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© Copyright 1997, Christian Benetton, Elkin Fricke, Julie Kesselman, Summer Nasief, Helen Tang

Boston University

School of Management

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Mercedes A-Class: A consumer behavior perspective


HISTORY OF THE MERCEDES A-CLASS

Daimler-Benz initially made the decision to develop and produce a small, compact car three years ago. Since then, it has spent approximately $1.65 billion in the design of its newest product line, the Mercedes A-Class. Unlike the other Mercedes classes currently on the market, this car strikes the consumer as being utterly unique in comparison. At just under 12 feet in length and weighing only 2,200 pounds, it is the smallest Mercedes ever introduced. This new car will revolutionize the perception of compact cars, so say the Daimler-Benz designers. The new design of this car will make it one of the safest compact cars on the road, particularly on the narrow roads of crowded cities in Europe and Asia.

Mercedes is fully aware that in order to maintain the success they currently have, they needed to adapt to both changes in market trends, as well as identify changes in consumers needs and wants. The automobile industry by nature is highly competitive, offering no other option but for car manufacturers to broaden their appeal and venture into unexhausted market segments.

The growth in the overall market for luxury cars is slow, and according to marketers and psychologists, the baby boomers are rebelling against the kind of upper middle-aged lifestyles their parents led (who for the past decade have served to be a prime segment for Mercedes), They are looking to establish their own trends and images, rather than to follow in the paths set by others. They no longer need many of the features to be found in the Mercedes' on the market and are looking for smaller, more compact and practical cars, thereby forcing Mercedes to undergo substantial metamorphosis.

The introduction of the A-Class serves to be an initial step in meeting the change in consumer needs. Mercedes must undertake the change process carefully, avoiding or managing the risk that it may damage the high regard of its brand. The changing of an image so persistently held in the minds of consumers will not be easy. Therefore, Mercedes has created a Five Year Strategy, or goals they intend to achieve in order to broaden their appeal.

The A-Class is specifically designed to target a market that Mercedes has never targeted before. It hopes to capture the young, urban professional market of 30-something singles with either a small family or a two person household. These people would normally have to wait until financial circumstances improved before they would be able to purchase a 'luxury car'. The A-Class is also being positioned as a desirable second car for those who are already Mercedes owners.

However, the car has had to withstand tough criticism from current Mercedes owners and industry analysts. Yet, venturing into this new market does not seem to frighten Mercedes. It predicts the success of the A-Class based on the past successes of smaller cars previously introduced to the market, such as the Mercedes 190 and the C-Class line of automobiles; both which surprised skeptics by becoming huge successes for Mercedes. It has also been continually monitoring changes in the consumer market for automobiles. In an attempt to thwart any ill reaction from the public, it has begun to launch the A-Class marketing and advertising campaigns a year prior to its launch. Mercedes' research has shown that the average buyer contemplates a new car purchase a year in advance as well. By stressing that this car continues to uphold the traditional values and virtues of the Mercedes name, and by limiting A-Class production to only 200,000, Mercedes intends to protect and maintain its exclusive image.

© Copyright 1997, Christian Benetton, Elkin Fricke, Julie Kesselman, Summer Nasief, Helen Tang

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Problem identification


Brand name, brand equity, brand image and brand awareness are the 4B's of the automobile industry from a marketer's perspective. The success of a new product introduction is dependent on the ability of a company to capitalize on these four factors. Competitors in the car industry realize the importance of being able to secure positive images not only about their specific product lines, but also about their company's brand, in the consumer's memory. Positive images are not often easy to achieve and they do indeed have their price.

Companies begin by allocating millions of dollars into research and development in order to determine what qualities and attributes consumers are looking for when they are in the market to purchase an automobile. Additional millions of dollars are then dedicated to the design of creative marketing and advertising campaigns focused solely on highlighting those specific qualities and attributes; thereby enabling a company to create a highly reputable, highly recognizable brand name for itself.

Creating strong brand awareness serves as an effective opportunity for a company to gain entry into a consumer's consideration set, or set of alternatives from which they actively consider during the decision making process. If done correctly, brand name can serve to be a company's most valuable asset, while failure may result in disastrous consequences.

In today's market, consumers are constantly bombarded with phrases such as 'new and improved', 'more added value' or 'changed edition'- words that indicate an automatic need to activate changes in the current perceptions or memories one may have about a certain stimulus. It appears as if these changes, or alterations in the associative network (if positive), are desirable. However, if the new product fails or if the new associations are negative, it could lead to a damaged brand name.

Individual automobile manufacturers long to create series of positive images that are strongly embedded in the consumer's memory in the form of an associated network, or structure of knowledge in a particular domain. However, when any company introduces a new product to the market, whether it be a brand extension or a line extension, a substantial risk is involved. In particular, if this new product is significantly different than the norm of what consumers have learned to expect from the company, serious damage may be inflicted upon the images and associations it has worked so hard to establish.

In the highly competitive automobile industry, Mercedes has undeniably created a firm position for itself. However, what makes this study so interesting is the extensive skepticism the introduction of the A-Class is receiving from critics. They do not appear to have confidence in Mercedes' ability to accomplish such a feat, although it has proven itself as perhaps the most successful automobile manufacturer ever. For this reason, the study of the A-Class is fascinating to all students of consumer behavior.

Both the primary (surveys and interviews) and secondary research conducted attempt to answer three main questions, and explain important relevant concepts from a consumer behavior perspective:

® Will the A-Class change Mercedes' image?

® Will consumers buy the A-Class just for its brand name?

® Does Mercedes have the right target market?

In addition to these research questions, other minor problems were raised. Is the A-Class too much of a deviation from the image that Mercedes currently has? Will it damage the current perception of Mercedes cars? Has Daimler-Benz over estimated the willingness of its customers to extend their attitude by introducing this car? Only time will tell what fate has in store for the A-Class, but the concepts and themes learned from consumer behavior may enable us to provide some indications of the possibilities.

© Copyright 1997, Christian Benetton, Elkin Fricke, Julie Kesselman, Summer Nasief, Helen Tang

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Consumer Analysis


INVOLVEMENT

Whereas some purchases require little to no effort on the consumer's behalf, for most, the purchasing of a car requires extensive problem solving. This means that the consumer places a significant effort into both the identification of alternative criteria, as well as in choosing how to apply them to the purchase process and the purchase making decision.

When the purchase of a product is made on an infrequent basis, such as that of a car, consumers see a great necessity in placing a significant amount of effort into gathering information, researching possible alternatives and applying complex decision criteria. The intensity of this process as a whole varies among consumers, yet is directly related to the high involvement consumers dedicate towards purchasing an automobile.

The factors that affect one's involvement in a purchasing decision can be classified into three specific categories: product factors, situational factors and personal factors.

Product factors include the attributes, benefits and risks perceived in the buying and using of a product. There is a greater need for a higher level of involvement in a purchasing decision when the consumer is able to recognize and identify significant distinctions and differentiations among alternatives. In the automobile industry, these differentiations exist among the various brands of automobile manufacturers, as well as in the individual car models and styles they may offer. Involvement further depends on the perceived risks involved and on the negative consequences that may arise as a result of the purchase decision being the 'wrong one.' These risks range from financial (the loss of money spent, and the money now needed to purchase a replacement), to the failure in the actual performance of the car (the car breaks down or manufacturing defects may lead to accidents), to psychological (the negative effect on one's self image or perceived status).

Situational factors that affect the level of a consumer's involvement are those situational effects that coincide with a particular purchase or usage occasion; implying that consumers will become highly involved with learning about automobiles only when they are in the market to purchase one. For many, the visibility of the car may require adhering to high social pressures and other outside influences.

Personal factors are perhaps the most important in determining the intensity of involvement for a consumer. The personal characteristics of an individual, including the extent of his/her knowledge about an item, innate personality traits and the affect of personal influences tend to dictate the extent to which he/she will engage in the purchasing decision. For example, many consumers create strong associations with their own image to that of a particular product. These people tend to believe that their social acceptance among peers is related to the products they own or the purchases that they make. They may view a car as an object that can enhance their current status level, or project a higher image for them. Therefore, involvement is necessary to ensure that their purchase is the right one.

© Copyright 1997, Christian Benetton, Elkin Fricke, Julie Kesselman, Summer Nasief, Helen Tang

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NORMATIVE INFLUENCE AND REFERENCE GROUPS

According to Bournes (1968) Product-Brand Taxonomy, the purchasing of luxury products that portray highly visible brand names, often reflect a high level of personal influence, predominantly in the forms of reference groups and normative influence (see Exhibit 1). A reference group is any person, or group of people, that significantly influences an individual's behavior by setting the standards and values for how a person thinks and behaves. Consumers, particularly those who are high self-monitors, rely heavily upon reference groups when they believe that the purchase they intend to make will infer a certain image about themselves, or that it may lead to a desired level of social acceptance among them.

The purchasing of an automobile is one in which a peer's opinion, or the image the consumer hopes to attain in the peer's eyes, often determines what brand is actually purchased, more so than the attributes of the car itself. Many consumers look to aspirational groups for guidance. Such groups set norms, values and behaviors that the consumer desires to associate with. Mercedes owners can be defined as such an aspirational group.

The image of Mercedes as a luxurious automobile driven by the wealthy and culturally elite has until now, served to Mercedes' benefit. Research has shown that consumers' images and opinions of Mercedes will indeed change with the launch of the A-Class in either a positive or negative direction. Mercedes realizes that some people may consider this car as an 'inferior Mercedes' due to its small size and relatively inexpensive price tag. It can also be assumed that some potential A-Class drivers might simply desire the higher status appearance. Influential groups might see this as an attempt to convey elite status with less financial investment. While some consumers may continue to purchase the A-Class solely for the three pointed Mercedes star on the hood, Mercedes hopes that the features and attributes of the car will be the primary decision making factors.

© Copyright 1997, Christian Benetton, Elkin Fricke, Julie Kesselman, Summer Nasief, Helen Tang

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ASSOCIATIVE NETWORK

The associative network theory attempts to understand how several fragments of information and concepts are organized within the memory of a consumer about a particular brand. The associative network (memory) is comprised of nodes (concepts) and links (associations between the nodes). When a person is able to conjure strong beliefs and knowledge about a particular brand, a schemata is created which is usually present in those people most familiar with a particular brand. By definition, a schema 'allows a person to screen, code and assess the full range of internal or external stimuli and to decide on a subsequent course of action' (Teasdale, 15). People retrieve information from their long-term memory and apply it in a particular circumstance or a problem solving situation. In addition, schema relates to past experiences held by individuals (see Exhibit 2).

The presence of a large, positive associative network is advantageous in facilitating the speed in which consumers can access the attitudes they have about a stimulus within their memory. In addition, in a society of cognitive misers, the creation of strong associations reduces the cognitive effort necessary for identifying the stimulus.

It is important for a company to understand the associative network that exists in the mind of the consumer not only for its products, but for its brand name as well. This is primarily because consumers may possess a schema for all automobiles in general, while simultaneously having a schema solely for the specific brand, in this case Mercedes (see Exhibit 3).

The current associative network of Mercedes in a consumers mind is both strong and positive. Mercedes has been known for producing very conservative automobiles with classical design and high technology. For over a century, Mercedes has benefited by remaining synonymous with high quality, luxury and value. In fact, surveys have shown that quality is the first attribute that people retrieve from their memory when asked about the name Mercedes (56%), followed by safety as the second highest node, price the third, and comfort forth. These are also the evaluative criteria, or attributes that are most important to consumers when buying a car.

Until now, Mercedes has enjoyed the benefits of an implied relationship between price and quality; although studies have shown that price is more frequently regarded as a signal of quality for frequent, but unimportant purchases for which they do not engage in extensive research. For such smaller, more convenient goods, consumers merely conclude that higher prices equate with higher quality. Mercedes has used this to emphasize that the quality of its cars are worthy of a higher price premium in spite of the high involvement needed.

However, the introduction of the less expensive A-Class may serve to hurt the German automaker, a lower price now implying lower quality. Its current associative network will be distorted because of the introduction of a compact car in a network of luxury vehicles (see Exhibit 4). Carefully managed, however, Mercedes could successfully lead to a much broader associative network of its brand name. This is in the interest of Daimler-Benz' strategy in attempting to appeal to a broader market.

© Copyright 1997, Christian Benetton, Elkin Fricke, Julie Kesselman, Summer Nasief, Helen Tang

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BRAND EQUITY

'Brand equity is a set of brand assets and liabilities linked to a brand, its name and symbol, that add to or subtract from the value provided by a product or service to a firm and/or to that firm's customers' (Srinivas, 244). If either the brand name or the logo was removed from the A-Class, the brand equity will lose value or might even be completely lost. A famous case was Levi Strauss, which tried to introduce a line of upscale suits under its existing brand. Although the brand equity of Levi's was high, it could not encompass the upgrading to a new line extension. The final result was the renaming of the upscale clothing line.

The experience gained by Levi's should make any marketer careful about overestimating the actual brand equity value. Putting the three pointed star symbol on a compact car could be interpreted as a similar mistake to that of Levi's. Consumers may not be willing to accept the new car into their network, thus leading to the rejection of the A-Class and ultimately to the damage of brand equity. For Mercedes, the concept is different than Levi's since Mercedes is primarily introducing the same features of a luxury car in a compact form. Mercedes is downgrading as opposed to upgrading, which is considered to be an easier task (see Exhibit 4).

The majority of survey respondents gave positive feedback about the German company coming out with this new car, further confirming that the launch of the A-Class is the right decision. It would be beneficial for Mercedes to incorporate and use its well-established brand name instead of creating a new one. The cost of introducing this car under a different brand name would be much higher than the ultimate damage that might reflect upon the existing brand equity of the firm. Daimler-Benz will benefit by introducing the A-Class with the star symbol because it adds substantial value to the product.

© Copyright 1997, Christian Benetton, Elkin Fricke, Julie Kesselman, Summer Nasief, Helen Tang

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BRAND IMAGE AND NAME

'When it comes to consistently promoting unique positive automotive imageries, there are few makes that have approached Mercedes' success' (Sicilliano, 4). Mercedes has indeed perfected the art of creating a continual image of quality, safety and refinement for its automobiles, as well as its company. In fact, the Mercedes three pointed star, is 'the quintessential prestige symbol- one of the world's most recognizable and respected' (The Financial Times, London Edition, 15).

Brand image plays a dominant role in the automobile industry and is defined as the consumer's image of the company, the image of the user, and the image of the product. Brand image for Mercedes-Benz can serve to be an extremely important asset, especially when the words automotive transportation tend to conjure thoughts of makes, models, domestics, imports and features in the mind of the customers. Mercedes-Benz is renown for offering the core benefits of safety, comfort, and reliability in its cars. Many consumers perceive Mercedes owners as well-educated and wealthy people who usually have reached a mature age. Research has shown that Mercedes is overwhelmingly associated with quality. Other associations made with Mercedes are luxury, prestige, safety, and high price. The Mercedes brand name excels in the field of creating and maintaining an austere and prestigious brand image. In today's market, a brands performance is not solely indicated by its sales levels, but by the image, reputation and perceptions the brand illicit. In Total Research's EquiTrend surveys of 1995 and 1996, 163 popular brands were ranked on an eleven point scale, ranging from outstanding to unacceptable in regards to perceived quality. In both studies, Mercedes yielded results of the highest perceived quality-above, among others, BMW, Disney World and Durasell (Dempsey, 25).

Brand name awareness is a gateway for entry into consumers' consideration set. A well-known brand name enhances initial reaction, interest, and willingness to consider or try the product. The use of Mercedes' well-recognized brand name on the A-Class will automatically provide name recognition and reduce the communication task which will in turn lead to lower marketing expenses. Many consumers use brand name as an important evaluative criteria and as an indicator of quality. A field study conducted using brand name as a variable on an otherwise identical questionnaire resulted in a higher perception of quality when shown as a Mercedes rather than a Volkswagen (see Exhibit 5). Consumers are motivated by brand name when it is seen as a status symbol. This is even more the case when the product is very complex or technologically sophisticated.

When buying a car, consumers also take into consideration factors such as price and safety. Mercedes can take full advantage of these and other criteria in its advertisement strategies. Price for example, is a criteria that often implies quality. The consumer may also consider evaluative criteria more hedonic in nature, such as the feelings that come from owning it (prestige and status) and driving (exhilaration and excitement). Advertisements can take advantage of affective responses such as these.

Brand name is also based on attitude level. If attitude as such is computed from specific attributes of the extension (compact, fuel efficient), it is called a piecemeal or analytical evaluation process (Boush, 18). A different method used to describe the ways in which attitudes are formed utilizes the categorization model, which attempts to conclude if a new instance (the A-Class) is identified as belonging to a defined category, whether it be that of luxury cars or Mercedes as a brand (see Exhibit 6). If this is the case, the attitudes currently associated with that category, such as quality and safety, can be transferred directly to the new instance (A-Class). This holds true as long as the perception of that object fits properly into the category of the brand (Fiske, 171). Both models should not be thought of as mutually exclusive, rather as complementary toward one another.

© Copyright 1997, Christian Benetton, Elkin Fricke, Julie Kesselman, Summer Nasief, Helen Tang

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BRAND EXTENSION VS. LINE EXTENSION

Due to increased competition, companies have been using their established brand names in order to easily enter new markets. One approach is line extension while the other approach is brand extension. A line extension is a continuous innovation that extends an existing product line by introducing a new flavor, size or form. Line extension occurs when a current brand name is used to enter a new market segment in its product class (A&K, 27), for example, Marlboro Lights cigarettes and Miller Lite beer. Brand extension exists when an established brand name is used to enter a different product class, examples include Ivory shampoo and Milky Way ice cream (Reddy, 7). With the new A-Class, Mercedes is opting to follow a line extension approach, or as they refer to it as horizontally diversifying.

Even though extensions are ways that enable companies to enter new markets and attract more consumers, they may not necessarily be successful for all companies. With extensions, companies face the danger of damaging their image by creating new associations and/or by confusing current ones. Unsuccessful extensions can dilute brand names by diminishing the favorable attribute beliefs that consumers have learned to associate with the parent brand name. However, studies have shown that the dilution of a less distinctive attribute belief (quality), that is associated with a parent brand name would be less affected than a very specific and distinctive attribute belief (gentleness). Therefore, it can be inferred that even if the A-Class were not to meet its projections, Mercedes' image of quality would not be severely changed.

Customers evaluate the new product of a line extension as being either desirable or undesirable based upon whether or not they tended to like the originating brand and 'whether the new product is representative of, or similar to, the brand's current products' (Boush, 18). Although the A-Class does not fit completely into the product category currently offered by Mercedes, particularly the category of luxury cars, the core product (the automobile) remains constant. Only the attributes describing the automobile have changed. Therefore, it can be concluded that the introduction of the A-Class is better defined as a line extension, rather than a brand extension. Research has proven that the 'more similar an exemplar is to a prototype of the category, the more quickly it will be judged as a member of that category' (Boush, 18). It can be concluded that Mercedes will have to make the A-Class appear to be a better fit than it actually is, perhaps by portraying it as a ëluxury' compact car.

© Copyright 1997, Christian Benetton, Elkin Fricke, Julie Kesselman, Summer Nasief, Helen Tang

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THE SUCCESS OF A LINE EXTENSION

Line extensions attempt to capitalize on the awareness of the parent brand and on those associations already linked to the parent brand in the mind of the consumer (A&K, 31). The strength of the parent brand and its symbolic value are contributing factors that lead to the success of line extensions. Brand strength is based upon the brand equity and the perceived quality of the brand. Mercedes is highly regarded for its technology, quality, safety, comfort, and reliability.

Symbols, or brand associations that consumers have in their memory, play an important role in the evaluation of a product during the purchasing decision. Extensions of symbolic brands are able to gain greater leverage from their parent brand than nonsymbolic brands (Reddy, 9). When consumers are asked to envision the three point star, the associations they make include quality, prestige, and luxury. By placing the star on the front of every A-Class automobile, Mercedes feels that it will successfully adhere to the image the star has created for over a century.

It is well-known that perception of quality is harder to deliver than quality itself. It has been proven in the automotive industry that the perception of quality is a key factor that determines consumer buying decisions. In the US, Honda has come to be seen as a leader in the compact car market. One of its biggest success factors in that market is the perception that the consumer holds in association with quality of the brand name. Other competitors have tried to enter this niche market that Honda dominates and have been unsuccessful. Ford, GM and Chrysler have had to discontinue and reengineer their compact car lines due to consumers' misperceptions of the quality offered in their products. This has made it an uphill struggle for car manufactures to gain some of the market share that Honda so securely holds.

© Copyright 1997, Christian Benetton, Elkin Fricke, Julie Kesselman, Summer Nasief, Helen Tang

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CONSUMER EVALUATIONS OF BRAND EXTENSIONS

In Aaker and Keller's (A&K) 1990 study (given support by Bottomley and Doyle in 1996), the majority of A&K's hypotheses about how consumers form attitudes towards brand extension proves that consumers' attitude depend on both quality of the parent brand as well as the degree of fit. B&D found that the exception to A&K's original hypotheses is the degree of difficulty associated in designing and manufacturing the extension product class.

Studies have shown that consumers base their evaluations on two factors, the product feature similarity that exists between the new product and the products already associated with the brand and concept consistency between the brand concept and the extension. When a brand's concept is consistent with those of its extension products, the prestigious brand seems to have a greater extendibility to products with low feature similarity than the functional brand does (Park, 1991). In other words, Mercedes has a higher opportunity for success of the A-Class even though it is grading down due to the level of prestige the company holds. The feature similarity Mercedes is adding to the A-Class is that the car encompasses all of the company's high quality attributes, thereby giving the A-Class resembling features to the parent brand.

Over the past several years, Mercedes' goal has been to make the three point star relevant to new generations by extending their line to recreate brand loyalty. It is taking a generic need (I need a car) and turning it into a specific want (the A-Class is the car for me). Mercedes wants to appeal to consumers at an earlier, less affluent age and build a strong sense of loyalty among them, so that when these consumers become wealthier they will remain loyal to the Mercedes brand and buy the more luxurious models.

The compact A-Class deviates from the traditional reputation Mercedes holds in the category of luxury cars. With the innovative design of the A-Class, Mercedes is posed with the problem that negative associations may be linked to their brand name. Mercedes first began extending their line of automobiles with the introduction of the less expensive C-Class in 1993. The C-Class is a prime example of how line extension has succeeded in helping Mercedes expand its market. The A-Class is yet another attempt, although its unconventional and innovative design poses a challenge for Mercedes. The company wants it to result in a broader perception of all its cars in the minds of consumers, while holding to the core benefits of safety, comfort, and reliability.

Survey results show that 56% of respondents answered that their images of Mercedes would indeed change with the introduction of the A-Class. This is because the car is inconsistent with the images and associations they currently have in their memory regarding Mercedes. The reasons for these changes in Mercedes' image stem from the fact that consumers have learned and become accustomed to associating Mercedes cars with higher prices, ownership by the elite, upper classes and being more prestigious than others. However, the consumers' change of their images will not necessarily damage Mercedes' name. Should consumers react in a positive way to the introduction of the A-Class, their views of the Mercedes company may broaden in the same direction. They may come to see Mercedes as a company trying to accommodate a wider array of the market, not only the rich. They may also feel that it is long due that a prestigious car company create a car which upholds the highest standards of quality, safety and comfort at an affordable price. Images of prestige and luxury will remain, but share the spotlight with newer images of affordability and practicality.

© Copyright 1997, Christian Benetton, Elkin Fricke, Julie Kesselman, Summer Nasief, Helen Tang

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DIMENSIONS AND DIFFUSION OF INNOVATION

There are two dimensions of innovation necessary for consumers to complete the purchase process- technological changes and behavioral changes. In the case of the A-Class, both dimensions are included. Behavioral changes are driven by overcrowded cities and by the tendencies of consumers to be more environmentally friendly each becoming more evident in Europe and Asia. These factors have lead to the development of a compact car equipped with safety standards identical to that of a full sized luxury car, with low emission statistics and high gas mileage. The introduction of the electric version of the A-Class by the year 2000 can be attributed to needed discontinuous innovation on the part of Mercedes.

Mercedes must remember that it is now entering a market in which its brand equity does not transfer completely. Innovators will play a crucial role during the initial phases of the diffusion of innovation (process by which a new product spreads through a market). Mercedes must wisely utilize several other ways of increasing the diffusion of its new product. Correct management of word-of-mouth, as well as the winning over of opinion leaders will be important aspects in the introduction of this car. Mercedes understands this well for it has designed the ëA-Motion' tour around Europe to create awareness of the new product and assist in taking the ëoddness' factor out of consumers minds. In addition, Mercedes must be prepared for a strong PR battle in order to turn their media critics into spokespersons for the A-Class. This will be difficult because the majority of them have voiced disapproval about the idea of this product line.

Mercedes actually launched its advertising campaign a year prior to the introduction of the A-Class because research showed that consumers started their consideration of brands to be purchased a year in advance. The A-Motion tour is designed to stress the car's affordability (to avoid price misperceptions) and to play on consumers emotions and feelings.

© Copyright 1997, Christian Benetton, Elkin Fricke, Julie Kesselman, Summer Nasief, Helen Tang

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ROGERSÍ MODEL OF ADOPTION

As for any new product introduction, the adoption process is of great importance. Rogers' Model of Adoption asserts that consumers first enter the knowledge stage where they gather information, then enter the persuasion stage where the consumer forms attitudes, and then follow into the decision stage.

Mercedes must pay close and careful attention to the first two stages. It is very important for consumers to be educated about the A-Class' features. Mercedes must also be able to induce them into forming good attitudes toward the car. The decision stage in which the customer makes a mental choice of products is difficult to influence. However, the implementation stage should be feasible for Mercedes by allowing customers to actually test drive the car. One can assume that once customers have felt the comfort and quality offered by the A-Class, they will perceive all competing compact cars as less attractive, thus placing more value on the A-Class.

Once customers have made up their minds, they will enter the confirmation stage, where they move from trial to adoption. Here, Mercedes identifies a big opportunity to create brand loyalty, since it expects that the quality of the A-Class will lure consumers to purchase a full sized Mercedes-Benz later in life. (see Exhibit 7).

© Copyright 1997, Christian Benetton, Elkin Fricke, Julie Kesselman, Summer Nasief, Helen Tang

ADOPTION RATE

There are five factors believed to increase the rate of adoption of new products. Mercedes must stress the relative advantages of the A-Class in order to separate the car from others in the mind of the consumer. Mercedes has an obvious advantage in this field since the A-Class not only offers the features of other compact sized cars, but includes luxury extras.

The A-Class' incompatibility with the existing backgrounds and behavior of consumers presents difficulties for the A-Class. The Mercedes brand, though it adds substantial value to the car, creates more expectations about the car's performance than it may actually deliver. The associative network, as previously stated, will change to reflect differences between the existing knowledge of the brand and the features of the A-Class..

The ease in which the A-Class will be used and understood should not be of concern to Mercedes. However, consumers in its new target segment may not value the extra features that tend to only be available in a full sized Mercedes. Proper advertising should emphasize these added luxuries, comparing them to those not offered by major competitors.

The ease with which the product can be tried becomes an issue with cars in general. Test driving tends to be of high importance because of the high involvement needed when purchasing a car. Unlike perishable items, cars cannot be bought simply to try them.

Quality and safety are both intangible attributes, making the actual observability of them in the A-Class virtually impossible. The Mercedes brand name will add value, since according to consumers it tends to imply both of these attributes. Therefore, Mercedes will have to educate potential customers on these unobservable features.

© Copyright 1997, Christian Benetton, Elkin Fricke, Julie Kesselman, Summer Nasief, Helen Tang

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RECOMMENDATIONS

By researching and analyzing several aspects of consumer behavior, in particular reference to the introduction of the A-Class by Mercedes, several conclusions and recommendations can be made to the Daimler-Benz company.

Based upon extensive primary and secondary research, the introduction of the A-Class should serve to be a successful one for Mercedes. The car has been correctly targeted in Europe and Asia because of the wide market opportunity that exists there. In addition, the small A-Class perfectly fits into the crowded streets of cities on both continents. 'Mercedes-Benz is planting its own marker on where it thinks some of the solutions to urban transportation problems might be found' (Griffiths, 15).

Research supports Mercedes' initial intention not to sell the A-Class in the United States due to the different perceptions of compact cars. In the United States, bigger cars are perceived as better than smaller ones. In addition, Americans continue to perceive the Mercedes as a luxury car while in Europe and Asia it encompasses a more affordable, quality oriented status. Moreover, automakers have not been able to sell their small cars at the same price ratio of their counterparts; forcing them to sell smaller cars at lower prices, reducing their profit margins.

However, the middle class urban professionals, either single or with a small family, should not be the only target segment for the new A-Class. Surveys and interviews identify a different potential market of 40 year old housewives looking for a second family car.

Mercedes should keep its brand name on the A-Class for several reasons. The three pointed star substantially adds value to the A-Class outweighing the costs it might inflict upon brand equity. If either the logo or the Mercedes brand name was taken away from the A-Class there would be substantially fewer reasons for people to purchase it. The brand name adds value to the product and not vice versa.

Brand equity is another reason Mercedes should keep its brand name on the A-Class. As a company so well-established and widely known, it would be very expensive for them to create a new brand with its own brand equity. Mercedes cannot disregard the brand equity because of its strength. In addition, survey respondents reinforced existing studies on this subject, as current Mercedes owners did not show any negative concerns about the introduction of the A-Class.

Another important concept that Mercedes should take into consideration and use to its advantage is relationship marketing. Survey research has shown that salespersons are the last factor influencing the consumer's purchase decision, while the most important are family, friends and magazines. Society has created an image of the salesperson as being deceitful and conniving rather than as credible and friendly. The Daimler-Benz company should try to change this image of them through advertising and training. Associations of knowledge and credibility must be made with the salesperson, every time a consumer is inclined to make a purchase.

Taking these recommendations into account will enable Mercedes to establish a niche for the A-Class in the compact car market.

© Copyright 1997, Christian Benetton, Elkin Fricke, Julie Kesselman, Summer Nasief, Helen Tang

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