Last October, Mercedes-Benz ran a competition among business schools like Harvard, New York University, Wharton and Kellogg, in cooperation with New York University, to find out what the emerging target market for the Mercedes-Benz actually thinks of the brand.

Participants in the competition were an international and multi-ethnic group organized into teams. Each of team was made up of students from different schools, and one student adviser from Mercedes-Benz.

According to Steve Cannon, Mercedes-Benz USA VP marketing, the students which were the best and brightest at elite business schools received a financial incentive to participate in the competition. The first day was spent at Mercedes-Benz headquarters in Montvale, N.J., and the next day they were locked in a hotel nearby.

Mercedes-Benz USA gave the teams a direct assignment: ” Assess the Mercedes-Benz brand in terms of how well it connects with younger, Gen Y Americans — whose age starts at around 31 years old — and offer recommendations on how the Mercedes-Benz can appeal to upwardly mobile people to this group and their peers.

The assignment wasn’t just an idle exercise, in two years Mercedes-Benz will be bringing a new car to the U.S. market, the A-Class. The A-class, like BMW’s 1-Series car will be the new entry point for younger luxury-brand car shoppers.

What Cannon took away from the study is that Gen-Y was rather cool on the Mercedes-Benz brand. The overall response was that Gen-Y admired the brand, but didn’t connect with it. They had a distant kind of respect for Mercedes-Benz, associating it with a much older consumer. Cannon wants Mercedes-Benz to close that gap with dream-car products like the Mercedes-Benz SLS AMG gull-wing shown at the New York International Auto Show, and with the new A-Class vehicles set for release in 2013.

Another result from the competition is that Mercedes-Benz has to acknowledge this generation’s sophistication around social media, and how 20- and 30-somethings experience the Mercedes-Benz showroom. Gen-Y is a generation of digital natives. They live in the digital space, and they are data-obsessed’. This means when they go into Mercedes-Benz showrooms they will have done their homework. So, with salespeople, there is a clear disconnect with them if the sales guy doesn’t know their product.

One positive item that came from the assignment, was that Gen-Y and the students said Mercedes-Benz is a brand that resonates with them. They feel that Mercedes-Benz stands for everything that matters to them in a motor vehicle; safety, environmental issues, quality, etc. In the end they connect with what the core Mercedes-Benz brand represents, but according to Cannon, Mercedes-Benz needs to reach out to them in a way that is relevant, and real.

This is where Mercedes-Benz re-thought their approach to Social Media. Realizing that this new target audience uses the vastness of Social Media networks to source information about products and services they know they must re-think their approach. Mercedes-Benz knows that Gen-Y is not their primary buyer at this point, and they are not rushing to execute without a solid strategy. Cannon and Mercedes-Benz know that they need to have a rock solid plan before tackling Social Media head on. If they don’t, the repercussions could impact their brand presence for years to come. Mercedes-Benz is in a listening and learning phase as they develop a solid long-term strategy.

Part of the tactics that Mercedes-Benz  is looking at to get the Gen-Y audience into showrooms down the road includes giving influential young people an inside line to forthcoming vehicles. They are  thinking abut such things as giving five of the best business schools A-Class prototypes for several weeks to try, and talk about with peers. This allows them to share their personal experience with a car nobody has seen or driven. This first hand knowledge allows them to become insiders with social capital. That social capital on the social networks they use helps them to become brand ambassadors for Mercedes-Benz, and the trust that their peers have in their perceptions can’t be bought. Mercedes-Benz is going to have to understand social networks in a very intimate way and more over, Mercedes-Benz needs to understand what kind of ‘social capital’ is important enough to be shared. Mercedes-Benz is heading down the right road in terms of how to engage social mavens, but the jury is out on how effective social mavens are in building brand or product buzz. The key for Mercedes-Benz is to develop a reciprocal relationship with their consumer base. That kind of relationship has a reciprocal benefit that helps to establish the foundation for trust with your target audience. The consumer gets the benefit of having been invited to the table. The manufacturer benefits by being directly connected and listening to the consumer. Developing social capital, like brand equity, is a lengthy process that Mercedes-Benz is engaging in. Since you have to start somewhere, and marketing through Social Networking is so new, there really isn’t a downside. Even if it takes years to build these connections.

Mercedes-Benz biggest challenge is going to be explaining to this Gen-Y audience why the A-Class is a legitimate, premium, Mercedes-Benz vehicle. Since most of the target North American audience will have little to no knowledge of the product, and that audience will compare it to the existing  Mercedes-Benz lineup it will take time to articulate. The nice thing is Mercedes-Benz has almost 2 full years to build buzz for the A-Class, and if they do it right they will land a loyal following of new buyers for years to come.