Mercedes-Benz rolls out ‘direct to customer’ retail strategy in India

In a fundamental shift to its retail strategy, German luxury car market Mercedes-Benz on Friday implemented its ‘direct to customer’ model in India.

Called its ‘Retail of the Future’ (ROTF) business model, the strategy was first announced in June. It was launched after the successful beta testing phase, by Martin Schwenk, Managing Director & CEO and Santosh Iyer, Vice-President- Sales & Marketing, Mercedes-Benz India, from the company’s Metro Auto Hangar dealership located in South Mumbai.

Uniform pricing

With ‘Retail of the Future’, Mercedes-Benz India will retain the ownership of the entire stock of cars and retail them via appointed Franchise Partners, by invoicing them directly to the customers. Mercedes-Benz will also be responsible for processing and fulfilling customer orders. With ROTF, there will be one nationally set price by the company, which will be uniform across the country.

According to Martin Schwenk, Managing Director and CEO, Mercedes-Benz India, the new “omnichannel,” “customer-centric” business model will help empower its Franchise Partners by significantly reducing their financial and operational risks in the market.

Investment into retail business in India

The company has invested ₹60 crore into its ROTF strategy. Mercedes Benz had recently infused around ₹1,700 crore into its India business to transform its retail strategy in the country.

Talking about its investment into the new business model, Schwenk said, “The ₹60-crore investment will go into the process itself and into the IT systems. The ₹1,700 crore which we brought in, a good portion of that is to fund our future inventories.”

Also read: Mercedes Benz flags long waiting period for cars

“In order to optimise our financing cost, we can now work with equity which we have received via that increased equity infusion,” he said.

The strategy has been implemented over 24 months with over 200 people across India, Singapore and Germany being involved in the process.

Talking about the process, Schwenk told BusinessLine , “The whole journey itself is a two-year journey. From June onwards, a lot of work has happened on the system side, on integrating the processes and then bringing it to life. We have had extensive discussions in the project phase with our franchise partners on the future sales processes on the sales framework.”

The company had a soft launch for the new model at the beginning of October where it brought the system live and converted and took the first customer orders into the new system. Mercedes-Benz has already received over 1,700 units of customer booking through the ROTF in the beta phase

India is the first CKD and the fourth worldwide market to implement the new ROTF strategy.

The model has been live in Austria for two months. It has been live in South Africa for at least four years and for around two years in Sweden.

“When we reviewed South Africa and Sweden, where we have certain maturity, we have received a very positive feedback, which we get from the dealers or the franchise partners.”

“In my view, in both countries, they were able to strengthen their sales position relative to the competition. “But the volatility of the car market, specifically last two-three years, makes it difficult to compare in a one to one phase, dealer profits, dealer impacts, so on and so forth,” said Schwenk.

“We see also improved customer satisfaction. So we see both legs improving,” he said.

“However, the results which we have seen from these two markets are definitely encouraging and give us hope that we have a chance here to grow further and also strengthen our market position,” he further added.

Role of franchise partners

With the new model, the company’s Franchise partners will continue to remain brand representatives in the market and will be responsible for developing customer relationships, managing operational handling of customer interactions and developing local market requirements. The current showroom infrastructure will continue to remain the same. All Franchise Partners of Mercedes-Benz India have collaborated in implementing ‘ROTF’ in India.

“There is a lot of added focus on the dealers. The dealers can put a stronger focus on the customers and because the transaction itself is more standardised and harmonised, driven via our common processes. In the steering of the dealers, they will have sales targets as they have today. They will also have targets around customer satisfaction.”

Talking about the concerns of the dealers, the Mercedes Benz India executive said there were some concerns among dealers in the initial phase which were later resolved.

“We started this journey with our dealers and franchise partners more than 12 months ago. In the feasibility phase, we had some preliminary discussions to see what are the pitfalls and the views of our investors and partners in the business. Of course, there were concerns, like, “How would the process work here? Can we be profitable? How do we manage that in future? What is our role? Will will we be squeezed out of the system or will Mercedes be taking over and doing its own retail function as such?”

“We addressed every single issue, and question that came over the last 12-15 months. We clearly stated that there is no strategy or intent to modify the dealer footprint or reduce the number of locations we operate in. There is no intent to do online business or any direct sales operation out of our own dealerships kind of thing. We want to use them and work with them and use their competence to work in a mutually beneficial way,” he said.

“We’re not setting up a competing structure with our dealers, it is an integrated structure, also in the online journey, where they are completely involved, they also get the remuneration or margin as well. So we have integrated that to a large extent. And similarly, any topic that came out of the sales processes or all of the sites framework, we discussed them with them over 12 months, and defined and agreed on several aspects, including the remuneration,” he said.

“One key is obviously that we have a very trustful and open relationship with all our investor partners. We always discuss very transparently with them, what we want to achieve, what we think is in for them, what is in for the customers and what is in for us. And I think that open and transparent discussion helped,” he added.

Price stability for customers

The new retail strategy is meant to offer “price stability” to consumers across dealerships. With this new strategy, customers will not have to pay any incidental charges for their purchases. In addition, the customers will now have direct access to national stock giving them higher visibility to select their desired products from across markets.

Apart from the cars sitting at dealerships, “We also offer (the inventory) what is sitting in Pune and we have on top of that inventory, which is not even being produced. So we give the customer and dealers visibility of two months of production, which has not happened yet,” said Schwenk.

Mercedes-Benz also for the first time will now offer the VIN number to the customer even during the order booking stage. Customers can book a car by paying an amount of ₹50,000. The order completion will then occur over the next 14 days. For the first time in India, VIN number will be confirmed with order booking thus ensuring complete transparency, the car maker said. Customers will also have a range of offline and online payment options throughout the process.

“At the end also, he (customer) gets price stability, because eventually what he buys from us will keep its value. Even resale value in future, the residual values of vehicles will be stronger over time because our overall offering scheme is harmonised across the country. And there is no say specific need of single dealer partners or to do a discounting to dispose of a vehicle they cannot sell, for example, which then dilutes the entire price experience,” he said.

The company will still have loyalty programmes and promotional benefits and certain separate discount brackets for corporate businesses, based on the customer profile, he said.

New online platform

Mercedes Benz has also launched an exclusive Digital Commerce Platform or DCP, which is an Online Store where customers can book a Mercedes-Benz car by themselves

Talking about the role of online platforms in its overall retail strategy, Schwenk said that the share of e-commerce in terms of business is currently around 20 per cent for the company which he believes has the potential to further grow with the growing interest in digitalisation.

“With our new business model, we will even better be able to integrate what’s happening online, and what’s happening offline. If you go look for a price online or you go to a dealership, you will see the same price you, you will have access essentially to the same inventory. Everything will be harmonized in that sense,” he said.

“We believe that the online channel is complementing the brick and mortar business and not competing with the brick and mortar business. A true customer-centric experience has to come out of one view. And it needs to integrate online and offline sales. We believe with that focus, we have the potential to further grow to higher numbers than 20 per cent. But time will tell,” he said.

ROTF will be applicable only for new car sales and will not alter the functioning of separate business lines including customer service, pre-owned cars and allied businesses.

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