a car is well known in India but having a car on Rent / Lease is a new concept in luxury car segment. There could be many probabilities to answer the question but the only reason behind this can be to extend the market growth. Probability 1: Not getting enough growth / business from the classes Probability 2: Market share – expanding strategy Probability 3: Not ready to lower down the cost / price Probability 4: Looking on those customers who can spend some more money to buy luxury Probability 5: Increase in salary/ income in public, so looking for more market potential Probability 6: The concept of rent / lease / buy. Probability 1. : Not getting enough growth / business from the classes “Mercedes-Benz India registers a stellar 40% growth in Q1 2015 sales; scripts the best ever sales in its history in India: highest month ever, highest quarter ever and the highest fiscal ever” [1] “Mercedes-Benz records the best year ever in the company’s history in India: Registers 10,201 units’ sale in the ‘Year of Excellence’ clocking 13% growth” 2013-14. [2] “NEW DELHI: The battle for leadership in India's luxury-car market has become fiercer, as the margin that separates the top two, Audi and Mercedes-Benz, narrowed to razor-thin in the just concluded fiscal year when both reported record sales. Audi beat its global arch rival to the No. 1 spot by selling just 79 more vehicles in India in fiscal 2015: Audi sold 11,292 units, compared with Mercedes-Benz's 11,213. The global frontrunner, BMW, lags the two rivals in India by a huge margin. Mercedes-Benz claimed that its sales tally in the January-March quarter was at least 385 units more than the nearest rival, taking it to the top position based on quarterly sales.” [3] The first probability is ruled out from the above mentioned statements, Mercedes is having excellent growth rate in the year 2013 – 2014 – 2015 having the number one spot in the sales figure. Not only Mercedes enjoying sales luxury but other competitors like Audi and other are also enjoying the same although having second rank, in the year 2015 first quarter sales is able to maintain the number one position of Mercedes. This situation makes one point clear that the market segment of luxury cars are picking up and to make continuous growth and more market share Mercedes need to have more market share.

Probability 2: Market share – Expanding Strategy Mercedes Benz is not a company in itself; Gottlieb Daimler and Wilhelm May Bach call its parent company Daimler AG, which was founded, in 1890. Karl Benz had founded his company in 1871, which later came to join Daimler AG. Mercedes Benz’s headquarters is located at Baden-Wurttemberg and Stuttgart, Germany. The company has major attention on the customers.

Focus on the customer. All of our activities are focused on our customers’ needs. We want to inspire our customers with

• Fascinating premium automobiles that set standards in the areas of design, safety, comfort, perceived value, reliability and environmental compatibility;

• Commercial vehicles that are the best in their respective competitive environments;

• Outstanding services that are related to all of these products; and

• New customer-oriented mobility solutions that exploit the potential of increasing digitization. [4]

Mercedes-Benz growth strategy dominates 2013

• New production record set with over 1.49 million passenger cars

• Model initiative for compact, high-end and luxury segment well under way

• smart electric drive is market leader in Germany

• ‘Mercedes-Benz 2020 – Best Customer Experience’ marketing and sales initiative launched

• First premium manufacturer to offer new vehicles online

• Greater customer focus through sales restructuring

“In 2013, we have taken a decisive step forward in our strategy for growth. Our model initiative is well under way. The new ‘Best Customer Experience’ sales and marketing initiative has allowed us to align ourselves better to the needs of our customers. At the same time, we are also optimizing our internal sales structures,” said Ola Källenius, Member of the Divisional Board Mercedes-Benz Cars responsible for Marketing & Sales. “That means we are well positioned to make 2014 a record year as well.” [5]

The next probability no.2 expansion of market share strategy, from the above statements Mercedes is in a well-defined position to make the sales growth in coming year. The strategy to maintain the focus on the customer is working fine at least in today’s condition. Probability 3: Not ready to lower down the cost / price Looking on the above two conditions if a company have high sales number and position it will never lower down the cost, but to sustain in the market a company has to expand its customer base for future plans. Car manufacturer like Mercedes has to chalk out some good strategy keeping the price same and giving advantage to the customers.




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Probability 4: Looking on those customers who can spend some more money to buy luxury. Probability 5: Increase in salary/ income in public, so looking for more market potential. Probability 6: The concept of Rent / Lease / Buy. While looking on these probabilities that leads us to the concept of market growth potential where people have money and they want more luxury or people want more luxury but they need a little support here comes the concept of rent/ lease/ buy. This concept is new to Indian market and having a dream car without actually buying it is very new to Indian customers. There are people who can actually outright purchase the vehicle in the case of luxury car segment, there are many who needed some support from banking institutions to fulfill the gap, the car manufacturers also came into the picture when they offer something irresistible to the customers. By any methods it is portrayed that the luxury car manufacturing companies want to expand their business and market share, in India the major part of the population is young people and they do not mind to put more money in the product if they are getting more comfort. Making luxury as necessity in common public, could be the new strategy to pull more customer from the bare necessity line to the luxury life style. For e.g. in the real estate business the flats in the metro cities are manufactured by builders as luxury flats as person buy house once in the lifetime and would like to enjoy his staying more comfortably with his family. People are ready to stretch themselves a bit more financially when they see the option of getting finance and luxurious life style. Mercedes is manufacturing high end luxury cars, due to high price band it is limited to the classes, those who can afford it. The average price of max. Selling cars in India is in between 4-6 lacks and major share of hatch back and sedan cars. SUV, new upcoming car segment likewise Fusion or Cross has been introduced by many car manufacturers in India. Even today, the Maruti is first choice of Indian Market. The fact that the dominance of small cars in the segment is continuing and they have a good market as India’s passenger first choice but seems many buyers these days are shifting to choose vehicles providing more space and room.

Fig. Showing Top 20 cars by Sales Volume

Source: http://www.team-bhp.com/forum/indian-car-scene/160444-january-2015-indian-car-sales-figures-analysis.html

Fig. Showing market share of various car manufacturers

Source: http://www.team-bhp.com/forum/indian-car-scene/160444-january-2015-indian-car-sales-figures-analysis.html

From the above two figures it is very clear that the Maruti is still people choice car, and Alto has the maximum number in the sales chart. Indian car market segment is much diversified with various options available to the customer car manufacturers has to look at the point customer wants all the customized things at affordable price.

IV. POPULAR CAR PURCHASING OPTIONS People buy a car usually they have following three options available

• Cash Purchase • Finance from banks or private financers • Car manufacturer financing schemes

Financing a car, either from banks is the most suitable option for a salaried person. In Indian market is a price sensitive market, people do not want to put their whole money in a single shot, they put an initial amount and rest is being financed by banks. Today banks are also providing car finance on attractive rates, due to these financing schemes people who are at border line and want some financial support are also able to purchase car for family comfort. People usually get small cars and the installments are easily payable due to low price range of the car. For e.g. Maruti Alto is priced at 3-4 lacks but if we talk about the luxury cars they are higher priced. Other than banks, car manufacturer are also providing various attractive schemes to attract customers as marketing strategy and also providing the finance to purchase car. Mercedes is offering somewhat different from the banks and other car manufacturers like Mercedes is available on Rent/ Lease / Sell all the three options are available.

V. WHEN DO THE PEOPLE PURCHASE CAR People in India, usually purchase car on Festival season, Marriage purpose, Need in the family and if they are getting an unbeatable offer for the dream car. India is a very price sensitive market, people are always looking for offers and discount schemes before buying any product. In the case of car purchase, there should be discount on the price, free accessories, easy finance schemes, lower interest rates etc. all these are available in the festival season people are also purchasing in this duration due to religious reasons. People always move from small car to a bigger one towards luxury, for luxury car manufacturer find a very few people who




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can afford to purchase a luxury car on cash payment. Indian market is price sensitive market and if we are talking about the car priced above 30 - 40 lacks it is a bit difficult task. Although Indian market is a growing market and people are having capacity to purchase luxury cars and they are still purchasing it but the numbers are very low if we compare the small cars and luxury cars. For e.g. according to the sales report Mercedes is still no. 1 in number of cars sold in year 2013 -14 and good position in year 2015 against its very near competitor Audi.

VI. TYPES OF CUSTOMER

Fig. showing types of customer

The customer can be divided into the above mentioned segments depending upon their behaviors like,

• NU- Non users are those who does not buy the product.

• Segment LC – Loyal Customers are those existing customers who are loyal to the company’ brand and product.

• Segment OW- on the wall – are those who are no loyal to any brand.

• Segment BS- Bargain seekers – are those customers who are no loyal to any brand but they seek discount or like to bargain on the price of the product.

• Segment OL – other brand loyal – are those customer who are loyal to the other brand.

From the above mention customer segmentation strategy, we can identify our customer and other customer who can change their perception and get ready to purchase companies product. A company can define a strategy to make other brand loyal customer by using advertising and promotion schemes to convert customers and make a bigger share in the market pie.

In Indian market, very few people are brand loyal or stick to a particular brand, and most of them are non-users, on the wall and bargain seekers segment this can be easily seen at the festival seasons like Deepawali etc. the companies are giving mouthwatering offers to attract people and people wait for this season to make their purchase and even asking for further discounts or schemes to get maximum benefit. Print and other Mass media are full with offers and discounts to attract people and get the maximum sales revenue. Companies are also waiting to promote their product on this occasion like the online product marketing companies like Filpkart, Snapdeal, Amazon etc. are giving the best price offer with heavy discount on the various product on Navratra festival offers like Big Billion Day etc. is a strategy to attract maximum people to purchase goods from their online stores. These online stores are offering CoD – Cash on Delivery, EMI. Zero or low interest rates to sell products form their portal. When people starts comparing the price of the product on online portal and local available shop

they find the price difference. Customers are not always consumers, they will always seek product at discounted price.

Fig. Showing advertisement of Flipkart Source: http://www.techicy.com/wp-

content/uploads/2015/10/Flipkart-Big-Billion-Day-offer.png

Fig. Showing advertisement of SnapDeal

Source: http://www.snapdeal.com/

Companies float these kind of offers to get the attention of the customer who are in the segment of on the wall or bargain seekers they are the most vulnerable segments to the discount and promotion schemes. People in these segments rather wait for the discount option or promotion schemes to buy products.

VII. PRICING POLICIES AND DECISIONS Pricing is the only element in the marketing mix, accounting for demand and sales revenue. Pricing strategy in the market like India has a great role in deciding the sales revenue especially in the festive season. The market is full of discounted pricing and other promotional schemes to attract the customers. The basic objectives of the pricing policies are: • Survival of the firm • To maximize current profits • To maximize current revenues • To maximize sales growth • To maximize market skimming • To establish product quality leadership • To obtain rapid market penetration • To discourage potential competitors

PRODUCT POSITIONING Positioning of a product is a platform for a brand. It facilitates the brand to get through the target customers. In positioning the firm decides how and around what parameters the product offers has to be placed before the target segment. In David Ogilvie’s words “the results of your campaign depends less on




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how we writes your advertising than how your product is positioned”. According to Sengupta, from his book Brand Positioning “the aim of the product positioning is to create a perception for our brand in the prospect mind so that it stands apart from competing brands. We must cover that space in the consumer’s mind as if we had won a long term lease. We must find a strong position in that mind and sit on it. ” According to Philip Kotler, “a product is anything that can be offered to a market for attention, acquisition, user or consumption. It includes physical objects, services, personalities, place, organization or ideas.”

VIII. PROMOTIONAL MIX. The promotional mix is the coordination of marketing activities which includes publicity, sales promotion, advertising, direct marketing and personal selling. It is a coordination of activities that you will perform to directly interact with your customers.

Fig. The above diagram shows promotional mix.

Role of advertising: Advertisement plays a vital role in the sales growth rate of a company and pushing the product to a respectable number against its competitors. Advertisement not only do this but also educate the people about the features and usages of the product, like in this case the luxury of a car, customer must know the features of the car that has been introduced by the car manufacturer for the customer to feel delighted, to sense the feel of luxury a customer must know about the product and advertisement in any form print, T.V., Internet, Mobile etc. is able to do it. The objective of advertisement is to change the behavior of target market, this process will lead to the desired behavior and the desired behavior for the company is that a customer must purchase the product.

Fig. showing long term effect of advertising.

IX. MARKETING MIX. 4 P – Marketing Mix McCarthy opines that marketing mix includes decision on 4 Ps – Product, Promotion, Price and Place. The company’s marketing mix is influenced by the following factors:

• Consumer behavior – interest, attitude, fashion, education, income.

• Competitive position • Distribution policies • Government control • Pricing policies • Advertising and sales promotion policies • Relation in demand and supply • Product related policies.

Kotler feels that marketing mix decisions must be made on the basis of final customer competitions, as well as other environmental forces. He opines that the marketing mix of a firm must be customer oriented. 4 C – Marketing Mix In consideration with the 4 Ps of Marketing Mix, there are 4 C also that defines something in comparison with 4 Ps. The “4 Cs” marketing mix definition seeks to turn traditional marketing thinking on its head by looking sales and marketing in a customer-centric way. Instead of looking at how each aspect of marketing is seen by the business, you look at these from the customer's perspective. Shift the position, be a customer for some time and feel is this strategy is good for me. Customer

A product is something you make which people come and buy. However, today, a company can no longer succeed by making what they want like old days today there is an era of competition and must find out what a customer want. After shifting positions and focusing on Customer Value allows to reset the perceptions around what a company creating and bringing to the market, be it a product, service or some other value. Everything begins and ends with customer and it is necessary to understand their wish and be there to serve their needs.

Cost The price of the product is set according to the expenses and manufacturing cost that finally lands to Maximum Retail Price. The price is something charge by a company




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for its product or services, think of cost as something customers pays, think from the customer’s point of view then this vision will opens up a whole new way of thinking about sales and marketing.

Convenience Thinking about convenience not only allows a company to open up to newer ways of connecting with customers and distributing products, but helps you shift into the mindset of providing an optimum overall experience for customers.

Communication The communication is always two way “company with customer” and “customer with company”. In this market mix definition replaces the traditional notion of “Promotion” with Communication. Instead of honest statements about how good your product or service is, in today’s scenario customers seeks to be engaged and have meaningful interactions with company. A company must strive for two-way communication and building relationships.

X. PRICING STRATEGY - MERCEDES Mercedes is selling a luxury cars from a long time, however it is focusing on customer satisfaction and maintaining the number one positions in sales in comparison to other competitors in India. Mercedes has introduced new pricing strategy in Indian market of having a top end luxury car on rent / lease. In following topics we will study the marketing mix of Mercedes and various attractive offers provided by Mercedes.

XI. MARKETING MIX OF MERCEDES BENZ Product in the marketing mix of Mercedes Benz Mercedes Benz has always been associated with the world class brand of cars, buses, coaches and tracks known for their luxurious nature. Product is the strongest P in the marketing mix of Mercedes Benz. Mercedes remain as one of the leading brands in the Indian market, that too for more than 50 years. The company currently assembles its models — S-Class, E-Class, C-Class and the ML-Class while other models, including GL-Class, CLS-Class and SLK-Class are fully imported. Promotion in the marketing mix of Mercedes Benz Although Mercedes Benz marketing strategy used to focus on the luxury, safety and precision engineering of its cars, competition has propelled it to adjust its product to suit the changing consumer attitudes. Now, their marketing strategy focuses more on presenting a more energetic, fun loving and approachable side of Mercedes Benz. In order to increase communication with its target market, Mercedes Benz has maintained accessibility to consumers through the following

• Online advertising • Social media • Establishing excellent customer service at its point of

sales • Offer warranty under excellent conditions

• Television advertising • Print media

Place in the marketing mix of Mercedes Benz Mercedes Benz introduced many technological and safety innovations over the years. However, the introduced innovations went on to be replicated by other brands. The company distributes its product through a broad network of dealers throughout the world. Mercedes Benz understands that consumers are not just interested in a buying a car that moves them from point X to point Y. They are actually making a car that will enable them easily sell the idea about the car in the market. The company intends to change the perception of the brand and reposition it so that it is more appealing to younger generation. They are also sending out the message that they are more approachable than ever before. Pricing in the marketing mix of Mercedes Benz Mercedes-Benz manufactures different types of convertibles, full sixed sedans, coupes and sports sedans. It has as many as 14 car models currently ranging from INR 21,49,000 to 7,68,00,000. Mercedes is leaving no stone unturned to tap Indian market in premium segments. The company has a broad price structure outside India, ranging from $30,000 to up to $100,000, depending on the model. [6] According to the latest trends in market to get in touch with customers like social media etc. Mercedes is having its presence over there also. Being Social savvy Mercedes’ Facebook page is a main hub of interaction between the brand and its customers. Another point of interaction with customer is with popular video site like YouTube. Video virtue is another notable initiative, Mercedes’ use of video to connect to and inform its consumers is spot-on. The brand’s YouTube feed is updated with not only campaign videos, but behind-the-scenes footage from commercial shoots and other events. Mercedes also uses billboards and direct mail as a way to reach its customers. Multiple mobile applications with push notifications are a huge way that the brand engages, informs and entertains affluent consumers.

Fig. Showing Mercedes on Smartphones




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The brand hits nearly every media outlet, which is why it is so recognized internationally. Its multichannel is what accounts for its recent sales boom. [7] Refer a friend and win MONTBLANC gift vouchers. “As an owner of Mercedes-Benz, you have the experienced the pleasure of driving the Star. Wouldn't it be great if your friends or loved ones get to experience the same? Refer a friend to us and allow us to introduce him to the Tri-Star through the STAR Lease. And if they lease a Star, we will gift you with MONTBLANC gift vouchers worth Rs. 30,000/-. Call us today!” The above state statement is offering many things, like a proud association with Mercedes being a proud owner, when you own Mercedes it should reflect and you should share the same experience with your loved ones and friends, additionally you are earning the rewards points too. All this is a part of marketing strategy in which the promotion is through passive persuasion and hidden competition that drives the emotions to desire to have a Mercedes of own. This also introduces the concept of lease, the new concept can easily be understood and communicated in the peer group.

XII. MERCEDES – BUY/ RENT/ LEASE OPTIONS

“Self-Lease; a unique concept being introduced for the first time in India.” The need for an innovative approach. When it comes to owning the car of your dreams, it inevitably means stretching your savings to the limit. Even if your heart is set on it, the monthly EMIs do chip away at your lifestyle and curb the pleasure of owning a sophisticated new car.

The ease of lease. Till now the chance to drive the dream car was restricted to those who could afford to take the conventional route. But with the help of leading car manufacturer, Mercedes-Benz, the door has been opened to anyone who has high aspirations and believes in making their dreams come true. Mercedes-Benz Financial has introduced the concept of leasing. It is the easiest and smartest way to drive home a Mercedes-Benz. Pay for what you use. Leasing means paying for the vehicle, only as much as you use it. The ownership of the car remains with the dealer and so does the liability. There is no down payment to be made and your financial commitment is significantly lower than making a purchase. This is what makes leasing an attractive proposition.

Fix your expense. Your idea of a heavenly drive does not need a reality check, as the intrinsic costs of running are covered in the fixed EMI. You pay a significantly lower amount every month and can choose to upgrade to a better model at the end of the 3 year lease period. Key benefits of leasing • Affordable: Low down payment, Low EMI • Tax benefits • Additional line of credit • No insurance & maintenance cost • Easy car upgrade every 3 years Ushering in a change. This is not just another financial scheme. Leasing is a way to transform your driving experience. It is an exciting new opportunity to consider your options without compromising your plans for the future. The scope is still enormous as the financial viability of leasing becomes apparent in the coming years. The concept of leasing is ready to gain traction in India, with a renowned brand like Mercedes-Benz taking it forward. Finance option available with Mercedes [8] - Key features of STAR Agility: • Affordable EMIs: It is a balloon based financing which results in low EMI outflow. STAR Agility is a tailored financial solution and the EMIs are devised based on customer's requirements • Flexibility of end of term: With STAR Agility you can choose your own loan tenure. The possible choices with STAR Agility are: 12 months, 24 months, 36 months and 48 months. (Best suited for three or four years) • End of term options:

• Trade: By trading your vehicle in for a new model, you will be protected from negative equity • Retain: Simply pay or refinance* the guaranteed future value amount and keep the vehicle • Return: Hand back the keys with no further obligations* • Flexibility of choice: Customer can choose the mileage limit depending upon the usage expected. With STAR Agility you get a choice between 15,000 km and 20,000 km per year depending on the usage of vehicle • Guaranteed Future Value: It is the future value of your car guaranteed by dealer which is decided at the time of your purchase • Enjoy the ownership: With STAR Agility, add an asset as solid as a Mercedes-Benz to your books and also enjoy depreciation and tax benefits* •Peace of mind: Star Protect Gold comprehensive insurance offers add-on covers like loss of key, engine protector, zero depreciation, & tyre & rim protection




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STAR Finance is the traditional way of financing your vehicle of choice. There are no surprises, only predictable and regular monthly installments. What you get out of the deal is a finance package where you make regular repayments over an agreed period. These payments can be structured to suit your needs. The different options available to you include: • Step-up finance • Step-down finance • Bullet finance STAR Finance is also offered with a Balloon. This is a simple and effective way for acquiring a vehicle with lower monthly installments with a final payment that transfers ownership to the customer. Benefits of STAR Finance: • Ownership of vehicle at the end of the agreement • Predictable repayments over an agreed period • Flexible down payment and repayment period • The vehicle is an asset on the balance sheet • Depreciation benefit is applicable* • Insurance bundling options available • Tenure offered: 12 to 84 months STAR Lease has been designed to ensure that applying for finance is carried out on your terms. Simply choose your desired vehicle, the repayment period and your anticipated contract kilometer limit and drive home a Mercedes-Benz. STAR Lease protects you against any unexpected depreciation on your vehicle. Structuring your finance through leasing means you can now drive a Mercedes-Benz and make lower payments than expected. Also, you can now change your Mercedes-Benz every two to four years, or even upgrade to a more impressive model that until now, may have been beyond your budget. With this innovative product, you also enjoy the advantage of the insurance portion being automatically bundled with your finance agreement. Benefits of STAR Lease: • At the end of the lease period the vehicle is simply returned and you do not need to bear the risk of reselling the vehicle • On-road funding of the car ensures that there is no large initial deposit • Competitive comprehensive motor insurance which includes maintenance package • Predictable running costs • Tax benefit • Off Balance sheet financing* • Free up your Capital and improve your cash flow • Change cars every 3/4 year

Corporate STAR Lease A flexible business solution tailor-made for corporate customers whereby the vehicle is leased for chosen period with the option of including insurance, registration and maintenance in the monthly rental. The ownership remains with Mercedes-Benz Financial and so does the liability. The monthly outflows are significantly lower than making an outright purchase or taking a loan.

Benefits of Corporate Star Lease: • Effective tool for employee motivation and retention • Peace of mind through ‘no mileage restrictions’ • Flexibility to keep driving the car after lease tenor • Tax benefits & off-balance sheet transaction • Attractive rentals covering on-road cost and maintenance

XIII. WHAT IS THE BEST OPTION – BUY /RENT / LEASE

Buying a car is a decision that involves many factors as it’s an expensive affair. Many readers write in asking how they should save to meet this financial goal. An option that has gained popularity in India recently is for self-employed individuals and professionals who run their own practice to lease a car. Already popular in the corporate world, it is slowly gaining traction among business owners and professionals as well.

This sector is still maturing, but compared to about 15 years ago, we are seeing many more professionals (doctors, engineers, architects, lawyers and so on) and self-employed people going in for leasing cars. Though we do not see many retail individuals coming to lease cars, we could possibly see a change in mindsets in the next five-six years. At present, however, we do not lease to individuals,” said Rahul Maroli, general manager-commercial (sales and marketing), LeasePlan India Pvt. Ltd.

Some of the other companies that offer leasing services include BNP Paribas-owned Arval India Pvt. Ltd, ORIX Auto Infrastructure Services Ltd and Avis India. Car makers such as BMW Motors Pvt. Ltd and Mercedes Benz India Pvt. Ltd, too, have their own leasing services as a part of their financial services arms.




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“We have received very encouraging response for our leasing programmes. Private leasers in addition to companies, self-employed and small and medium enterprise owners prefer leasing as it is hassle-free,” said Eberhard Kern, managing director and chief executive officer, Mercedes-Benz India.

“Star Choice: Fin scheme brings Merc within reach” TNN Jun 11, 2003, 05.52am IST If your budget extends to an equated monthly instalment (EMI) of Rs 33,000 for a set of wheels, then the C Class Mercedes Benz just got within reach. Beginning from June 11, DaimlerChrysler India (DCIL) will roll out its 'Star Choice' finance scheme, in association with ICICI Bank.

The main feature of the new scheme is the facility of a bullet payment, which allows the customer to pay the outstanding amount, likely to be Rs 9 lakh for the C Class and Rs 12.85 lakh for the E Class, at the end of the tenure of the loan. Alternatively, the customer can pay the bullet amount annually. The EMI for the E Class will be Rs 50,000. [9]

Segment leader Mercedes-Benz, which posted a 41 per cent growth to 6,659 units in the first half of the year on demand for newly launched models such as the CLA and GLA is also offering discounts. It assures customers of a 50 per cent buy-back value after three years and a discounted EMI of Rs 57,777 on its C-Class, while its GLA Class comes with the first year insurance paid, a Rs 1 lakh exchange benefit and a discounted 8.99 per cent finance option. [10]

Why leases are so tempting

“Probably the main advantage to leasing is a lower payment,”

says Jerry Love, a member of the National CPA Financial

Literacy Commission. “If you plan to keep the car only a few

years — say three years max — then leasing allows you a

smaller payment, and you don’t have to worry about the trade-

in value.”

The latter concern is important because new cars depreciate the

moment you drive them off the lot. And whereas a lease allows

you to get a new car every few years, those purchasing a new

car will likely hold on to it for much longer, its value dropping

with each passing year until it’s time for a trade in.

“The initial cost of purchasing is higher than leasing; this

includes a down payment as well as a higher monthly payment,”

says Allyson Baumeister, a member of the Texas Society of

Certified Public Accountants.

For somebody on a budget, it’s easy to see why leases are so tempting: You get a brand new car and a monthly payment that’s lower than a car loan.

But leases are a devil in disguise.

For one, leases have mileage limits where you’re penalized if you drive over that set amount; these penalties can range from five to 20 cents a mile. It’s important to determine ahead of time

how you’ll use the car (for short- or long-distance driving) and what those mileage limits are. A cap of 40,000 miles will allow you more wiggle room than 30,000, but you’ll pay extra up front.

What’s more, a lease allows for normal wear to the car, but “if

the dealership considers the … the vehicle to have wear and tear

above [normal] at the end of the lease, they can charge you

extra,” Love says. You can get a better idea of what “normal

wear” means by quizzing the car dealership and studying the

lease terms.

Why buying is better

Love notes that if the dealership is offering 0 percent financing,

and you plan on driving the car for a long time, buying is the

way to go. If the financing terms are higher, “Frequently, credit

unions will have a favorable rate. And if you have an

established banking relationship, you should absolutely check

with them for their rate.”

Why is buying so much better?

Aside from the advantage of ownership giving you an asset —

even if it’s a depreciated one — there are other monetary

variables to take into account. “The annual insurance cost for a

leased car is usually higher than for a purchased car,”

Baumeister says. “Also, the driver of a leased car must pay

personal property tax on the car. In some states, no personal

property tax is owed on a car that you are purchasing. This tax

is many times only included in the fine print of a lease contract.”

No matter which option you choose, shop around. Especially

with a purchase, “The exact price of the vehicle can vary greatly

within your region of the country,” Love says. “The terms of a

lease or terms of the note can vary greatly, too. Do some

research to identify an expected price, then walk into a

dealership equipped with the information.” [11]

XIV. CONCLUSIONS AND SUGGESTIONS

In this paper there are various point that came up like the Indian market is a sensitive, bargain and discount seeking market there are very limited loyal customer to the brand and a brand like Mercedes has its own customers. The maximum car sold are small cars according to the pocket of the customers but the customer always want to move to the luxury segment in cars. The concept of lease / rent against outright purchase is a new concept in Indian car segment, Mercedes has recently introduced this concept in Indian market and it has been tried and tested in other parts of the world. The other thing in this paper that has come up is that is it really profitable to have a high end car on lease, although Mercedes is giving very lucrative offer with different kind of lease offers along with the buying offer. Leasing seems to be very attractive but in long run with the added stipulations it is a bad choice if customer is planning to have a car for longer term. According to the current




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status Mercedes is still enjoying the Numero Uno status in luxury car segment. In India people purchase car with the thought of a long duration, Mercedes is giving an option of changing the car after three years, how much this offer is able to change the mentality of Indian people. In lease there is a capping of mileage after certain allowed mileage you have to pay extra amount and some more catches, Indian market is not like other parts of the world, car is still an important object in the family. The following figure shows the comparison in between two types of options like leasing a car against buying a car.

Source: mint research. At the end of a loan, you will own the car and can resell it. It is important to include the resale value of a car in this calculation, especially for smaller cars. With a leased car, of course, resale is not an option. Another disadvantage is that not all cars are available. You will have to check to see what’s on offer. It could also be that the car you want is not available at the location you want. In a financial lease plan, which is the same as a rental lease plan, except that the leasing company will ‘sell’ the car to you. Therefore, here, too, an auto loan would be cheaper. To make the situation more clear the following is a comparison table in between buying and leasing option in detail. If we look at the table contents carefully there are many if and buts in leasing option. In buying you own the car you can modify or resell it to get maximum desire value. The option of leasing a car depends on the usage and wish of the user against all odds it is a new concept in the marketing strategy of Mercedes and it will definitely make some difference in the car market and its competitors.

Table : Comparison – Buying / Leasing

Buying Leasing Ownership You own the vehicle

and get to keep it as long as you want it.

You don't own the vehicle. You get to use it but must return it at the end of the lease unless you decide to buy it.

Up-front costs They include the cash price or a down payment, taxes, registration and other fees.

They typically include the first month's payment, a refundable security deposit, a down payment, taxes, registration and other fees.

Monthly payments

Loan payments are usually higher than lease payments because you're paying off the entire purchase price of the vehicle, plus interest and other finance charges, taxes, and fees.

Lease payments are almost always lower than loan payments because you're paying only for the vehicle's depreciation during the lease term, plus interest charges (called rent charges), taxes, and fees.

Early termination

You can sell or trade in your vehicle at any time. If necessary, money from the sale can be used to pay off any loan balance.

If you end the lease early, early-termination charges can be almost as costly as sticking with the contract.

Vehicle return You'll have to deal with selling or trading in your car when you decide you want a different one.

You can return the vehicle at lease-end, pay any end-of-lease costs, and walk away.

Future value The vehicle will depreciate but its cash value is yours to use as you like.

On the plus side, its future value doesn't affect you financially. On the negative side, you don't have any equity in the vehicle.

Mileage You're free to drive as many miles as you want. (But higher mileage lowers the vehicle's trade-in or resale value.)

Most leases limit the number of miles you may drive, often 12,000 to 15,000 per year. (You can negotiate a higher mileage limit.) You'll have to pay charges for exceeding your limits.

Excessive wear and tear

You don't have to worry about wear and tear, but it could lower the vehicle's trade-in or resale value.

Most leases hold you responsible. You'll have to pay extra charges for exceeding what is considered normal wear and tear.

End of term At the end of the loan term (typically four to five years), you have no further payments and you have built equity to help pay for your next vehicle.

At the end of the lease (typically two to four years), you'll have to finance the purchase of the car or lease or buy another.

Customizing The vehicle is yours to modify or customize as you like.

Because the lessor wants the vehicle returned in sellable condition, any modifications or custom parts you add will need to be removed before you return the car. If there is any residual damage, you'll have to pay to have it fixed.




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REFERENCES [1]. http://www.mercedes-benz.co.in/content/india/mpc/mpc_india_website/enng/home_mpc/passengercars/home/world/Press_Releases/Mercedes-Benz_India_registers_a_stellar_40__growth_in_Q1_2015_sales__scripts_the_best_ever_sales_in_its_history_in_India__highest_month_ever__highest_quarter_ever_and_the_highest_fiscal_ever.html [2]. http://www.mercedes-benz.co.in/content/india/mpc/mpc_india_website/enng/home_mpc/passengercars/home/world/Press_Releases/Mercedes-Benz_records_the_best_year_ever_in_the_company_s_history_in_India__Registers_10_201_units__sale_in_the__Year_of_Excellence__clocking_13__growth.html. [3]. http://auto.economictimes.indiatimes.com/news/passenger-vehicle/cars/audi-mercedes-slug-it-out-for-top-slot-in-indian-luxury-car-market/46791482. [4]. http://ar2013.daimler.com/to-our-shareholders/objectives-and-strategy. [5]. http://media.daimler.com/dcmedia/0-921-614232-1-1662162-1-0-0-0-0-0-0-0-0-1-0-0-0-0-0.html [6]. http://www.marketing91.com/marketing-mix-mercedes-benz/ [7]. http://www.luxurydaily.com/mercedes-marketing-merit-sends-sales-up-14pc-in-january/ [8]. http://www.mercedes-benz.co.in/content/india/mpc/mpc_india_website/enng/home_mpc/passengercars/home/financialservices/financing.html [9]. http://articles.economictimes.indiatimes.com/2003-06-11/news/27534162_1_new-scheme-loan-period-emiStar%20Choice_%20Fin%20scheme%20brings%20Merc%20within%20reach%20-%20timesofindia-economictimes.htm [10.] http://economictimes.indiatimes.com/industry/auto/luxury-car-cos-like-audi-bmw-and-others-offering-huge-discounts/articleshow/48155188.cms [11]. http://www.moneyunder30.com/why-you-should-never-lease-a-car [12.] http://www.searsimports.com/mercedes-benz-monthly-lease-offers/

pricing strategy of luxury car makers from “classes” to “masses

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