Mercedes-Benz to sell directly to customers under new retail model

Mercedes-Benz India has made a fundamental transition in its retail business in India, by shifting to a direct-to-customer model.

Called ‘Retail of the Future’ (ROTF), Mercedes-Benz India 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.

Martin Schwenk, Managing Director and CEO, Mercedes-Benz India, told BusinessLine that this model has previously been piloted in South Africa and Sweden. “Based on these pilot programmes we came to the conclusion that in India we will see a substantial benefit for customers, dealers and ourselves,” he said.

By offering one transparent price and purchasing experience for the customers, Schwenk believes that customers will be best positioned to get the value for money. While in the previous arrangement a dealer might influence customer choice since he has to sell off his inventory. “With this model, no such compulsion exists, therefore customers are able to choose without such influence. Everything that is available can be presented to the customer due to the visibility of inventory,” said Schwenk.

Schwenk said  Mercedes-Benz is not looking to compete with the existing network of dealerships. “Our relationship with our franchise partners will continue to be close if not closer when it comes to selling of vehicles, in the aftermath of this transition,” said Schwenk.

“Because we believe they know best how to sell a vehicle. Their competency for sales will continue to remain.. at the same time we need to learn more about sales thus the partnership will continue,” he added.

The transition of retail models aims to further integrate online and offline sales, where dealerships continue to offer services such as delivery, test drives etc. Mercedes Benz will take upon a bigger role in brand marketing and product specific marketing, however local marketing will continue to be the responsibility of the franchise partners.

Reduced commissions

 Commissions paid to the dealership will reduce as a consequence of the transition of retail models, however Schwenk said that the profitability for the dealership is likely to increase. “We have done extensive studies to find that the model is designed in a way to reduce cost price, inventory costs and increase profitability,” Schwenk said adding that the new retail model is likely to make their business more predictable and that will help dealerships to have a steady growth without worrying about financing their operations.

The primary roles and responsibilities of the Mercedes-Benz Franchise Partners include establishing and maintaining of customer contacts, development of the market and facilitating the sale of Mercedes-Benz cars.

“This long-term strategic move will strengthen our customer focus by introducing a fundamental transition in the retail business in the market. It also will deliver a win-win solution for both customers and Franchise Partners, underscoring our clear vision for a future which is sustainable, empowering and digital. The advent of new sales channel have brought sweeping changes in customers’ aspirations and requirements, and being a customer obsessed brand, we have adapted our current business models to meet our customers’ aspirations and needs,” Schwenk said.

ROTF business model is applicable only for sale of new cars. There will be no change in separate business lines including customer services, pre-owned cars and accessories business when ROTF will be implemented.