We have also cut down on discounts in a sense where we are pricing the cars as per the market and not pricing it higher and then giving a discount, Santosh Iyer, VP, Sales & Marketing, Mercedes-Benz India
Chennai, May 15
The country’s top luxury carmaker Mercedes-Benz India is witnessing an exponential growth in sales. While it sold record volumes in Q1 of 2022, the order book continues to swell signalling a trend where the company is expected to end this calendar year with its highest-ever volumes. It has even stopped taking orders for some models due to constraints in delivery amid the chip shortage. Now the waiting period for its sedans is in the range of 5-8 months, while the SUV range carries a waiting period of 2-12 months. Meanwhile, implementation of its ROTF (Retail-of-the-Future) sales model appears to show good results. Santosh Iyer, VP, Sales & Marketing, Mercedes-Benz India, spoke to BusinessLine on growth, production issues and ROTF. Excerpts:
Is there an opportunity to reduce the waiting period for your models?
Despite several challenges, 2022 will turn out to be the best year for Mercedes-Benz India as we expect annual volumes to cross 15,500 units. The new order pipeline is robust and our brand sees exponential growth. The just-launched C-Class has garnered more than 1,000 bookings. The waiting period runs up to several months now. Of course, we are increasing production to cut the waiting period. But it cannot happen immediately as local supplier development takes 18 to 24 months. To cut down on the lead time, we have shifted a lot from sea freight to air freight to get the parts and components on time to speed up the delivery of cars. The other drastic step we have taken is if there is no visibility on delivery within 12 months, we have stopped taking orders (for G-Class, GLS Maybach etc). There is no point in making the customers wait for more than 12 months. Globally, our supply chain teams are working to find alternate suppliers.
What have you achieved with the implementation of the Retail of the Future sales model?
Before the implementation of ROTF, we gathered that in the traditional automotive business the customers are pushed towards what the dealers have stocked. There is no transparency about price and stocks. On the dealer side, they are burdened with a lot of stocks and are paying huge interest to banks. So we took these two elements out of the system. What we have done with ROTF is we have taken over the stocks, so dealers are less burdened, while giving our customers an omnichannel experience. So the key thing is when a customer purchases online or offline, the buyer will get the same car, same price, and full visibility of stock to book the car. With this, the transparency is huge for the customer and they are appreciating it. We have also cut down on discounts in a sense where we are pricing the cars as per the market and not pricing it higher and then giving a discount. So, there is a fundamental shift in the way we are doing retail. For eg, the C class would have been ideally priced much more in the older business model compared to ROTF. So customers are now getting the right value for the car instead of resorting to discount discussions.
Has there been any other positive impact as a result of ROTF implementation?
In addition to transparency in price and stocks, the other major impact of ROTF is on the residual values of our cars. The cars are now sold at a better price and the prices of old cars have shot up. Because of this, the current customers are also happy as their cars will fetch better prices than what they used to get otherwise. As a result, the used car business is also doing well. More than 11,000 transactions clearly show that we have been able to process so many customer orders, and customer requests. For Mercedes, we are closer to customers now because every invoice is generated out of my system. I know the customer and I’m able to serve their needs better. So it’s a win-win for all stakeholders and we have created a benchmark for the industry.
Have you seen a revival of demand for luxury cars in all regions?
Growth is there in all markets. Of course, there are some markets which are doing better. As I said, Tamil Nadu is an example. Punjab is also doing very well and is a very strong market for us. There are some markets which are growing slower than the national average. But one thing is certain, growth is there. Even in Uttar Pradesh and in the eastern region, Kolkata and Guwahati we are showing growth. The North-east region was always stagnant for several years, but we can see the growth.
What does the swelling order book of luxury cars indicate?
Well, there are three areas we should look at. On the economy side, you can see there is a positive spiral when you look at GST tax collections, income tax collections, corporate balance sheets etc. There are more profitable businesses that are coming up and they are buying premium cars. Secondly, from a cultural perspective, there is a shift happening – from saving to spending. I think there is a large number of people who want to live life and they want to spend and reward themselves from a mindset perspective. And the third is the younger profile. More and more younger customers are coming to the luxury car market to drive growth. So the demographic profile and shift in mindset from saving to spending, supplemented by robust economic growth, is driving luxury car sales.
How about your customer profile now? Do you attract a good number of new buyers?
Of the 1,000 bookings for the new C-Class, 70 per cent are Mercedes customers and the remaining 30 are new buyers. But we did this by design. We opened up the bookings only for current customers so they feel happy and get the delivery on priority. If I see the total Mercedes Benz portfolio, we are seeing a significant shift in first time buyers – not from the mass market to us, but people buying a luxury car straightaway for the first time. We have 10-12 per cent of new customers who bought a Mercedes-Benz model as their first car. That’s a shift led by start-ups and IT professionals etc. Some people who have come from abroad buy a luxury car straightaway. So that’s a big shift that we see in the consumer profile.
Do you also witness more preference for your SUV products?
SUV versus sedan is a classic case of the product portfolio. In our case, SUVs grew significantly and now it has come to a 50 per cent share. But on the other hand, since we have eight cars in the sedan portfolio with the latest new C Class, we are still able to garner 50 per cent of sales from sedans. We are a unique luxury OEM with 50 per cent sedans and 50 per cent SUVs due to a strong portfolio of products. If we didn’t have that portfolio, maybe we would have also seen a shift towards the SUV segment. So customer preference is there for different body types but if you have a portfolio which is very harmonious on both sides, sales happen in both segments.