Saturday, 23 June 2012

Intrinsic value vs superficial premium

You can gold plate a Swatch, give it titanium hands and fit it with an aluminium wrist band, and it still wouldn't be on par with the cheapest entry level timepiece from Hublot.

Mercedes have just announced a limited run of their best selling model, the C-Class.  You can have one of 800 worldwide examples of the 380 kilowatt (that's 510 horsepower) C63 Black Series, for a base price of  $98,500:















Now for a few hundred dollars over $100,000, you can have the freshly released Porsche 911 Carrera S PDK.  This is the car built on the platform universally acknowledged by motoring scribes as the best all round sports car on the planet.  It has been the case for decades:



















So Mercedes are giving you a car with race tuned suspension and a monstrous amount of power.  Seats, steering and seat belts are all sport orientated to further differentiate it from lesser C-Class models.  But the fact remains: the $98,000 C63 Black Edition shares its platform with the $35,000 C-Class coupe. And the C-Class falls below the E-Class, S-Class and CLS in the Mercedes stable of models; yet they are charging Porsche money for this "special edition" of what is effectively one of their cheapest passenger saloons.

Creating Artificial Demand
Mercedes have limited the number of Black Editions to 800, but so what?  Intentionally restricting a production run is not basis for increased value.  In any case, it's a restriction on something that's based on a mass produced vehicle.  A limited edition Happy Meal is still a Happy Meal.  Take your best selling model, modify it, limit the production run and suddenly charge three times the money...it's artificial value that's being created. 

Now the Porsche pushes out 294 kilowatts (400 horsepower), which is a lot less than the power of the Mercedes.  Yet the Porsche accelerates just as fast - down to a tenth of a second in fact - and both cars steam on to a very similar top speed.  (Long story, but the Porsche has a very clever gearbox and differential.)  Around a race track, you can confidently bet the Porsche would post a quicker time.

I'm sure all those special bits and modifications on the Black Edition cost a lot of money, but argument after reason there is no getting away from this vehicle's basic DNA.  The Porsche 911 is designed and built from the ground up to be a sports car;  it is not a family car converted into something else. Every part of the car was purpose-designed for speed and driving interaction.  There is no way a Mercedes C-Class can match that.

This is not simply about buying one over the other just because it has the right badge; this is about looking at the core of a product and deriving the majority of its value from that.  Look at the Porsche: no wings, carbon fibre bits or any loud detailing.  It doesn't need those things.  Mercedes Benz is a prestige marque, but to price a derivative of your volume seller in line with the best sports car of all time is overestimating your brand.

Subscribe by Email