German automotive heavyweight Mercedes-Benz recently announced it will move to a fixed price agency model in Australia.
Mercedes will be the second brand Down Under this year to confirm it will transition to an agency system after Honda also committed to the model earlier this year.
This isn't a new process, we have seen Tesla operate with a fixed pricing structure, although it doesn’t contract delivery and aftersales out to a dealer network, instead, the US marque manages its boutiques and service centres which interact with customers after purchase.
Mercedes-Benz Australia has dipped its toe in the water with its first all-electric vehicle, the EQC 400, which is sold directly to customers via an online sales portal at a fixed price.
So will applying the same philosophy across its entire portfolio push keen negotiators into the arms of rivals?
We suspect Mercedes will shed customers if it doesn’t realign its pricing structure to ensure the deals are sharp. Those who are shopping in the premium segments or those who have done so previously know the mark-up on the majority of these models is substantial. Dealers have room to manoeuvre in the pursuit of a sale, to an extent, we regularly encounter evidence of buyers securing discounts of up to 20 per cent from premium marques. Very few pay the price on the sticker.
As Mercedes-Benz has grown its sales in Oz, it has increasingly acted like a mainstream brand chasing numbers often with aggressive discounting. The strategy has been a successful one, Mercedes has become so popular it regularly features in the monthly top ten brands in terms of volume.
It’s unlikely Mercedes will realign pricing to fend off its rivals as, under the agency model, the brand would only be making the switch to improve the revenue column on the balance sheet. Compounding this, Mercedes will own the stock instead of the dealers effectively removing one aspect that motivates dealers to move metal.
According to Mercedes, the change is designed to “improve the customer experience”. We’re not sure how identical pricing across all dealers will achieve this.
While it can occasionally be difficult, the current system of dealers acting autonomously allows them greater freedom to negotiate. Adhering to fixed prices will handicap Mercedes dealers when trying to sway those cross-shopping models from BMW and Audi.
If BMW dealers are willing to discount a 3 Series, but Mercedes salespeople are tied to retail pricing on the C-Class, the three-pointed star is going to lose some of its luster. For some buyers, the right deal is almost as important as the right car.
Tesla has enjoyed a good run with fixed pricing because it had something unique, something no brand could match. That’s an advantage Tesla won't hold forever though, in time, rivals will be pushing Tesla to sharpen its pencil.
Despite the badge, premium brands have grown to the point of acting in concert with the wider market. Brand’s that are successful here rely on dealers finding the right deal for their customers. Stepping away from the established practice won't be easy.
Those who have enjoyed generous discounts on previous purchases will find the new paradigm untenable. Knowing Mercedes dealers won't have any wiggle room on price will have an impact on sales, especially for those suited up in rival showrooms.