• by Karl Greenberg , January 2, 2008

In 2005, Mercedes' three-pointed star--the automotive emblem of comfort, style and luxury--was hanging by a rivet. The brand was dogged by a large recall, quality questions, poor reviews of its E-Class sedan, and an ill-advised campaign to mine the mass-market with a diminutive C230 coupe.

With stiff competition from Lexus LS, BMW's 7 Series, and Audi's A8--all in the very region of the market Mercedes had dominated for so long--sales were slipping like a shot tranny. By the end of 2006, sales had dropped 5% worldwide.

But in 2007, a soft year for the auto industry, the company achieved year-over-year record sales. It's reviving its nameplate with cars informed by its AMG performance subdivision and its flagship S-Class, rather than mass-market entry cars. With the September launch of its 2008 C-Class cars, it's clear that Mercedes is enjoying the fruits of a successful product strategy.

The new C-Class sedan was Mercedes' test case, both for building sales and building back its reputation as a company that excels in performance and luxury. The C-Class is Mercedes' highest-volume model and the car that can bring in new, younger buyers, says Stephen Cannon, vice president/marketing.

Todd Turner, president of California-based consultancy Car Concepts, says the affordable C-Class is also a litmus test for Mercedes, because its target buyers will be more critical of problems and more impressed by pleasant surprises than those buying more expensive models.

"For so many people, the first experience with Mercedes will be the C-Class--so if quality isn't there, they will be much more likely to say they would have been better off with another, less expensive vehicle," Turner says. "Because of those criteria, this is the most demanding customer of Mercedes-Benz."

To lure new buyers without having to give up traditional luxury-car consumers, Mercedes didn't try to cram everything into one model, but went with three versions based on two types: the C350 Sport, the C300 Sport, and C300 Luxury.

Cannon says the product strategy--the bifurcation of luxury and sport versions--was designed to attract both traditional buyers and those in the entry segment, where sport and performance are critical. It was a differentiation that Mercedes needed to make. "Before, if you squinted your eyes, you couldn't see the difference," Cannon says.

The result: the company is seeing new faces, particularly under-40 buyers, and a sales skew favoring the sport version. "We had estimated we'd get a 70/30 mix in favor of the sport version. What we are seeing is an 80/20 split," Cannon says.

The company also pulled out the stops for the 2008 C-Class marketing campaign. In addition to TV, print and interactive components, the effort included an outreach test-drive program, the "C Drive," that reached some 30,000 potential buyers in 11 cities, allowing them to get behind the wheel on city streets and on a closed course. There is also product placement in the Disney film "National Treasure: Book of Secrets" and a raft of product integration programs through Mercedes-Benz' global partnership with Fashion Week.

In the U.S., Mercedes-Benz USA posted sales of 22,820 new vehicles last month, a 3.4% increase over November 2006. The big surge in the U.S. was in C-Class cars, up 56% for the month to 6,920 units. Year-to-date in the U.S., sales of C-Class cars are up 26.3%.

Worldwide, Mercedes posted its best-ever November, selling 102,700 vehicles, and its best-ever January-through-November period, selling 1.04 million-plus vehicles worldwide--a 4% increase versus last year. Worldwide, the company sold 27,600 C-Class cars in November, more than doubling the 13,700 it sold during the month last year.

Next year, Cannon says, Mercedes will continue the C-Class campaign to keep the vehicle on shopping lists. If the market were static, the task would be merely difficult. But the market is in flux, with competitive new vehicles rolling off assembly lines bi-quarterly.

Mercedes-Benz, which plans a new compact luxury SUV next year, BlueTec diesel-powertrain versions of its SUVs and another C-Class car, has a fight ahead of it. There are no weak players in the current luxury market. But the company is heading in the right direction, and the three-pointed star is once again affixed securely to the Mercedes grill.