If Your Product Has A Reputation For Quality, Should You Trade On It?

For the first time ever, Americans will be able to own a Mercedes for less than $28,000. This will certainly give the German automaker a bigger share of U.S. car dollars, but it sets its longstanding reputation for class in a very precarious place — like bringing a senator to a whorehouse. Advertising expert Jack Trout might say that this is another example of “line extension” — diluting a strong brand name by attaching it to products not typical of the franchise.

Ford did it, Levis did it, and IBM did it — all with bad results: a confused market and weakened core sales. The Mercedes C230 comes with a prestigious name but little else. The body design — raked sharply with a hatchback — looks “discount,” as do the standard-issue seats (in cloth), the dashboard (textured aluminum), and other interior features. The move is meant to increase sales, and it will probably do that.

The question, however, is: Will it also lower Mercedes’ reputation for quality? If it does diminish the luxury automaker’s 100-year reputation as the ultimate luxury-car brand, reduced top-end sales will surely follow. I remember the first time I saw a European taxi. I thought, “Wow, a Mercedes! This is great! I lucked out!”

Till I got inside, looked around, felt the ride — and realized I was in an ordinary car. When you have a franchise that works, the easiest money comes from selling other products under the same name. Generally, it’s a better idea to extend your franchise by moving up the price (and quality) scale than by moving downward. My recommendation: Short your Mercedes stock.

[Ed. Note.  Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]