Mercedes-Benz moves into electric using the ‘half-pregnant’ EQ sub-brand approach. The company misses the point that buyers first and foremost need portfolio clarity.
Whenever there are ground-breaking developments, the incumbent businesses need to watch out. Category shifting breakthroughs are most of the time developed by new companies. They can be so impactful that complete new categories are established and make today’s brands look old and obsolete. Bad news for existing brands!
In the past, we saw it was Nokia versus iPhone, and today it is in the car business Tesla versus the rest. It was not Mercedes-Benz who established the new electric car category globally – it was Tesla. Interestingly, it was Karl Benz who invented the first gas-powered automobile already in 1886. Quite a few years later, in 1901, the Daimler Motors Corporation began selling cars.
Often when a category shift happens, and your brand represents or is a significant player in the old category, the brand will eventually follow the faith of the category. As a brand owner, you need to do everything you can to prevent a downfall.
At Mercedes-Benz, they saw the change to electric coming as well. The company was clearly not ready, and it took time to adapt. For the company, it was vital to continue selling the old gasoline cars to not go out of business. The ‘half pregnant’ business strategy translates directly to the product portfolio strategy. The current Mercedes-Benz portfolio visualizes a company in transition, and it is far from the Mercedez-Benz slogan “The Best or Nothing.”
Look at the entire portfolio as presented on https://www.mercedes-benz.com/en/ and ask yourself:
- what is the car type? (small family, business, SUV, etc.)
- what is the ranking of the car inside the overall portfolio (good, better, best)
- what are the electric cars
- what do all the letters and combinations of letters mean?
None of it is clear.
To make things worse, Mercedes-Benz applied a strange form of sub & endorsed branding with the electric range.
Headlines in car magazines said “Mercedes-Benz’s EQ Sub-Brand Aims to Launch a New Electric Model Every Year” (Car and Driver in 2016) or just as recently as 14 Oct 2021 “Mercedes EQ subbrand to launch in U.S. with electric variant of S-Class sedan” (Automotive News).
What happened at the marketing department at the Mercedes-Benz headquarters? A sub-brand, really? Master-brands and sub-brands are all marketing talk, and they do not exist in the buyer’s mind. People are not shopping for sub-brands or master-brands. They shop for brands and might look for a product within a range.
The basic rule is that people think and buy in the following order:
Brand -> Product range -> Model
not Brand –> Brand -> Product range or Model
It is Mercedes-Benz (brand) -> EQ (range) -> Model
and not ‘Model by Range’ as the Mercedes-Benz Me Lifestyle magazine wants the reader to believe.
So what could Mercedes-Benz have done differently? There would have been two ways to transition the company Mercedes-Benz into the new category or electric.
1. Conquer and Switch
The Geely Holding / Volvo Corporation strategy. The company repurposed the Polestar brand for just electric cars to compete (conquer) in the electric car segment, while Volvo can switch to electric at its own pace. For the Mercedes-Benz Company, a new brand (not EQ!) would take on electric while Mercedes-Benz could transition at its own pace.
2. Fix the portfolio outside-in and Switch
Let’s face it; the current portfolio is a complete mess with cars inside and outside classes (ranges). This does not help navigate the portfolio and does not help buyers relate or understand the order in the portfolio.
Mercedes-Benz should first create ranges that make sense to the buyer or already have meaning, like the A, B, C, G, M, S and V class ranges. Then slot all cars inside the ranges. No exceptions.
The GLB would move into the G class, and so would the electric EQB. To create clarity, the car model would be renamed GLB EQ.
Then the brand can Switch at its own pace into electric, eventually letting go of all the gasoline models.
Mercedes-Benz in executing a Switch strategy without clarifying the portfolio to buyers. At this stage option 2 is the route to go. Does it come without risk? Not at all. It is all about the ‘old’ gasoline car brands versus the ‘new’ electric car brands in a category shift. To compete in electric, Mercedes-Benz will need to be more convincing in the buyer’s mind than the perceived leader in electric. This means that when a consumer is in the market for an electric luxury SUV, the Tesla Model X has the leadership perception in terms of the technology over the Mercedes-Benz EQC. Internally there will be a division between those who work on the cool new models and those who need to maintain the old – till the last old gasoline car is sold.
Generally the Conquer strategy is the safest and cleanest route to execute company transition into electric. The Switch strategy involves perception risks and can be complicated to execute internally.