Problem
Nowadays, many consumers, all over the world, can afford to buy a luxurious automobile. A few years ago, many consumers were ready to buy a Mercedes for its performance but found this automobile too expensive. This gave Toyota the idea of designing an automobile that could compare to the Mercedes without the inconvenience of a high price. Thus, buyers would feel that they had made a rational purchase and not that they had spent a lot of money with the sole aim of improving their social position.
The result of Toyota's decision was the Lexus, with its attractive styling, pampering style and sumptuous interior. In one of its first advertisements, Toyota displayed a Lexus next to a Mercedes and captioned this: "For the first time in history, you can trade in a $92,000 automobile for a $59,000 automobile and consider this exchange as positive". Lexus dealerships offer spacious showrooms decorated with flowers and plants, and the sales associates have a very professional approach. The company compiled a list of potential customers and sent them a video demonstrating the performance of the Lexus. For example, the video showed an engineer placing a glass of water on the hood of a Mercedes and on that of a Lexus. When the engines were running, only the glass of water placed on the Mercedes moved, which suggested that the Lexus engine did not create jolts and that, consequently, the ride was smoother. Lexus buyers were more than satisfied; they were thrilled and bragging about their new automobile to their friends. They thus became the best salespeople in the company.
Question I
What dilemma does automaker Mercedes face?
Question II
What steps could automaker Mercedes take to respond to competition from automaker Lexus?