Page 337 - Introduction to Business

CHAPTER 9 Developing the Product and Pricing Mixes 311

Case in Point

DaimlerChrysler Relies on Product Design
to Escape Performance Doldrums

When compared to the other major personality. Get the proportions right—an elegantly
automobile makers such as Toyota, Nissan, Honda, curved shoulder line or an innovative grill—and you
General Motors, and Ford, the numbers for can add up to 1% to the sticker price and still outsell
DaimlerChrysler in 2003 were not good. Its total rivals.” In order to get it right, companies are
market value ranked fourth, as did its operating profit increasing design budgets, creating high-tech design
as a percentage of revenues. It took DaimlerChrysler studios, borrowing ideas from art, architecture,
28 hours to produce one vehicle—last among the Big fashion, and furniture, using three-dimensional
Six—and its 311 defects per 100 vehicles produced modeling software, and adapting designs
also ranked last. emanating from individual star designers instead
Much of DaimlerChrysler’s decline has been of from design committees. Top designers like
blamed on its $36 billion acquisition of Chrysler in BMW’s Christopher Bangle and VW’s Murat
1998, although having to pump in $7 billion to cope Guenak earn a million dollars annually and have
with losses occurring with its Japanese partner, access to the executive suite.
Mitsubishi, didn’t help either. While Mercedes DaimlerChrysler has several models that rank high
automobiles are perceived as having “muscular on design. The Chrysler 300C ($24,000) has a Bentley
engines, prestigious sedans, and leading-edge look to it and is part of Chrysler’s effort to move the
technology,” Chrysler is viewed as having unpopular brand upscale. The Smart Roadster ($31,000), part of
models, inefficient factories, and a weak brand image. the Mercedes Smart super-mini series, is viewed as
The result: red ink at Chrysler, including an being “sassy, quick and light” and as a “great
unexpected $1 billion loss in the second quarter of grandson of the MG.” The 2004 Chrysler Crossfire
2003 and an operating loss for the whole year. was influenced by the design of the 1999 Audi TT. At
Overall, the acquisition of Chrysler is blamed for the the top of the list is the Mercedes-Berg SLR McLaren
$40 billion decrease in shareholder value since 1998, (priced at a whopping $450,000); it has a 626
a catastrophe that has angered not only horsepower engine and has “big, brutish,
DaimlerChrysler shareholders but large asset- uncompromising power.”
management firms like DWS and Deka Investment.
Source: Gail Edmondson and Kathleen Kervin, “Stalled,”
These investment firms hold significant stakes in the Business Week, September 29, 2003, pp. 54–56; Gail Edmondson,
company and are questioning how Chrysler’s dismal Chester Dawson and Kathleen Kervin, “Designer Cars,” Business
Week, February 16, 2004, pp. 56–61; and Gail Edmondson, “Daimler
performance justified Daimler’s management team
Fumbles Are Firing Up Europe’s Shareholders,” Business Week,
receiving $48 million in compensation in 2003. April 19, 2004, p. 56.
In trying to cope with the Chrysler mess, Daimler
Questions
will be forced to recognize and adjust to a new trend
that is credited with driving sales of automobiles in 1. Do you believe design is a more important factor
the new millennium: design. Because of the in purchasing a car than performance or price?
significant increase in the number of models—up Why or why not?
from 910 in the U.S. in 1995 to 1,314 in 2002—and the 2. Do you believe it is all right for top automobile
improvement in car quality as measured by the designers to be making over a million dollars
number of defects, models are viewed as “me too” by annually? Why or why not?
the car-purchasing consumer. How to differentiate 3. In view of Chrysler’s poor performance, do you
one model from another? The answer appears to be believe Daimler’s management deserved to earn
through styling: “create a car with a strong $48 million in 2003? Why or why not?

A product’s quality is a function of its physical aspects. Some companies may product’s quality The physical aspects
offer different levels of quality for its products. For many years, Sears had three of a product that affect its level of
performance
levels of quality for its Craftsman tools: good, better, and best. Often, if cus-
tomers perceive that a product has high quality, the company can charge a
higher price for it. On the other hand, Japanese car manufacturers, such as
Honda and Toyota, were able to offer high-quality cars at lower prices, thereby

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