Mercedes Executive Expects Luxury Market to Rebound but Marketers Need to Align With a New Consumer Mindset

MONTVALE, NJ - October 16, 2009: With $11 trillion in wealth lost during 2008 and corresponding reductions in net worth and assets among affluent consumers, luxury marketers are confronting the biggest challenges they've faced in decades, said Mercedes-Benz USA (MBUSA) vice president of marketing Stephen Cannon during an address to the International Advertising Association (IAA) this week.

Cannon said that, despite the reduced-volume marketplace, MBUSA has managed to increase its market share and awareness but not without some sacrifice. Working under the mantra of "a crisis is a terrible thing to waste," Cannon told the group that MBUSA has realigned its marketing efforts to achieve greater efficiency and effectiveness while increasing its share of voice by more precisely targeting the selective, value-conscious consumers who need ammunition to justify making a high-dollar purchase during challenging economic times.

"Having the advantage of a strong brand, the recipe for us is pretty straightforward," said Cannon. "Focus on your core values, connect your brand story to consumer needs and try like crazy to resist the short-term temptation of discounting and sales events that might move the sales needle, but could also do lasting damage to your brand."

Cannon cited examples of how MBUSA has responded with its advertising and marketing initiatives. On the advertising front, MBUSA opted to launch its new 9th generation E-Class at the end of June not by showcasing the new E-Class's price advantage over its predecessor, but rather by highlighting heritage, its suite of new safety technology, its engineering innovation and design. "The campaign rated higher than any other advertising in the marketplace. It clearly stood out and got people's attention." New spots for the company's C-Class and GLK models continue in this vein by touting the safety technology and engineering innovation that have earned Mercedes-Benz its reputation as a solid investment over the decades.

The New Consumer Mindset
Cannon said that the extraordinary growth in the luxury market over the past decade, as well as the current environment that confronts the luxury market, are a result of significant shifts in the consumer mindset. He attributed growth over the past decade to two consumer driven phenomenon: "rocketing" - where a consumer spends a disproportionate amount of income on a product or service that is important to him or her - inflating the low end; and a "status arms race" - where the higher echelons of affluent consumers vie to differentiate themselves - driving the high end.

While both these trends have temporarily "run out of fuel," Cannon says that luxury buyers are still spending but they are being more selective and spending in fewer categories.

Based on information from its online owner community "MB Advisors," Cannon said that Mercedes buyers are employing a myriad of "coping strategies," including scrutinizing expenses and consumption as never before, taking tighter control of household finances, staying home more and eating out less. Anecdotally, Cannon said, "One of our owners has adopted what she calls her '24-hour rule.' She still loves to shop but she waits 24 hours before she buys, which is her cooling off period. Most times, she doesn't go back." The surprise finding? "Many of the members of our community report that they're feeling more empowered - even somewhat happier - by virtue of getting more control over their finances and prioritizing what's important. They've taken the worst that the economy can throw at them and have gotten through it."

A New Marketing Mindset
In much the same way that consumers are being more selective in their consumption, MBUSA is being more selective about how it spends its marketing dollars and has done "spring cleaning" within its marketing portfolio in favor of "fewer, better things." Cannon explained that significant changes have been made in its events portfolio, culling out some sponsorships while realigning others, resulting in a higher return on investment for marketing events. The company's events sponsorship revolve around concours events (Amelia Island, Pebble Beach), sports marketing (PGA) and fashion (Mercedes-Benz FashionWeek) all of which highlight brand values and have strong lifestyle intersects with Mercedes buyers.

"All in all," Cannon said, "This careful culling means that at a time when many marketers are cutting back on their marketing spend, we're as visible as we've ever been. The increased visibility builds confidence with our dealers - the front line people as far as our customers are concerned -- who are enthusiastic that we are on offense when so many in the industry are playing defense.

"At the end of the day, it comes down to using the crisis as an opportunity to hone and build on what is at the heart of any luxury enterprise," said Cannon. "Strengthening the brand, building up the rapport between the customers and the brand, and communicating the brand attributes that motivate people to buy."