Hummer marketing challenge case study

Hummer

The consumer version of the Hummer has been one of the strongest stories in the automotive world in the 2000s. The original consumer Hummer may not have sold well, but its visibility far outstripped its sales, a direct result of celebrity ownership and the ostentatious nature of the vehicle. The strong buildup of brand equity led to the success launch of the H2, a more consumer-friendly variant. This was followed by the arrival of the H3. However, in recent years, sales of Hummer products have slumped. Part of the sales slump might be attributed to the honeymoon wearing off. The vehicles are not viewed as practical, and most owners have at least two other vehicles to fill their automotive needs. Additionally, the entire SUV category has suffered shifting social trends and the impacts of higher fuel prices and signs of long-term instability of fuel supply.

General Motors, owner of the Hummer brand, is faced with the prospect of reversing the recent downward trend in Hummer sales. The company realizes that the Hummer has tremendous brand equity and high visibility among consumers. Therefore, the company is working on a strategy to improve sales in North America. GM needs to determine the best way to market the Hummer for the current environment. There is little evidence that the promotional tactics have been ineffective. Rather, it appears that the product no longer matches with the needs today's consumers.

There is reason to believe that Hummer's target market has not shifted its decision-making criteria, however, given the vast gap between the Hummer's target market and the current trends in the automotive industry.

As a result, the problem facing GM with respect to marketing the Hummer in Canada is the product itself. The value proposition of the Hummer has limited its appeal beyond a narrow target market. Yet, there is still substantial room within the SUV and light truck segments for the Hummer to grow. Hummer's brand equity is strong, but the company needs to find ways to adapt the product to meet with the demands of members of the target market who have thus far spurned the Hummer. GM must adapt the product to give it a wider potential audience, if the company is to grow Hummer sales in the coming years.

Part II. Objectives

General Motors must develop a marketing plan to increase the sales of the Hummer. They must adapt the product to meet today's market conditions. This can be done over both the long-term and short-term. Short-term objectives will be for the next two years; long-term will be for the 2-5-year period.

A. Short-Term

Move sales beyond the early adopters and into the early majority group

Identify product improvements that would allow the Hummer to appeal to the later majority

Identify low-cost improvements that could provide a short-term improvement to the Hummer's value proposition

Identify potential new market segments

Defend the Hummer's premium reputation

B. Long-Term

Develop the next generation Hummer

Move into late majority stage of adoption

Take the Hummer to overseas markets

Exploit all potential niches

Part III: Situational Analysis

A. SWOT

Strengths

Strong market share for SUVs and light trucks. Canada is the world's second-largest SUV market by volume and has one of the highest market shares in the world. Plus, when light trucks are added, Canada has a very strong market.

Strong brand equity.

Not only is the Hummer name instantly recognizable, but the vehicle is, too. Among the target market, the Hummer name has a positive association.

Strong distribution through GM network. Hummers are available nationwide. Thus, capacity exists in the distribution network to take the Hummer to the mass market.

Sturdy vehicle. The Hummer's design has many strengths that can be leveraged for marketing purposes.

Status appeal. The Hummer's value as a status symbol has not been diminished significantly as a result of recent environmental changes.

Weaknesses

Customer feedback indicates that the Hummer lacks the comfort of competing vehicles.

The Hummer's fuel economy is terrible; and GM has hesitated to make improvements even though it has the ability to do so.

There is circumstantial evidence to support that the Hummer is overpriced relative to competitors

The Hummer's marketing to this point has not been well-segmented, leaving significant potential market share on the shelf

Both Hummer models are essentially niche vehicles, and the market still sees them this way

The H3 is still in the early adoption phase

Opportunities

Move H3 into early majority stage of adoption.

Find alternate uses, to better compete with light trucks. SUVs represent 19.16% of the Canadian new vehicle market; light trucks in total represent 43.45%, meaning that SUVs have significant growth potential if they can cross-over in terms of customer base.

Make product improvements to better appeal to the demands of today's consumers. This is especially important for the H3, which was designed as a mass market product (Peters, 2005) but has yet to attain such market penetration.

Improve fuel efficiency and use that as a competitive advantage over other SUVs. The H3 is competitive with respect to fuel efficiency and emissions (FuelEfficiency.gov, 2009). If GM added technology it already has to improve fuel efficiency, this could be a point of promotion.

Given the fact that it is a niche vehicle for most of its owners, and leverage its stability to promote it as a winter vehicle of choice.

Threats

Social trends. Not only are hybrids becoming more popular, but SUVs and the Hummer in particular have become a lightning rod for environmental activists. This hurts sales and can damage the firm's reputation, causing long-term harm.

The economy. For its current market, the Hummer is a luxury vehicle, a status symbol. This market typically owns other vehicles; therefore the Hummer is a relatively unnecessary item, which could lead to steep sales declines in the event of economic downturn.

Market saturation. The Hummer is at present a niche vehicle. If the market becomes saturated, sales will decline until existing owners need new Hummers.

Competition. The SUV segment is highly competitive in Canada, with dozens of different vehicles on the market. Competition is based on price, promotion and product. Increasing competition means that the Hummer must defend its market position on all of these fronts.

Fuel prices. The Hummer, having the perception of terrible gas mileage, is especially susceptible to increases in gas prices. When gas prices rise, Hummer sales decline. Given that the world is past peak oil, price increases are more likely than decreases going forward.

Environmental Factors

Social. The current social trend is towards more environmentally friendly vehicles. Hybrids and E85 capable vehicles are being developed by the major manufacturers to meet this demand, even within the SUV field. SUVs in general and the Hummer in particular are perceived as being unfashionable by a large segment of the market. This has in turn begun to marginalize the Hummer, just when GM had begun to take the H3 to the mass market. Hummers, which were the epitome of cool when launched, are now the epitome of uncool for much of today's automobile market. While this trend has yet to reach the vehicle's existing market, it has reached the vehicle's potential future market, to detrimental effect.

Economic. The Canadian economy is teetering on the brink of recession. Other developed markets have entered recession. While the Canadian market is well-structured to avoid the worst of recession, discretionary spending can be expected to decline. The current market for Hummer vehicles is middle-aged, male and white. They own other vehicles. The Hummer for them is less a necessity than a status vehicle. Thus, Hummer sales can be expected to suffer in the current economic climate. Already Hummer sales have slumped to the point where GM is considering selling the unit (Bensinger, 2008).

Technological. Several technological shifts are at work in Hummer's operating environment. Many competitors now offer E85 capabilities, allowing consumers to use E85 ethanol fuel. Some smaller SUVs are now available as hybrids, such as the Cadillac Escalade and the Toyota Highlander. The Hummer, by contrast, is almost gleefully anachronistic in its lack of adoption of modern fuel efficiency and comfort technology. In this respect, the Hummer has taken a similar approach to technology as Harley-Davidson. However, this tactic represents a significant risk for Hummer, since it effectively condemns them to their niche market at a time when they are trying to take the H3 to the mass market.

Regulatory. Under normal circumstances, the regulatory environment has little to affect competition in the automobile industry. The products of all firms are sufficiently similar that few are exempted from the impact of regulatory shifts. There is a real risk, however, that Hummer may be subjected to adverse legislation at some point in the future. There is the potential, for example, for some jurisdictions to impose fuel economy limits on vehicles, which could adversely affect the Hummer.

Competition. The competitive environment for SUVs is characterized as unfavourable. There is high intensity of competition. Firms are subject to high investment costs and high exit barriers. There is some degree of substitution, from light trucks for example. 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.