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From Automotive News:

How Mercedes slid the CLA below $30,000

U.S. team worked 3 years to win over the brass in Stuttgart

By: Diana T. Kurylko
Automotive News -- March 4, 2013 - 12:01 am ET


As Mercedes-Benz's U.S. marketers brainstormed in 2009 about how to attract youthful buyers with a compact sedan then being developed, it quickly became clear what they needed most -- an un-Mercedes-like sticker price.

Something, say, less than $30,000.

That's what the marketing team wanted and that's what it got for the front-wheel-drive CLA that arrives in showrooms this fall. But it meant jumping through a series of hoops to persuade Daimler executives in Stuttgart.

"From our earliest product concept, when they asked us, 'Where does it need to be?' we always said $29,900,'" said Steve Cannon, CEO of Mercedes-Benz USA. "We wanted to shock people."

And that's pretty much what they did last month in a 30-second Super Bowl commercial that proclaimed the price in big, bold numbers.

Still, it was a three-year effort to get Germany to agree not only to price the sedan at $29,900, before the $925 shipping charge, but to announce the price so long before it goes on sale in September.

"It was a phenomenal accomplishment that we ended up with the pricing we asked for," said Cannon, who was head of marketing when discussions on the subject began in July 2009.

"Germany knows we are trying to open our brand and we are trying to get younger buyers," he said. "You can have great styling that speaks to them. But if you do not bring your transaction price to the point where they can reach your brand, you aren't going to accomplish your objective."

The CLA, a sedan with coupe styling, is the first of three compact fwd vehicles that Mercedes will offer in the United States. The GLA compact crossover goes on sale in August 2014 and the B-class electric sedan debuts in early 2015.

But the CLA is regarded as the halo car at the bottom of its range.

"We said, 'Here is the opportunity with one car to redefine the perception of the Mercedes-Benz brand,'" Cannon said. "People always put us up into this stratosphere. We are associated with the S class and heads of state."

U.S. team members knew they needed a significant price gap -- at least $5,000 -- between the CLA and the C-class sedan so there would be no cannibalization, said Bernie Glaser, Mercedes-Benz USA marketing boss.

The 2013 C250 sedan, Mercedes' current U.S. entry car, is priced at $36,275, including shipping. Typically equipped, the average transaction price for the C class tops $40,000, Glaser said. The average C-class buyer is 51 years old with a household income of $137,000.

With the CLA, Mercedes wanted to aim at 30- to 40-year-old buyers.

In 2010, a few influential U.S. dealers were flown to the Mercedes design studio in Irvine, Calif., for an early look at the CLA. It was unusual for Mercedes to let dealers see a product so early but management wanted their support in the pricing talks with Germany.

Getting dealer input
The feedback we got was that Stuttgart was concerned about cannibalization of the C class," said Joseph Agresta Jr., president of Benzel-Busch Motor Car Corp. in Englewood, N.J., and chairman of the Mercedes dealer council. "There was always a concern about dilution of the brand."

He said the dealers "all agreed the [lower] price point was not an issue for us."

But the dealers wanted the CLA to come standard with advanced safety and collision-avoidance features, a luxurious interior and the latest entertainment and communications system, Agresta said. The ability to go online and link smartphone applications is especially important to the young buyers Mercedes was targeting, he said.

For nearly two decades, Mercedes-Benz USA had rejected selling the small European A and B class in the United States. But with Mercedes' new generation of fwd cars, the U.S. executives felt they had stylish vehicles that would appeal to Americans.

Still, Cannon and his team had plenty to do. They had to show Stuttgart that a lower entry price would bring in more buyers and retain them as their income grew.

Cannon shot down concerns about customer loyalty by citing the numbers. Mercedes' loyalty rate was 58.6 percent last year, the highest among luxury brands, according to R.L. Polk & Co.

He said much of the back-and-forth with Stuttgart dealt with the price needed to attract a certain volume. But with the CLA "there was also a brand discussion -- the brand opportunity."

The U.S. team had something else going for it: The CLA would be built in a new factory in Kecskemet, Hungary. Labor costs in Hungary are lower than in Germany, where the previous generation A and B class were made. Also, the new factory will make several models using a new flexible architecture.

"It made a big difference," Cannon said. "Without that we would not have been able to do it."

And the U.S. team had some clout at the Hungary plant, too. They wanted a big piece of the CLA's annual production. Initially the factory will make 150,000 vehicles a year and likely double output to 300,000 units annually by 2015.

Beyond a niche
Cannon won't say how many CLAs Mercedes-Benz plans to sell annually in the United States but said it will be more than a niche vehicle.

In October 2012, Cannon and Glaser went before the Mercedes-Benz management board to present the business case with projected volumes. They had the support of Joachim Schmidt, Mercedes-Benz board member for sales and marketing.

Mercedes-Benz USA pitched the $29,900 price with the assumption that the average transaction price would be between $33,000 and $35,000 compared with $42,000 for the C class, Cannon said.

The price will break a psychological barrier, have "a wow effect," Cannon said. "And it is a double-wow effect when you look at the sheet metal."

The U.S. team proposed a CLA with standard features such as collision control, a seven-speed automatic transmission and power seats so that "people who step into this realize it isn't a stripper car," Cannon said.

The board signed off on pricing in late October 2012.

In November, Stuttgart agreed that Mercedes-Benz USA could announce the price in the Super Bowl commercial.

"For us that was a huge victory, to get the price point that we wanted," Cannon said. "We don't always win that battle -- sometimes production or content costs are higher and we make compromises along the way so that the price we settle on is actually higher. This time, we got exactly what we wanted."

You can reach Diana T. Kurylko at [email protected]. -- Follow Diana on



Read more: http://www.autonews.com/article/20130304/RETAIL03/303049958#ixzz2MY09hjSv
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Great read, thanks for the share. Always interesting to see what the manufacturer was thinking along w/ why.

I'm thinking the CLA will go up in MSRP after 1 year & then again after 2 years. The C-class seems to be going a bit more up'market w/ a starting MSRP nearing ~$40k.

Anywayz... the CLA is truly a refreshing offering from not just MB but any manufacturer in-general. There are solid hits, then even home-runs occasionally. I believe this to be potentially a grand-slam!
 

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I find it funny that the owners of several dealers in the US had negotiate with the head office, very much like customers have to do the same dance with their own sales people to buy a Mercedes. I hope they hated the experience and will stop doing that same crap at their dealers.
 

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Keep in mind Mercedes' image varies from country to country. Mercedes is seen as both mainstream and luxurious in Germany (It's almost like a Volkswagen & Audi combined). In America it's mostly seen as only luxurious. Imagine seeing E-class taxicabs in NYC? But that's all you see in Germany. I'm all in favor of Mercedes lowering its price point and getting new customers that it normally wouldn't in America.

It will give Detroit a swift kick in the pants and show them what a good quality car for under $30K (and without a government bail-out) looks like. And I don't think it will hurt Mercedes upper luxury sales either. Americans are smart. They can detect a good quality car whether it's priced $30K or $80K. German cars sell themselves, whereas American cars sell by elaborate marketing schemes.
 

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Also, this is the US market we're talking about here, I'm sure other markets will benefit from their pressure, but I know that in Canada, it'll be more expensive (around $33,900) and probably the packages and accessories will be more expensive as well. :sad:
 

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My prediction...as the car makes appearances in show rooms, our dealers will add a premium to the MSRP, say $1,000 to $2,000. Forget about negotiations for a lower price. I base this on the too low a production rate of 150,000 worlwide, with the US getting say 80,000.
It is not just the 30 to 40 crowd that will be after this, but also energetic seniors such as I, at 76 years old. I presently have a BMW 328I, was thinking of replacing it in April 2014 with European Delivery of the 2015 as they first roll off the line. But now I have another option.

I have to wait and see if MB will offer European Delivery. I don't think so.
 

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My wife is considering a CLA, but I don't get the pricing. Her 1993 190E 2.3 was $29,850.00 plus $1,005 for the sun roof, and $400 for S&H for a total of $31,255.00. This car is as basic as cars get....no bells and whistles. How can the CLA be $29,900 plus S&H?
 

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Are you complaining about the low price of the CLA?

Most CLA's are arriving around the $35 k level with the options that were ordered on the vehicles
 

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the cla doesnt have collision prevention standard tho
Actually, "Collision Prevention Assist" and "Attention Assist" come standard on the CLA.

"Collision Prevention Assist Plus", which is the cruise control add-on feature and "Blind Spot Assist" are add-ons though.
 

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Hmmm...no mention of Mercedes needing to move X amount of higher MPG cars to meet CAFE standards. My understanding was that was a big part of the CLA sell and yet not one word about it. Am I mistaken?
 

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Hmmm...no mention of Mercedes needing to move X amount of higher MPG cars to meet CAFE standards. My understanding was that was a big part of the CLA sell and yet not one word about it. Am I mistaken?
That was my understanding as well, and why it has to be 38 MPG. Also, this is why the car must start in Eco mode every time, or it doesn't qualify for the rating.
 

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That was my understanding as well, and why it has to be 38 MPG. Also, this is why the car must start in Eco mode every time, or it doesn't qualify for the rating.
I wonder if that's how they got the 38 MPG rating because my understanding is this has the same engine as the C250 which is rated around 31 MPG.
 

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I wonder if that's how they got the 38 MPG rating because my understanding is this has the same engine as the C250 which is rated around 31 MPG.
Same engine don't mean same milage. One thing that comes to mind is the weight of the car. And the much advertised low drag rate.

Disclaimer: I didnt fact check this.
 

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I wonder if that's how they got the 38 MPG rating because my understanding is this has the same engine as the C250 which is rated around 31 MPG.
The C250 is a 1.8 liter curses the cla which is a 2.0 liter

Sent from my HTC6435LVW using Mercedes CLA Forum mobile app
 

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The C250 is a 1.8 liter curses the cla which is a 2.0 liter

Sent from my HTC6435LVW using Mercedes CLA Forum mobile app
Hmmm....I'm usually more careful with my information. I got it from two sources the C-Class and CLA shared the same engine, I must have missunderstood. My bad.
 
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