Several luxury automakers are pushing their brands down-market in the US by adding what are often called “entry luxury” models (such as Audi A3 and Cadillac ATS). Some of these are already sold elsewhere in the world, but until recently have been inconsistent with US consumers’ perceptions of luxury brands. In 2001 Mercedes briefly pushed down-market with a two-door hatchback version of the C-Class called Sportcoupe. This time it’s using a sedan-only model called the CLA, US sales of which US began in September 2013. The CLA starts at $29,900, below the C Class at $38,200.
Millward Brown Digital used its automotive behavioral analytics to evaluate the CLA launch based on success generating demand and converting that into sales, as well as interplay with C Class.
Demand is represented by the number of in-market shoppers, based on observed, lower-funnel activity across multiple automotive websites. It leverages MBD’s patented data-gathering and normalization processes. A key benefit of this approach is that it recognizes and leverages that consumers shop on multiple sites and rarely complete all their automotive research in one session, and that few submit leads. A second benefit is that it avoids false positives by avoiding double-counting.
Declining Sales Mask a Success
To date, CLA results in the US tell a mixed story. The number of in-market shoppers peaked at 35,000 in November shortly after launch, dropped slightly and then rebounded in April to 34,000. Sales peaked at 4,895 units in October—near the first demand peak—but have declined since. CLA sold only 1,575 units in April, the lowest since launch (sales by month summarized in table — scroll down to see).
More CLA shoppers and fewer sales mean Mercedes’ ability to convert shoppers into buyers is eroding. CLA conversion peaked at 18% in October and dropped to 5% in April. That means lost business. Robbing C to pay CLA? With CLA newer, arguably sleeker-looking and less expensive than C Class, there is a risk consumers will forgo C Class in favor of CLA. That looks to be happening based on demand: as CLA demand trended up, C Class demand trended down. In April, C Class demand was a period low as CLA approached a new best ever. The same happened in November: as CLA reached its best, C Class reached a then-period-low. The net is a declining average number of shoppers over the period (dashed line).
Conversion tells more of the story (right chart). CLA conversion peaked early on and has decayed since—atypical for a launch (normally conversion is low at launch and gradually improves over time). There are several possibilities, including:
- Shortages: CLA inventory may have been depleted early on and Mercedes can’t restock fast enough. Ward’s reports Mercedes stocks overall in April were only 45 days (industry ideal is 60 days’). Given CLA is new, its stocks may be near or below that. Ideally demand outstripping supply means those buying are paying a price premium. However, CLA incentives were up to $1,700 in April (source: Autodata), which is high for a vehicle in tight supply.
- Showroom Redirect: Some CLA shoppers may be becoming C Class buyers in the showroom. That would result in CLA conversion mathematically low (shoppers but no sales) coincident with C Class conversion high (sales with no shoppers). C Class had $3,600 in incentives in March (note the conversion bump) narrowing the price gap between it and CLA, and facilitating redirect. Indeed, C Class conversion increased as CLA launched and has remained elevated. Tight C Class stocks would limit showroom redirect potential.
Some potential challenges are emerging. Average demand across the two models is declining and so is average conversion. Both holds back sales: April sales across both models (6,689 units) was less than in August (6,701, before the first reported CLA sales). Driving CLA Success By expanding downward in the US market, Mercedes is increasing its potential for higher sales (because more vehicles are sold in the CLA price range than in the C Class price range). The risk for Mercedes—or any automaker—is that it spends tens of millions to launch a new vehicle brand but fails to reach its potential. The research above shows some early success, but also emerging risks. To optimize the CLA launch plays out, investigate these things:
- Are changes in CLA and C Class shopper volumes consistent with changes in ad spend?
- Are inventories for CLA and C specifically as tight as Ward’s brand-level data suggest?
- If so for CLA, evaluate lowering CLA incentives if demand remains elevated.
- If not for C Class, enhance the ability convert unfulfilled CLA shoppers into C Class buyers (i.e., showroom redirect)
- Are the declines in CLA/C sales consistent with sales goals?
- If not, is Mercedes losing buyers to other models?
- What rivals are most successfully at conquesting wayward Mercedes shoppers?
- Which of those are non-luxury brands?
- To what extent are consumers shopping both vehicles (i.e., shopper cannibalization)?
- Hint: In April there were about 52,000 total unique shoppers across CLA and C; of that 6,500 (12%) shopped both—the highest since CLA launched.
- How has the CLA launch changed consumers’ perception of the Mercedes brand?
- Does going down-market mean Mercedes—or any luxury brand—loses some of its differentiation?
- Does lower-market positioning make Mercedes more susceptible to up-market moves by mainstream brands, like VW, Kia, and Hyundai?
- How will the CLA launch impact other the launch of other, more down-market vehicles, like the GLA small crossover coming to the US this fall?
Download a .pdf version of this research here!  Starting sticker prices for each as of May 19, 2014 as listed on MBUSA.com.  MBD research showed about 10% of respondents reported offering vehicles below $30,000 would damage a luxury brands’ image MBD, April 2013, gen pop survey, n=1608
Lincoln Merrihew is the Senior Vice President of Transportation at Millward Brown Digital. At Millward Brown Digital, Lincoln is responsible for steering the Transportation Team, which encompasses the automotive and travel practices. Before Lincoln joined the Millward Brown Digital team, he worked at TNS Custom leading the Automotive team, and then continued on there to lead business development for 10 different industry verticals. Lincoln's career aspiration is to create game-changing solutions and insights. Connect with Lincoln on LinkedIn.