Ingo Fröhlich has been leading Mercedes-Benz Hungária Kft. for more than three years. In our conversation with him we talked about the reasons for the average increase of Mercedes sales, the “Kecskemét effect” and Hungarian employees.
How has your situation on the market changed in your three years here?
When I arrived the number of registrations for new vehicles was just beginning to rise again in Hungary; in the premium category this increase was significantly faster than in the others. Mercedes has managed to reach a very good growth in the last three years even with the same difficult circumstances as before. Our turnover on the market of new cars has more than doubled in the last year to reach 1,587 units from the result of 715 units in 2010. In 2011 and 2012 the effect of the crisis was still quite noticeable but we still managed to grow faster than the competition. Last year there was not so much talk among our clients about the crisis any more; there is a significant improvement in the investment climate. This is important because it is the condition for our business clients to invest again in their fleets. It is sure that there is a demand for the replacement of cars: in this market there are about 55,000 Mercedes registered with an average age of 14 years, meaning if we sell 1,500 cars a year, we need 35 years to replace the whole car park with new vehicles.
What is the average age of cars in Germany?
In Germany the average age of cars is about half the Hungarian average. A fleet that is too old is uneconomical to maintain. For this reason it is absolutely economical and logical to invest in the car park as soon as the liquidity of the company allows it. People do that, so we have growth in our sales. However, the process is far from being automatic. This is why we introduced a lot of extra services, in order to make the purchase of our vehicles even more attractive. In February 2012 we launched our so-called Integrated Service Package (ISP), which guarantees a four-year warranty and four years of servicing up to 120,000 kilometres, and the client does not have to pay any extra for this service.
Is this a worldwide Mercedes initiative?
No, the four years of ISP was only introduced for Hungary. This is a purely local idea that we invented. In other countries there are some other combinations of warranty and servicing, but with these conditions and with the four-year timeframe we are unique on the market. Normally the warranty is only valid for two years and the servicing is not included in the package. However, the ISP is not our only initiative to make our products more appealing for our future clients: there is a vehicle insurance package included among the additional services this year, since the topic of security is very important for us. We have a strategic collaboration with the training centre of Zsámbék, where our clients are able to test and get to know our security assistance systems and test where their limits are when driving. Besides improving self-confidence in driving, such training is also a lot of fun – and I know that from my own experience.
Were you forced by the competition to introduce such added services, or you just wanted to influence the buying decisions of the customers with your initiatives?
There are several factors that we needed to consider. When you look around in Hungary, you see high quality everywhere: in architecture, in the wines, in the food. Our Hungarian potential buyers are very conscious of quality and they value extra services a lot. If we would try to influence such customers primarily by offering discounts, it would mean that we do not respect them as they deserve and we did not recognise their needs. In addition, our way of enhancing sales is much more right for the image of a premium brand like ours.
How do the costs of winning clients through added services compare to the costs of giving extra discounts?
It is too early to compare the two methods yet. In any case, it is a fact that those vehicles that are serviced by us in our own workshops have a significantly higher residual value and security status than the ones that are serviced in not authorised workshops with not original parts. With using our services the client has a clear advantage. Thanks to the high residual value we are able to beat even non-premium brands in terms of “Total-Cost-Of-Ownership”. This makes our products attractive even for the fleet managers who calculate the costs very precisely. So the ISP is especially improving our chances with the fleets. We have another fleet product that we started a year ago in order to revive our fleet business, the “Business Solutions”, which offers a number of extra services especially for fleet clients, for example a pick-up service in case repair or service is necessary for the fleet car.
So you can score some extra points in terms of quality and economic efficiency as well?
Yes, exactly, both of these qualities are characteristic of the Mercedes brand. Our aim is that when someone is asked why he chose a Mercedes, he will say that he wanted “the best”. That includes not only the best product but the best services as well. Whoever buys a new car from us does not only get a network of very good workshops along with it, this is even for free in the first four years. We transform the unpleasant occasion when you have to visit a workshop into a pleasant positive experience. Our customers also have the advantage of predictability of their finances if they purchase from us: our clients know exactly what their new vehicle will cost in the first four years. After the client decides to pay the monthly fee, there are no more cruel financial surprises in store for him. In economically hard times such a precise predictability is of immense importance. The client does not have this sort of safety with the other brands. This was a further reason for us to implement the ISP. We are sure that our investments will pay off in the long term: through an improvement of client relations but also in surplus sales.
Is there really nothing similar offered in Hungary by other car dealers like your ISP service?
No, we are the first ones to offer this service here. The best thing about Hungary is: the local market is not so developed as the German or the British one, where it is excruciatingly hard to reach a competitive advantage. In ripe markets there is almost nothing that someone has not tried yet. In Hungary on the other hand there are still a lot of new possibilities. With initiatives like ours you can clearly differentiate your company from the competitors. The success of the initiative speaks for itself: the surveys prove that every second customer has heard about ISP before entering our showroom and they had a positive opinion about it.
So your dealers must be happy with your new initiatives!
Yes, also because the customers stay faithful to them for a longer time, because otherwise the first customers would be already lost during the warranty time, since they would try to get their vehicles repaired someplace else for a better price – without paying value added tax and without purchasing the original parts. Such initiatives also have a visible result in their customer satisfaction indexes (CSI). In international comparison we are the first personal car manufacturer in my region among 120 brands; our CSI result has been over 98% for several years. Our dealers are doing a lot of things just right. This is of course not just a coincidence but the result of a lot of background work and also comes from the development of extra services like ISP, which are always fine-tuned further according to the wants and needs of our clients. Because as client expectations are changing over time we have to keep developing our services in order to keep up with them. We were recently awarded in Hungary with the “Excellence in Customer Service Award”, which proves that we are on the right track and our efforts are paying off. As the inventor of the automobile, we are of course obliged to stay in the leading role on the market. This is a promise of the brand that the customer has to feel at every interaction he has with us.
Exactly because the ISP matches your brand image so well, it is surprising that you did not simply copy this package from an example that already existed in Germany or Austria.
When I started working here in 2011 one of my first actions was to visit the neighbouring Slovakia. There was already a service packet introduced there at that time but without the prolonged warranty. In Austria there is also a warranty package but without servicing. We discussed and developed the basic idea of this extra service package for our clients specifically, then we discussed the idea with our centre and our dealers, and finally we decided together on its introduction to the market.
Still, there must be similar initiatives existing in Germany, which aim at selling the Mercedes vehicles with methods that correspond to the brand image, so not with the help of discounts.
Of course, there are also a couple of add-on services there, although not in such integrated form as here; these kind of services exist only on very few of the markets. In Slovakia Mercedes has been the number one for years thanks to the value package. Our new package will also have a very positive effect on the sale of our used-car parts, especially for the supply of our “Last year’s car” program that includes reliable, controlled used vehicles. With the help of quality used cars we can access a new group of customers. There are clients who lease their car for two or three years and then they change it. In Kecskemét we also create a lot of young used cars because there is a big fluctuation in the expat area currently. So now we serve the whole value chain, which is not a coincidence, but the strategic decision of our local management team.
When you speak so passionately on sales you almost make me forget that your company does not sell cars directly, only through dealers.
This is the reason why we have to discuss innovations like the ISP with all partners well in advance and convince them with the right arguments. I am happy that our dealers and partners think and do business in a future-oriented way and are 100% focused on quality and clients. The success speaks for itself. In the meantime we have become competitive even against brands in the middle class with our vehicle palette and our innovative added services. More and more customers can switch to a Mercedes without financially overburdening themselves.
Nevertheless, even with the 1,587 units sold last year you are not yet back at the record level where you used to be before the crisis.
The best year of all times was 2008, when 1,819 Mercedes vehicles were sold in Hungary. We will reach this result again soon. The total car market in Hungary used to be above 200,000 units a year, while in last year, after drastically dropping in the previous years, it only managed to regain its volume to 60,000 units. With different words: It is clear that in the previous years we have grown faster than the market. In 2013 Mercedes-Benz was the fastest growing premium brand in Hungary but also worldwide. We have a vision and a duty as a concern, namely to be the best. This concerns our products, our services, the brand but also the turnover.
It’s not enough to find the right strategy, you have to implement it in the right way as well. The one that implements it in the best way wins the competition. Our global success has many reasons. We have the best products with the corresponding design, which brings us back to the brand values: emotional but also intelligent. We spend more than EUR 5 billion on vehicle research. We are looking into developing an emission-free, accident-free and autonomous driving experience. We can say that the vision of the perfect car is currently accomplished with the S-class. However, we also developed the choice of our products in the class of compact cars and made them significantly more emotional. In addition, thanks to our modern motor-research facilities we have the smallest CO2 emission in all car categories on the market. There are some competitors in the premium segment that are not even launching a single new model this year, as opposed to us, because we are presenting this year alone the new C-class, the new V-class, the GLA, the S-class Coupé and even further novelties. Last year we introduced six new models on the market. We are constantly developing new vehicles and there are some among them that had no predecessor, so they will be able to attract a whole new group of customers.
Why is it so important for Mercedes to broaden its product offer towards the middle class, instead of staying an exclusively premium supplier?
We want to grow further dynamically and the highly-priced premium segment has its natural limitations in this context. On the other hand, there is still a lot to gain in the compact segment. We have above 50% “to conquer” from other producers, meaning that half of the compact car owners has never owned a Mercedes before. In the future we would like to be able to present the top model in every single vehicle class. All employees of the Daimler concern are working for this goal. It can be seen that it is not enough to have a brand which gives the customer exactly what he expects. It is also extremely important to have the right employees. Everyone can buy processes and systems with a little time lag but creating the perfect team spirit cannot be copied. For that, it is important to share the responsibility, but it is also important that everyone has fun working in the team and can make use of his own personality in order to reach the goals. Everyone can and should bring along their own ideas. I have an experienced, loyal and motivated team working with me. It is really fun to work with such a team.
You have worked together with people from a number of different nations as a leader. How would you evaluate your Hungarian team with your experience? Have you experienced the legendary Hungarian creativity, enthusiasm and passion?
Absolutely. I was lucky that I could be a general manager for Mercedes in four countries and this is by far the best of my teams. It is full of creativity but does not lack experience either. The people here have fun at work and they want to have impact. There is a noticeable optimistic attitude. I can feel that Hungarians are fed up with the crisis and they want to concentrate on the future again. This is valid for my team as well.
Many well-educated Hungarians are fed up with their country in the same way that they are fed up with the crisis and they chose to leave. Can you still find enough talented employees?
Absolutely. Although I am sure that Mercedes has an easier life concerning recruitment, since the brand has an enormous attractive power. I think that there is no single marketing professional in the whole country who would not be happy to work for Mercedes. We have recruited for the marketing leader position of Mercedes-Benz Personal Cars and we got above 400 applications, among them really top-quality people. We could have recruited 30-40 of them without having any regrets.
How strong is the influence of the Kecskemét effect on your sales?
It’s huge and helping us in a lot of ways. Our brand is being perceived as “Hungarian” in the meantime. The Hungarians can be proud of “their” car for a reason. They have built a car with a worldwide success in the shortest time. The demand for the CLA is so high that we can hardly keep up with the production. Of course, it is having a positive effect on our sales in Hungary that many of the cars that are sold here are also produced here: from the 1,587 cars sold last year 400 were produced in Kecskemét. We have a lot of clients who come to us exactly because we have a production plant in Hungary. On the other hand the Mercedes suppliers are also open for our offers and we are in constant negotiations. Our offers are available on their fleet lists as well. Or let’s take Tesco for example: this retailer has decided on Mercedes for its online order delivery service on purpose, because this way they can demonstrate quality and their close connection to Hungary as well. As Tesco is planning on growing in the online market on a large scale, making the most of this unusually cool and innovative distribution channel, we are hoping to be able to grow along with them.
What is the result of the Kecskemét effect on the governmental orders?
We are treated in a fair way. Daimler signed a strategic partnership with the Hungarian government, which is beneficial for both parties. Of course, we are considered for the announced government tenders but a fair treatment of the applicants is a basic requirement for success in such cases. We can successfully apply for tenders with our broad product palette that ranges from small cars over transporters to heavy-duty trucks and buses, so we do apply for the available tenders.
How long are you expecting to stay as the general manager of Mercedes-Benz Hungária Kft.?
I have signed a definitive contract for five years, so I am staying two more years. Although I would be open for the opportunity to stay here longer with Mercedes. My family and I are feeling great in Budapest. Our son is going to kindergarten and he is learning Hungarian there. Our daughter was born here in Hungary four months ago, so she is almost like half-Hungarian. When I compare Hungary with the other six countries where I have previously lived as an expat, I can surely say that Budapest is a superb place to live.
How do you evaluate the quality of life here?
Hungary is the perfect place for us to live, Budapest is a beautiful city. Everything is available – even in our languages, so in English or in German. In addition, we can get to Germany quite quickly, which was not true for some of my other stations, like for example Auckland, New Zealand. Businesswise there are still a lot of possibilities here and a lot of potential. Taking all that into consideration, we can imagine both from a professional and a private point of view to stay here.
Which is the sight in Budapest that you and your wife liked the best?
We really like the Sziget Festival. In my free time I like to relax as well. When the weather is nice we like to go for a walk with the children on the weekend, to a playground or to City Park. Budapest has a lot of programs for families. We have recently visited the newly opened Olympics Park. Such a nice project! The Kopaszi gát also offers excellent opportunities for children to play. We like to go biking or walking to the woods in District II. Budapest is one of my three favourite cities, along with Istanbul and Rome.