Mercedes to put more ad dollars in dealer hands

Mercedes-Benz is giving its U.S. retailers greater control over how they manage regional marketing funds and how they execute their digital sales efforts.

The luxury automaker will jettison its Tier 2 marketing program next year, unwinding established industry advertising practices to instead let dealers spend as they see fit.

The move marks a bold step by Mercedes-Benz USA's marketing chief, Drew Slaven, who is filling in as the automaker's interim CEO until the end of the year. The plan also signals that the U.S. industry's long-standing practices on second-tier marketing funds are facing some disruption.

Tier 2 marketing refers to regional dealer association programs that straddle the line between factory-funded national advertising and dealer-funded local advertising. Its purpose is to generate greater brand consideration among regional customers and drive foot traffic to area dealerships.

Mercedes is now breaking with tradition.

Starting in January, Mercedes will pass along about half of its designated Tier 2 funding to dealers to invest individually in ways they feel best benefit their dealerships. The rest will be funneled to the brand's national marketing program.

Tier 2 marketing is an institution that has outlived its usefulness, Slaven told Automotive News last week.

"We felt that there was a better way of allocating funds in part up to that Tier 1 national brand space, which is terribly important to all of our products and the master brand itself, and then down to each individual retail outlet that represents the brand," he said. "With that, we did away with that middle ground, Tier 2."

The new model will give Mercedes' dealers the flexibility to invest in things they believe drive their business — whether it's traditional marketing, store improvements, service and parts or investments in digital retail platforms.

"We're not putting rules around those dollars," Slaven said. "We trust our dealers enough to know that they need those investments and where they need them, and what they want to do with them."

Reallocating the Tier 2 spending frees up "tens of millions of dollars" for dealers to use at their discretion, Mercedes-Benz Dealer Board Chairman Jeff Swickard said.

"It is really meaningful to Mercedes-Benz dealers," said Swickard, CEO of Swickard Automotive Group. "It allows us to drive our businesses, and we're not beholden to old processes that have grown less effective over time."

As business leaders in their markets, dealers can be more effective than the manufacturer in creating brand awareness, said Jeff Aiosa, owner of Mercedes-Benz of New London, in Connecticut.

"Whenever dealers are allowed to figure out how best to delight their customers — be it marketing, loaner cars, events — it is better than one-size-fits-all manufacturer initiatives that are not always good for everybody," said Aiosa, who also is the National Automobile Dealers Association brand rep.

AutoNation CEO Mike Jackson referred to Mercedes' strategy as a "benchmark" for the industry.

It "will be a win-win-win for Mercedes, its partner dealers and customers for the long term," Jackson said.

Mercedes' move comes as automakers seek greater efficiency in their marketing, said Steve Lind, vice president of advertising operations at Cox Automotive.

"The opportunity here is to pivot away from associating Tier 2 advertising primarily with traditional advertising," Lind said, "and instead reimagine budget allocation, marketing message and success measurements."

Adam Stone, CEO of Boston-based automotive marketing company Octane Marketing, said the value of traditional Tier 2 spending is being undercut by digital media, which typically is more targeted, measurable and cost-effective than broadcast advertising.

"The advertising landscape has changed," said Stone, a former Toyota Motor Sales USA executive. "A dealer doesn't need to rely on an association to merchandise local offers. And some manufacturers would rather use that money to do more brand-awareness plays."

Consolidation in auto retail is also changing the dynamics of Tier 2 advertising. Dealers do not necessarily need to band together to take out TV and radio ads to promote regional deals, Stone said: "Many dealerships are now owned by big conglomerates and have robust ad budgets."

In another break from industry tradition, Mercedes will relinquish more control of the brand's digital shopping experience.

Instead of delivering a factory-administered e-commerce platform, Mercedes will leave it up to dealers to build and manage their own digital solutions through third-party vendors.

"We got out of ... coding a one-size-fits-all solution ... and instead [turned] for the foreseeable future to these smaller, nimble, Silicon Valley-based companies that are providing best-in-class e-com solutions," Slaven said. "It took a lot of financial burden off of us."

The new model addresses a recurring flashpoint between retailers and factories over who controls the user experience related to a sale.

"We came to the decision that the customer and the retail entity are better equipped to have that interaction at a store level — not as a dictate or a one-master solution being built by the factory," Slaven said.

"So rather than spend time taking our eyes off more important things, let's cut free. Each individual dealer should have an e-commerce platform that should be brand commensurate."

Dealer Swickard welcomed the flexibility of crafting a bespoke e-commerce solution.

"It allows us to make decisions that work best for our guests and our businesses without being forced to adjust to a rigid system that was developed by the manufacturer," Swickard said.

Mercedes' plans were being considered pre-COVID-19 but were accelerated by the disruption of the pandemic.

"This past year has been a super accelerator for a lot of things," Slaven said. "The way in which people shop and purchase cars will forever be changed as a result of the year 2020."