The power of suppliers is weak to moderate, but the power of buyers is high. There are no switching costs and the products have only limited differentiation. The Hummer has more differentiation than most of its competitors, but this does not lessen the impact of their intense competitive environment. Compounding the issue are signs that the SUV market is beginning to enter into the decline stage of the product life cycle. Firms with sunk costs will attempt to recoup those costs by increasing the intensity of competition. As a result, there will be downward pressures on prices and increased competition from other vehicle segments as companies attempt to entice former SUV customers to alternate products.
C. Marketing Strategy
Target Market. In terms of demographics, the current target market for Hummers is the middle-aged white male. This customer will have a higher than average income and from that it can be extrapolated that they have a higher than average education as well. In terms of psychographics, this customer will be of independent spirit, as evidenced by the unusually high penetration among entrepreneurs and the self-employed. This group can be categorized at Type a personalities, aggressive and ego-driven. The vehicle is a status symbol, as this group feels it necessary to flaunt their success to some extent.
Product. The Hummer is a high-end product. It has unique design features and its performance off-road is among the best in the SUV segment. The Hummer has a very distinctive design that is immediately recognizable. However, the product also suffers from a lack of innovation, and in terms of creature comforts lags the competition.
The Hummer comes in two types, the H2 model and the smaller, cheaper H3 model. The H3 deviates somewhat from the classic high-end positioning of the Hummer, but competes in a sub-segment of luxury small SUV. The SUV market is one of the largest segments in the Canadian automobile industry. The Hummer is positioned slightly above most competing models in terms of price and features, which is somewhat incongruous with its lack of technological sophistication. The positioning derives more from its architectural sophistication and strong brand equity.
Promotion. Hummers are promoted as status vehicles. They are not especially practical vehicles, but their distinctive look immediately signals to the world that the driver is a successful person. The Hummer is marketed as an expression of independence and success. As such, it is seldom subject to discounting or other form of incentive, except in recent months as inventory has built up.
Marketing for the H3 has been unique to the brand. The H3 representing a slight repositioning of the Hummer brand, towards the mass market. This required a more informative tone of ad (Peters, 2005). The core message remained, however, with respect to the brand's premium status and it is not believed that the H3 launch campaign diminished the brand equity at all.
Price. The Hummer line is priced at a premium to competing vehicles. The H2 has always been priced out of reach of most consumers, in part to enhance its status. The H3 has been positioned more of as an aspirational brand, the Hummer for people who cannot afford a Hummer. These prices are competitive within the SUV segment, but the company is clearly adopting a differentiation strategy. Price is maintained at a high level to maintain the brand's premium status, which is a key selling point. H2's range from around $50,000 to over $100,000 depending on the features. The H3 has a base price around $30,000.
Distribution. Hummers are manufactures by AM General, the vehicle's developer. They are marketed and distributed by General Motors. Because the Hummer is both a niche vehicle and a relatively new line, sales do not support stand-alone Hummer dealerships, so they are sold through GM's existing dealership network. GM salespeople are responsible for the direct selling of customers and can be expected to steer potential Hummer customers to the high end products. There is little room or impetus for any change to the distribution strategy currently employed for the Hummer.
Part IV: Potential Courses of Action
1. Upgrade the product. The Hummer's premium position is supported by its brand and its architecture but is not supported by other elements of the product itself. The vehicle lacks in both comfort and fuel efficiency. Improving these would improve the value proposition of the Hummer, enabling it to move a potentially significant roadblock to distribution.
2. Lower the price. The Hummer's high price and relatively lack of innovative features has resulted in low utility. Aside from upgrading the product, utility can be improved by lowering the price. The reduction in contribution margin can be made up by the increase in sales, enabling the Hummer to continue to cover its fixed costs. The price points, however, help support the brand's premium status. Lowering prices, especially on the H2, may eliminate or reduce the status value of the brand. Conversely, if the brand is to leave its niche and reach the mass market, it will need to lose some of that status value to make it a more approachable product for the broad market.
3. Improve/Increase promotion. The SUV market is struggling, but the typical Hummer owner is not especially concerned with gas mileage or the other social concerns driving the market. There remains an untapped potential market of Hummer owners out there, who represent the backlash against the current craze for fuel economy. Hummer could place emphasis on target this specific market. Burger King in recent years responded to the trend towards health eating by targeting its core customers, who are anything but healthy eaters. In the same way, Hummer can alter its promotional mix to appeal less to the mainstream and more towards their core of gas-guzzling, status-symbol-seeking, independent-minded middle-aged white men.
Part V: Recommendations
The most significant impediment to Hummer's success in both the short- and long-term is its lack of technological innovation. The product does not appeal to a wide consumer base simply because it does not have the features that base wants. This is on two levels. First, the wealthy individuals that form Hummer's core market demand high-end features in their vehicles. This goes beyond heated seats. They want their large vehicle to feel large. They want it to have the best technology, including with respect to fuel economy. General Motors has the technology, but does not use it in the Hummer. Second, there is no evidence that the mass market is willing to accept a technologically inferior product at a higher price. If the Hummer product is not going to be a technological leader, it should be priced lower in accordance with what it does offer.
GM, in order to spur the sales of Hummer, needs to update the product. The interior must increase in size. The fuel efficiency must improve. The Hummer should join competitors in having an E85 or hybrid option. This is especially necessary with the H3 model. The vehicle needs to be as comfortable as any competitor's vehicle, and that is not presently the case.
The other recommendation is with respect to promotion. GM Canada has no direct control over the Hummer product, but does have control with respect to its marketing. Therefore, a second recommendation is to increase promotion. The SUV market may be declining, but the Hummer still has room to grow its share of the market. It will need to in order to improve sales. The Hummer's brand equity is strong and it has significant status value.
Therefore, GM Canada should focus on reaching potential new customers. These include stragglers in the existing target market and the early majority in the H3 market. The company also needs to be more creative about finding different uses for the end product. This could open up potential for the Hummer to replace other SUV's or even light trucks as a work truck. Its offroad capabilities are a competitive advantage that can be leveraged to develop these new markets.
The product would be improved under this plan. The Hummer would become more competitive on the basis of its features and its technology. Eventually, these changes would lead to the development of the next generation of Hummer, building a true luxury platform onto its existing technology.
The price would not change. Although a price drop would undoubtedly attract new customers, it would do so at significant cost to the brand's equity as a luxury vehicle. Lowering the price could potentially take the Hummer out of the premium positioning category, which does not befit its unique architecture and history.
Promotion would focus on clients not currently being served by the Hummer market. Instead, the virtues of the Hummer as a work truck will be featured. There will be more marketing in trade publications, in particular those that reach Western Canada's backwoods industries like mining, forestry and oil drilling. Other promotion would emphasize the luxury status of the Hummer to a…