Tuesday, 19 June 2018

Mercedes Collection subscription program undercuts BMW, Cadillac on price


Exler: Right car at the right time

Mercedes-Benz may be late launching its vehicle subscription service, but it’s making up for it with a shocker of a sticker price. Starting at $1,095 per month, Mercedes undercuts by half similar programs from BMW and Porsche.

Mercedes’ program, the Mercedes-Benz Collection, gives subscribers access to 30 model variants for a monthly fee, which includes insurance, 24/7 roadside assistance and vehicle maintenance.

The subscription program allows “our customers to drive different vehicles for different occasions,” Mercedes-Benz USA CEO Dietmar Exler told Automotive News. “It provides the luxury of having the right car at the right time.”

Automakers are experimenting with subscription programs in a nod to changing realities. Rapid technological advancement, coupled with the emergence of affordable and abundant ride-hailing services, has pressured the traditional car-ownership model.

Instead of forcing consumers to buy one vehicle for every driving need, subscription programs let customers select vehicles for specific occasions — an SUV when extended family is in town, a convertible for a weekend getaway or a compact for the downtown commute.

Mercedes-Benz USA and the brand’s financial arm, Mercedes-Benz Financial Services USA, jointly launched the two-year pilot in Nashville and Philadelphia.

Mercedes’ subscription program has three tiers — Signature, Reserve and Premier — with prices ranging from $1,095 to $2,995 a month. In comparison, BMW’s program — which has also picked Nashville for a pilot — ranges from $2,000 to $3,700 a month, while Porsche’s service ranges from $2,000 to $3,000 a month. Cadillac’s single-tier program costs $1,800 a month.

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Mercedes’ subscription program is priced to drive adoption and “attract people to the brand,” said Akshay Anand, executive analyst for Kelley Blue Book.

“It’s about accessibility,” Anand said. “As we see more and more subscription plans released, you’re going to see lower and lower price points.”

‘Really hot market’

Mercedes spokeswoman Donna Boland said the pricing is intended to achieve the “greatest levels of consumer acceptance at multiple price points.”

“We performed our own independent pricing and market analysis,” she said. “This included financial modeling, balanced with consideration of customer demand, and vigorous vetting with our dealers.”

Mercedes-Benz Collection subscribers pay a one-time activation fee of $495 and can choose from SUVs, crossovers, sedans, coupes, convertibles, roadsters and wagons. Each tier also allows access to the company’s high-performance Mercedes-AMG models.

Mercedes decided to pilot the subscription program several months ago — and before BMW announced its plans to also offer its subscription service in Nashville.

The city is “a really hot market right now in terms of homebuying, development,” Boland said. Nashville has “some of the highest job growth in the country and a growing number of young, affluent buyers with whom subscription services are very popular.”

Subscribers use a smartphone app to access any type of vehicle within their tier with no mileage limitations. Vehicles are delivered by a concierge service.

Clutch Technologies, of Atlanta, has developed mobile apps that power several vehicle subscription programs, including those of Mercedes, Porsche and BMW. Clutch uses predictive analytics to help the automakers plan vehicle inventory and mix. Algorithms also recommend new vehicles to members based on their usage pattern.

The subscription model doesn’t work if vehicles aren’t turned over frequently, said Clutch Chairman Tripp Rackley. Without vehicle churn, the automaker would have to stock large volumes of each model variant making the program too expensive, Rackley said.

For automakers, subscription programs are a way to lure new customers and encourage existing ones to upgrade models. “There will be customers who will test five to 10 vehicles and then decide to buy one model,” Exler said.

Subscription programs offer automakers a solution to a conundrum: As vehicles get more reliable, the replacement cycle gets longer.

“Automakers are looking for different ways to cycle people through products, while maintaining profitability,” KBB’s Anand said. “Subscription programs are another potential revenue stream. It’s like a lease on steroids.”

Profitable?

Mercedes is limiting its pilot to about 70 members in each market. Demand is five to 10 times that, Exler said.

Mercedes expects members to change vehicles two to three times a month and will have an inventory of about 100 vehicles in each market at any given time.

“We will actively suggest customers try our new vehicles” Exler said. “It would be easier for us operationally if you just drive the same car all the time, but that’s not fun.”

Mercedes expects the subscription program to reach profitability in 12-18 months as the automaker fine-tunes the business model and optimizes the number of vehicles.

“In the first six months, with the high number of vehicles, it’s almost impossible to be profitable,” Exler said. “It’s more important in the beginning that we deliver the right service.”

Mercedes dealers are an integral part of the subscription program, overseeing vehicle delivery and service. Dealers will get paid to provide the concierge service and do warranty and repair work on subscription vehicles. Dealers will also get first dibs on retired program vehicles.

“It’s important that the program makes economic sense for our dealers,” Exler said. “If not, it wouldn’t have a future.”

Mercedes declined to say when and where the subscription program might expand beyond the initial markets.

Exler said the success of the subscription program begins and ends with the customer.

“We want to excite our customers,” he said. “Nothing else matters as much.”



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