Benz stands by 'Let's Talk' campaign

words - Ken Gratton
Even the dealers had their doubts, but the controversial advertising campaign has left the three-pointed star badge untarnished

It was stark, it was simple -- and the message was clear. Mercedes-Benz had nearly 2500 cars in stock and the importer was casting about anxiously for buyers.

When the television commercial hit the screens earlier this year, a lot of punters were left slack-jawed in amazement. Here was a company known for its prestigious reputation and what we'll call impeccable resale values, getting down and dirty in the marketplace and putting at risk its brand image and those same resale values.

TV advertising was previously all upper-class people driving C-Class variants through the countryside to the strains of Eagle-Eye Cherry or slightly quirky ads showing people enjoying life in reverse, a la Benjamin Button. The 'Let's Talk' campaign just didn't go there. All the viewer saw was a figure on a pale grey background -- the number representing the new cars left in stock for Mercedes-Benz to clear.

Last month, according to official VFACTS figures, Mercedes-Benz sold more vehicles (1832, including commercials) than in May 2008. In the current climate, that is -- depending on one's point of view -- a very good result or a virtual fire sale.

The company's year-to-date volumes (7164 units) are still behind the same period for 2008, but as a percentage and in actual numbers, Benz has a better sales record for this year than archrival BMW -- if that's specifically worth the bragging rights in this sort of market climate.

Now that the campaign has officially ended, the Carsales Network caught up for a debrief with David McCarthy, Senior Manager Corporate Communications at Mercedes-Benz and his colleague and Manager of Corporate Communications, Peter Fadeyev.

McCarthy kicks off with an explanation of the background to the 'Let's Talk' campaign and why it was essential.

"You had the luxury car tax in July or September of last year," says McCarthy, "you had a very big hit in sales there, so you ended up with a situation where you had more cars, at that point, than you had sold. The global financial crisis then knocked the stuffing out some more. So you've got a situation where you did have more than adequate stock -- I'm being tongue in cheek there -- but you also had a market that needed stimulating."

McCarthy doesn't believe the current situation in which Benz finds itself is entirely due to the advertising campaign. It sounds like there was some micro-management of inventory and pricing over the period -- a necessary evil in the circumstances.

"It wasn't just 'Let's Talk'... it was also listening to the dealers more and them also listening to us. In these tough times, you have to be lean. You can't be overstocked, because having an excess of stock... all you end up doing is tearing money up.

"Really, it's about making sure that the dealers have the right environment in which to operate -- in terms of stock and support -- that the marketing and sales are on the same page, that PR is on the same page, that we're stocking the sort of cars that the customers want," says McCarthy in respect of the May sales outcome.

"And I think the thing that was really most significant in delivering that result was the 'Let's Talk' campaign. And while yes, we did beat BMW in sales in May, one month doesn't make a year."

According to McCarthy, Benz is at least as focused on its own "internal targets" as it is focused on competition in the market with BMW -- or Audi, Lexus and any other prestige importer.

"We've met and exceeded all those targets -- and the end result is those 1400 odd cars [sold in May]. I can tell you, every single one of those cars is sitting in a customer's driveway."

In other words, 'dealer demos' weren't registered and sales weren't brought forward to inflate the figures for May. Furthermore, with the sales campaign now concluded, Mercedes-Benz inventory levels are quite low. The importer is holding next to nothing in stock.

"Our strongest motivation is the internal targets that we have," McCarthy reiterates.

"Whether BMW sell more cars than us or less cars -- or Audi or whatever -- that's interesting, and yes, it does motivate you, but... if you've gotta sell 1200 cars, you've got to sell 1200 cars.

"But you've got to do it in a way that retains customers, builds value, supports the dealers -- and provides a profit. Focusing on what the opposition is doing doesn't do that."

The implementation of the 'Let's Talk' campaign was necessary to meet those targets -- and clear that excess stock accrued as a consequence of both the global financial crisis and the government's changes to the Luxury Car Tax (LCT, more here).

But what about the potential for damage to the brand or resale values?

"There has been a lot of talk about how this is going to affect the resale value of a Mercedes-Benz that was bought at that time," says McCarthy. "Well, my opinion: number one, the market is not that sophisticated. To say 'Oh, you bought your Benz between April and June 2009 -- therefore we're going to mark your car down by X per cent'; that's nonsense.

"The reality is, there has always been negotiation on prices. What 'Let's Talk' has done is that it has probably focused the customer more and said to them 'We've got this many cars to sell in this many days; let's talk'. So, for a lot of customers, that's been a revelation.

"It is expensive, yes. I'm not going to deny that selling more cars at more attractive prices to some people is expensive. But we are actually here in the business to sell cars.

"We have met our profit forecast, we've more than met our volume forecast -- and that's what it's about."

Fadeyev interjects with the observation that the question of resale values and the bearing the campaign will have on those is one that he's asked to address frequently.

"It's a common question that's been asked; will that campaign 'hurt' Mercedes-Benz. We'll be remembered a long time after one marketing campaign -- and it attracted a lot of attention because it wasn't the type of campaign that was traditionally done.

"But it was deliberately devised without any emotional connection for the viewer or the listener. It didn't have any products involved. And it was a simple statement of fact -- and a simple call to action. In short, we don't think it will damage our brand at all, because resale values are driven by a number of different factors -- the purchase price is only one of them."

The inference to be drawn from Fadeyev's comments and McCarthy's description of the 'Let's Talk' campaign as a "revelation" for customers is that Mercedes-Benz has a legacy reputation of being unwilling to negotiate on price. That and the further reputation for 'unassailable' resale prices are like the albatross that lays the golden egg. It might actually be argued that both of these have hindered sales for the brand over a longer term.

Fadeyev also takes the view that prospective buyers have been unaware that Benz has been pricing its products at a more competitive level in recent years.

"Let me give you a parallel example," says Fadeyev. "Interestingly, David and I found that when the topic of the increase in Luxury Car Tax raised its head last year -- from 25 to 33 per cent -- you'd be surprised, and we were, at the number of prospective customers who contacted us, enquiring 'Is there a luxury car tax being introduced?' -- and we said 'well no, it's not being introduced, it's being increased' and so many people weren't actually aware there was [a luxury car tax].

"They didn't think that was part of the expensive purchase price of a luxury European car. I think, in the same way that we encountered that, a lot of people will realise how affordable a Mercedes-Benz actually is -- and that may sound like the strapline of an ad, but it's actually true."

"It's a perception thing," McCarthy agrees. "In terms of getting people to think 'I can go into a Mercedes-Benz dealership and I can talk price'... the campaign was so simple, yet it's done an enormous amount...

"In terms of resale, it's way too early to say, but both Pete and I -- and Horst [von Sanden, local MD] -- would be very surprised if this has an effect on resale, because at the end of the day, there has always been negotiation on price."

So 'Let's Talk' has broadened the number of people negotiating price on a new Mercedes, rather than necessarily deepening the price 'discounting' on the new cars.

"[The perception of Benz resales] has been a stumbling block, I think," says McCarthy.

"Resale is not always the fault of the car. Let's say 12 months ago, a particular E-Class was worth $60,000 wholesale, yet the fact that the economy has gone south and there's been some repossessions and there's more unemployment and stuff -- all of a sudden, that same car might be worth $52,000. That is not necessarily a reflection on the car.

"You can't really impact resales positively, but you can certainly impact them negatively," McCarthy concludes. The best a manufacturer can hope to achieve is to regulate the decline in resale values. To that end, Benz has put in place a strategy for the W204 C-Class, whereby the car is sold with the promise of deals on servicing and finance.

"Consideration also needs to be given to the timing of the resale calculation," says Fadeyev, "because it falls furthest usually in the first 12 to 24 months of ownership. We find a lot of our customers change their vehicles usually at the end of the warranty period of three years or at the end of their finance phase, which can go up to five years.

"Generally, in that time, there's an expected depreciation which is considered significant -- and is acceptable to any person who buys one of our cars or a luxury car in general. But to say that a vehicle's depreciation is so poor after looking at it from 10 to 12 months, doesn't take into account the genuine time needed, because it is a bit of a compound curve."

"People always say 'You drive a car out of the showroom and you lose $20,000'," concurs McCarthy. "Well who sells the car when they drive it out of the showroom?

"The market is going to be very different in three months' time, let alone three years or five years' time."

Fadeyev chips in with the valid observation that resale value is something that customers accept in varying degrees. If a buyer takes a Benz back to the dealer for a trade-in figure on a new car and chooses not to go ahead with the transaction because the figure offered as a trade is too low, then that car won't figure in the resale data. It's the buyers' willingness to accept that "a large durable consumer good in the form of an expensive car" will lose value over time that ensures that's exactly what will happen.

"If every consumer said 'No, Mr Dealer, that wholesale valuation on my car is far too low and I don't accept it', then it doesn't transact in the market and then it's not recorded as a lower depreciation price as such."

So, neither man believes that 'Let's Talk' will have some profound and long-lasting effect on the resale values of Benz vehicles, but McCarthy feels the campaign has fostered a more positive view of the market, both within the importer's Mulgrave HQ and among the dealers. 

"'Let's Talk' has been a real rallying call for people internally here. Our dealers understood what it was about. Some of them, perhaps, were a bit sceptical, but they've seen the results -- and the results are that we sold 1400 odd cars in May. And I would hope that we'll do a similar number in June."

McCarthy cites dealer satisfaction responses from AC Nielsen survey data to support the contention that the dealer network's level of satisfaction with Benz has improved dramatically -- from a low base, McCarthy admits.

Benz has improved the outlook for its dealer network in a number of ways -- among them the importer's wholesale and training commitment. So the dealers are happier on the retail side AND the wholesale side. According to McCarthy, if you keep your dealers happy, that will flow through to the customers as well.

"It's not just 'Let's Talk', it's a whole range of issues that actually deliver the result that we saw in May, and we're confident we'll see just as strong a result in June."

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Published : Friday, 5 June 2009
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