Companies

Mercedes’ new retail model may hamper customers satisfaction from discount negotiations: Experts

S Ronendra Singh New Delhi | Updated on June 04, 2021

Such a model is possible only for niche players, not mass market ones

The Mercedes-Benz model of direct retailing to customers is possible only for niche segments with low volume, but not feasible for high volume/ mass market segments players like Maruti Suzuki , Hyundai Motor or Tata Motors, industry experts said.

Also, India is a unique market where customer psychology is very different as they change dealers and even brands on any additional discount. Mercedes-Benz’s new model of selling may hamper the buyer’s ‘ego massage’ of telling others that they have got a better deal.

Mercedes-Benz India on Wednesday launched a ‘direct to customer’ model, called ‘Retail of the Future’ (ROTF) according to which it will own the entire stock of cars, sell them via appointed franchise partners, invoice the new cars to the customers directly, process the order and fulfill them, offering one transparent price and purchasing experience for customers across India.

Niche segment

Speaking to BusinessLine, Ashish Modani, Vice-President and Sector Head – Corporate Ratings at ICRA, said, “This is possible only for niche segment with low volume, but not feasible in high volume/ mass market segments. From original equipment manufacturers perspective, it will restrict discounts and reduce overall inventory holding cost for dealerships.”

Vinkesh Gulati, President, Federation of Automobile Dealers Association, said the new idea by Mercedes-Benz India will take away the prevalent negotiation of discount satisfaction from the customers.

“This model may take away the customer’s satisfaction of negotiationIndian buyers can’t buy a vehicle without asking ‘what is in it for me?’. Indian customers are always asking for more discounts and for some people negotiation is important for their ego massage for telling others that ‘I have got better deal than you’. These will not be there now,” he said.

He said customer satisfaction will be a problem right now and they may agree to such ideas slowly and steadily.

Some industry veterans also said the model is possible for only niche players because a lot of people would be impacted if a mass player had to do the same. For instance, manpower involved in warehouses would lose jobs at dealer ends as many of them own multiple warehouses. But, for Mercedes, it could be only three-four per cent of manpower reduction because of the limited presence (48 cities and 100 outlets) across India.

Volume-centric

“India is still not a volume market for any of the luxury brands and this decision by Mercedes-Benz clearly reflects that it is profit centric rather than volume centric, especially during this pandemic. In a way this will also lead to dealers concentrating more on their core businesses of bookings and selling of the vehicles without caring about the inventories,” Puneet Gupta, Associate Director at IHS Markit, said.

Published on June 03, 2021

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