Mercedes Cars and Price Elasticity of Demand: A Report

This report delves into the price elasticity of demand for Mercedes cars, examining how various factors influence consumer behavior and market dynamics. The analysis considers the availability of substitutes, such as Porsche and Jaguar, and how this impacts Mercedes' pricing strategy. It highlights that Mercedes targets a high-class consumer base with substantial budgets and explores how price reductions might not necessarily attract this demographic. Furthermore, the report addresses the time period of adjustment, suggesting that while initial price drops might attract buyers, the brand could potentially lose its exclusivity. The study references relevant literature, including works by Anderson et al. and Mowen, to support its findings. The report concludes that Mercedes' pricing strategy must consider these factors to maintain its market position and brand image.

Factors Affecting Price Elasticity of Demand and Mercedes Cars
Availability of Substitutes
Mercedes’ luxury cars have other substitutes in the market such as Porsche, Jaguar, Maserati,
and others. In this case, if the price of the Mercedes’ cars is reduced to gain the market share,
then it can be clearly stated that Mercedes will be at loss. The reason is its target customers who
prefer high class branded products that are of exceptional price levels and who prefer to flaunt
expensive products. Therefore, reduction in Mercedes’ price will divert these customers towards
more expensive aforementioned alternatives that can provide them high class image and
reputation.
Percentage of Consumer’s Budget
The consumers of Mercedes have substantial budget for luxurious products and, therefore, it
cannot be suggestive to state that the reduction in price would attract their attention towards
Mercedes. The initial euphoria can be there as some consumers might see it as achievement to
possess Mercedes however, those who understand they can easily afford such cars and similar
others – who being the main target consumers – would rarely prefer to orient towards Mercedes.
Time Period of Adjustment
For this factor, it can be stated that initially the reduction in price of Mercedes cars will attract
numerous buyers who had desire to ride the vehicle and even the high class consumers who can
easily afford the other luxurious cars would prefer to keep one Mercedes brand at that time.
However, it is possible that Mercedes might lose its shine of being costliest car brand as the main
target audience will gradually shift to more expensive cars such as Jaguar or Maserati.

References
Anderson, P. L., McLellan, R. D., Overton, J. P., & Wolfram, G. L. (1997). Price elasticity of
demand. Makinac Center for Public Policy, 13.
Mowen, J. C. (1988). Beyond consumer decision making. Journal of Consumer Marketing, 5(1),
15-25.