A Brand Extension of Mercedes Benz into the Domestic Goods Industry

'A Brand Extension of Mercedes Benz into the Domestic Goods Industry' Unit Title: Brand Management Unit Leader: David Leaver Name: Bethany Green Student I.D: 12087726

Contents Page 1.0 Executive Summary 2.0 Introduction 2.1 Outline of intentions 2.2 Brief overview of Mercedes Benz 3.0 Business analysis of Mercedes Benz 3.1 PESTLE Analysis 3.2 Product Life Cycle 3.3 SWOT Analysis 3.4 Cash flow 3.5 Assumptions 4.0 A creative Analysis of Mercedes Benz 4.1 Vyse's Brand Fingerprint and Kapferers Brand Prism 4.2 Brand Personality Framework 4.3 Sounders Wheel 5.0 Justification for Mercedes Benz Brand Extension 5.1 Ansoff Matrix 5.2 Kapferers Evaluation Model

1.0 Executive Summary The main aim is to address the stability of MB as a parent brand and whether it is in a substantial position to proceed with a brand extension. This was justified through the analysis of the business and that it is in fact financially capable of extending their brand into the 'Domestic Goods Industry', with support from 'Daimler' as their cash flows stand at â‚Ź6million for the company.

PESTLE and SWOT analysis prepares the brand for future implications that may impact MB, key findings include; cases against MB, the economic downturn for US affecting the buying power of their large clientele, Impact of celebrity endorsers used for their new sport range, the technological advances that MB inherit from their master brand 'Daimler' to put ahead of its competitors with eco-technology and finally the Euro 6 Emissions standard that MB already complies by. Comparisons with competitor BMW shows that MB is positioned as a class leading brand and still sitting comfortably within the growth stage of the Product Life Cycle.

The creative analysis captures the brand essence of MB this is vital so that the brand extension can satisfy the same values and characteristics into their MB Vacuum cleaner so that it doesn't damage the parent brand, these include; fast, powerful, sleek, stylish and obtain the 'quietest engine'. And finally the rationale explaining the reasons for a brand extension; giving MB the ability to grow and capitalise their business into new markets. The benefit of using MB as a parent brand gives the vacuum an instant credibility and built in endorsement. The access to eco-technology will also give MB a competitive advantage against competitors like dyson.

2.0 Introduction 2.1 Outline of Intentions Section 1a) will cover a detailed business analysis of Mercedes Benz (MB), by using the Adrian Palmers 'Brandsphere' model (2009) this will cover the Macro, Micro and Internal environment of the brand. Section 1b) will then go on to produce a creative analysis of the intangible values for MB, this will be done by using Vyses Brand Fingerprint model, Brand Personality Framework and Sounders Brand Essence Wheel.

Section 2) will include a justification for MB's brand extension and the key benefits it will bring to the parent brand, supported by the Ansoff matrix and Kapferer's evaluation model. �Brand extensions are a direct consequence of competition in mature markets

and of the fragmentation of media. The only justification for brand extension is growth and profitability, as long as growth and profitability can be achieved through the present customers products, or through minor variations there is no need to extend�.

(Kapferer 2008:303) 2.2

Brief Overview of Mercedes Benz

Daimler is one of the worlds most successful automotive companies, manufacturing a range of vehicles for brands such as Mercedes Benz, Smart, Freightner, Fuso, Western Star, Thomas Built Buses, Bharat Benz and Setra.

(Daimler: Online) In 1886, the founders of Daimler; Gottlieb Daimler and Carl Benz invented the first petrol powered car in history; the Mercedes Benz, this completely revolutionised the way in which people travel (Daimler:online). Positioned as a highly desirable brand for its luxurious drive, sleek bodywork and quiet engines, the three point star vehicle is a class-leading brand within the high range automotive industry.

3.0

Business Analysis of Mercedes Benz

The main aim is to cover an overall marketing analysis of Mercedes Benz, a 'brandsphere' model is used below in order to help structure this.

3.1 3.2 3.3

3.1

The Macro Environment: PESTLE Analysis

A PESTLE analysis is a structural tool used to describe factors within the macro environment. These include the following; POLITICAL/LEGAL Various legal proceedings, claims and governmental investigations are pending against the company on a range of topics, including vehicle safety, emissions, fuel economy, financial services, dealership, supplier and other contractual relationships, intellectual property rights, product warranties, environmental matters, and shareholder matters. For instance, in 2011, the European Commission (EC) carried out antitrust investigations of European commercial vehicle manufacturers, including Daimler. If antitrust infringements are discovered, the EC can impose considerable fines depending on the gravity of the infringement.

ECONOMICAL In terms of geography MB sold their greatest amount of 300,000 units over 2012 in the U.S (Marketline:online). This indicates that their largest customer

base is within the U.S and that they rely heavily on the buying behaviour of Americans. The countries unemployment rate increased to 7.30 % in October 2013 from 7.20% in September, and is forecasted for an even lower rate in 2014. As the economy begins to slow down it can affect the buying power of consumers, with less disposable income to spend on luxury cars such as MB (tradingeconomics:online 2013).

SOCIAL Celebrity endorsements are used to help capture the attention and attain new potential customers to the brand, for example Kano the highly respected artist within the hip hop industry, endorses the new Mercedes Benz A class in attempt to reach younger audiences. In previous endorsements Michael Schumacher was the face of Mercedes Benz, the seven times formula one champion is seen as fast, successful, reliable, trustworthy and powerful.

TECHNOLOGICAL The German environmental technology industry has an international leading position. It is one of Europe’s leading countries when it comes to research and development expenditure on eco-technology, which gives German manufacturers like Mercedes Benz an advanced take on rising trends for Hybrid cars (Research-in-germany.de:online 2013) Furthermore, the rise of Internet users is continually growing, in 2013 over 2.7 billion people are using the internet worldwide (ICT Facts and Figures:online 2013). MB can therefore take advantage of the easy access to connect with its potential or current customers.

ENVIRONMENTAL EU euros 6-emission standard will come into place in 2014, of which new vehicles must comply with the acceptable limit of emissions. Daimler invests research and development into eco-technology for MB. These include eliminating the need for fossil fuels and concentrating on the future of hybrid technology, even though their models apply to the Euro 6 emissions standard

MB likes to keep ahead of its competitors (Daimler: Online).

3.2 The Micro Environment: Product Life Cycle

Product Life Cycle (Raymond Vernon, 1966) The product life cycle is a business concept that suggests a product goes through various stages in the course of its life; development, introduction, growth, maturity and decline.

Although there is not a particular product that is being analysed, MB as a brand can still be applied by using the same concept.

Global Brand Value Comparison Chart 2012

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(Interbrand.com) The graph shown demonstrates MB's Brand value 2009-2012 (in red) against BMW's (in grey). 2005-2008 MB was growing rapidly until the recession hit, this affected the buying behaviour of consumers, which was evident as the value of the brand fell in 2009. Since the recovery of the recession MB has been on an uphill ahead of its competitor BMW. This demonstrates that MB is still sitting comfortably in the growth stage of the product life cycle, as the brand value is at its highest of $30million.

3.3

The internal Environment: SWOT Analysis of MB Strengths Innovative/revolutionary; creator of the first petrol powered car • Ranked quietest engine • Hybrid cars • Strong brand recognition and market share • Extensive production and sales network • Strong focus on research and development Opportunities •

• •

Increasing demand for cars in Asia Pacific Posed to benefit from the growing demand for hybrid vehicles

Weaknesses • • •

High costs Product recalls impacting the companies reputation Legal proceedings likely to hamper reputation

Threats • •

Competitive pressure in the automotive markets Stringent environment regulations could increase production costs

Strengths Technological advance over competitors; invented first petrol powered car and also ranked the worlds quietest engine (MercedesBenz: Online). This gives the brand a strong recognition by its consumers and confirms its substantial positioning as a luxurious brand.

Daimler has a strong product portfolio which boasts some of the most desirable premium brands in the world, these include; Mercedes Benz, Smart, Maybach, Freightliner, Fuso, Western Star, Setra, Thomas Built buses and BharatBenz.

Manages to elude low-end consumers with its exclusive perception of high prices and therefore the brands reputation is unscathed.

Daimler also contributes towards research and development on alternative fuels so that future cars are less dependent on fossil fuels, to date Mercedes models all comply with the upcoming standard of the EU's euro 6 emissions standard 2014 and is therefore already ahead of its competitors. This advantage is cost effective, whereas other manufacturers will need to make adjustments to current models, which may compromise the price for the consumers. Time is also invested into developing hybrid cars with a strong

brand presence Daimler has sales networking of 8,252 stores worldwide.

These include destinations such as; Europe, NAFTA, Latin America, Africa, Asia and Australia. This helps Daimler to address demand efficiently to its consumers worldwide and secure a continuous flow of production.

(Daimler:online 2013) Weaknesses The brands reputation was dramatically impacted when a number of models were announced for recalls, due to faults within their manufacturing. With the surprising amount of models and implications, customers began to question the brands reliability, therefore the customer loyalty was at jeopardy. The legal proceedings mentioned in the PESTLE analysis may also hamper MB reputation.

Opportunities Due to the rising concerns of the environment, the demand for hybrid technology cars is estimated to grow over the next few years. Mercedes Benz has already successfully launched a range of hybrid vehicles such as; B-Class F-CELL, A Class E-CELL and s 400 Blue Hybrid. MB existing position within this segment will allow them to gain advantage and increase revenues as the demand grows.

Threats The automotive industry is highly competitive and MB faces intense competition from other automotive manufacturers. Comparable impactions range from the product quality, safety, price, environmental performance and features of the vehicle. MB main competitors that fall within the high range category include; BMW, Audi and Bentley.

3.4 Sources of Cash There are a variety of ways to analyse the cash position of MB, this can be done either through using the BCG model of financial implications or a detailed financial statement published by the parent brand. In this case a BCG model is not necessary as Daimler provides sufficient information on cash flows for the year. Despite research there is no specific cash flow for MB, however as shown in the table below Daimler's cash flow reaches up to â‚Ź11billion.

(Daimlers Annual Report, Cash flows 2012) (Figures shown in euros) This statement helps to support that Daimler is in a stable position to help financially support MB for a brand extension, as the figures show a rise in cash flow from 2011/2012.

3.5 Assumptions: Factors That May Affect the Future Assuming that the trends for hybrid technology will rise dramatically in the future, competitors like BMW and Audi will catch up to MB and adapt their motor vehicles. This will lower MB's differentiation within the market and make it more intense to compete.

4.0 Creative Analysis of MB – Section 1b The creative analysis is aided to help detail the intangible brand values of MB. The Vyses Brand Fingerprint (1999) model is used here to help summarise the characteristics of MB followed by Kapferers Brand Prism (2004).

Vyses Brand Fingerprint (1999)

Kapferers Brand Prism (2004)

Purchasing of volume brands tend to be a rational purchase based largely on

purchase price and running costs, whereas when purchasing a premium brand it is more of an emotional purchase. This derives from the fact that 'brand personality allows a consumer to express his/her self concept or ideal self' (Aaker 1999; Sirgy 1982). Therefore people are willing to pay more money in order to express themselves over whether the product is affordable in price, maintenance and efficiency. Taken from Car Brands report (2009), the key purchasing criteria for a premium brand like Mercedes, ranks style and design over the practicality of the brand, followed by comfort and brand image. This supports the fact that consumers are loyal to the brand and that they value the social and emotional impacts Mercedes Benz brings.

4.1 Brand Personality

Brand Personality Framework; Source: Aaker (1997) By using Aaker's brand personality framework, MB carries different aspects of the framework these include excitement, competence and sophistication. MB is an exciting brand because the it is up to date with technologies and a luxurious brand so gives the consumer a feel of entertainment in comparison to a low range functional car. It is competent as the brand carries a successful and intelligent reputation and finally sophistication, which is, reflected through its high price points of upper-class models. Although some

may argue that Aakers Personality model could include an additional section for technology because since 1997 this sector has advanced dramatically and plays a dependent role in the success of marketing to its consumers.

4.2 Brand Essence of Mercedes; Sounders Wheel

By collectively analysing the characteristics from each model used, have the ability to capture the brand essence of MB. It is essential to audit this throughout so that the brand is able to consistently pass through its values onto brand extensions if it is to attain loyalty and attraction of new consumers, especially when MB relies heavily on emotional purchasing. To summarise the essence and characteristics that are repeatedly recognised of MB include; successful, powerful, stylish, innovative, luxurious, sophisticated and leading class. Therefore it is important that the brand extension acquires these values.

5.0

Justification

Ansoff Matrix

(Igor Ansoff, 1957) The Ansoff matrix is a model that can be used to help define Mercedes market growth and the potential risks that a strategy may expose them to.

This marketing tool is divided into four potential routes a business may decide to take. These include Product development, diversification, market penetration and market development. Product development is the developing of new products in existing markets also known as line extensions.

Diversification creates a new product within a new market, whereas market penetration is the concentration of existing products in their current market segments, and finally market development is the developing of new markets for existing products. A brand extension lies within the Diversification quadrant of the table, this is a risky option for Mercedes as it trying to sell a completely different product in a new market that they currently do not cover, therefore the company will need to adopt new skills, techniques and facilities.

MB can source the finance from parent brand 'Daimler' as their cash flow stands of up to â‚Ź6billion, and if proved successful it can add great profitability and customer growth to the business. It is also less risky for MB to extend a brand over a new business introducing a new product, as its chance of success is approximately four years longer than new businesses, this is mainly based on the power of the MB.

'The reason brand extensions are so powerful is that the new product or service comes with instant credibility and built in endorsement, as the brand has already been accepted and proven in the market place by an existing product or service' (Scott M. Davies 2002)

By using the Kapferers evaluation model allows MB to critically analyse whether the brand extension is worthwhile, why it is relevant, does it give a competitive advantage and whether it damages the parent brand. By extending MB into the Vacuum cleaning industry will help to encourage growth and profitability for the brand. A high end vacuum cleaner that can transfer the current credibility of the brand and inherit aspects such as the 'quietist engine', this will attract loyal and new customers. Consumers then manage to obtain the sleek and stylish bodywork of MB and the quietest sounds by purchasing the vacuum, keeping MB ahead of competitors like Dyson. Other advantages could be related to MB's easy access to ecotechnology, which can be incorporated into the design of the vacuum. The style will fit with the Brands sophisticated and competent personality so therefore does not harm the brands reputation. It is relevant for MB to explore different markets, this will gain revenues for the business which can help support other sectors financially, which can also be referred to as a cash cow within the BCG model of financial analysis.

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