MBMC Case: Exploring the future of automotive mobility

i

Upon request, the interviewer can propose two dimensions that the interviewee can use to structure the problem. For example:

(1) Degree of Innovation

• How does Mercedes-Benz distinguish automotive features?

(2) Monetarization

• What are potential monetarization methods Mercedes-Benz is considering?

Innovation

• Commodity: Although the technology was invented/enhanced/refined by RD, it cannot be considered a differentiating element (e.g., wiper, break paddle, belt, …)
• Luxury: The new product feature is differentiating and in line with Mercedes-Benz's ambition to create a luxurious customer experience (e.g., voice assistant, special rims, electric motor, …)

Monetarization

• One-Time payment: Customers pay a one-time fee for the innovation (standard or optional equipment).
• Subscription model: Customers keep paying subscription fees.

One possible framework for structuring the problem is a 2x2 matrix. All other frameworks are also permissible, and the creativity of the interviewee is welcome here. However, it is important that all combinations of innovation and monetization categorizations are covered.

You shall focus your investigation on luxury innovations (“Innovation premium”). The client wants you to explain possible product features that fit to this category.

A good example would be AD Level 3 or 4. The case will focus on AD Level 3 from now on.

Possible answer categories are:

Functionality: AD Level 3 option needs to have a functionality that can be activated/ deactivated through software (e.g., MercedesMe App).

Legal: Technology must have been thoroughly tested and awarded with required certificates and licenses. Also, liability questions must be clarified.

Installed hardware: The necessary hardware that enables the functionality needs to be installed by default. This includes chips & sensors and other potential Hardware.

Order and payment ecosystem: A functioning, well designed and programmed ecosystem must exist, that allows “shopping” and paying for equipment options in a highly convenient way. This requires additional development costs and programming competence.

Customer Touchpoint: Mercedes-Benz employees must be well-trained to explain the innovation to the customer.

A potential description of the automotive value chain of an OEM may look as follows:

Note that only the main value adding steps are depicted, support processes as IT, HR or finance can be disregarded at that point.

Now please describe the main challenges that you expect along each link of the value chain.

R&D

• Not all the services linked to the new ecosystem can be provided by Mercedes-Benz, some of them, like cloud services or payment services, must be sourced by third party providers that may have dominant market positions.
• Default installation of special equipment results in higher material costs and thus a higher average value of the vehicle.
• Missing experience within company, as AD Level 3 has never been developed inhouse.
• Switch of car manufacturer to software defined product.
• Hiring right R&D talent changes focus from mechanical engineering to data engineering.

 Procurement

• Not all the services linked to the new ecosystem can be provided by Mercedes-Benz, some of them, like cloud services or payment services, have to be sourced by third party providers that may have dominant market positions.
• Default installation of special equipment results in higher material costs and thus a higher average value of the vehicle.
• New vendor partnerships must be found with new focus on software.

 Production/Operations

• As cars and parts have a higher average cost due to the default installation of special equipment, inventories are more costly and financing costs rise.

 Sales/Marketing:

• The way we communicate with the customer will change substantially. The importance of well-trained sales reps who inform the customer in the dealership about optional equipment will diminish in favor of an ongoing communication through new channels.
• The liability issue will have to be addressed carefully.
• AD Level poses a shift from being the driver to being driven with new use cases to promote.

 Aftersales:

• New skills must be implemented in the aftersales process. If a customer faces challenges with the order and payment ecosystem, he may not want to go to a traditional workshop but rather seek help through a call-center, an online-chat or through social media.

Multiple answers can be correct for this task. Based in the numbers Case 2 would be favorable. It would at the same time be alright to go with Case 1, since EBIT figures are close but the risk in Case 2 is higher, because subscription fees are not safe for 10 years.