Question

Read the following marketing case on GM: Downsizing the Hummer and answer the questions given at the end of the case.

                                                                                               

MARKETING CASE

GM: Downsizing the Hummer

A Little Military History

Quickly. What is a "High Mobility Multi-Purpose Wheeled Vehicle"? Well, if you've kept up with Arnold Schwarzenegger films or studied the 1991 Gulf War, you may have recognized the formal military description of what soldiers describe using the acronym "Humvee." If you don't really know what a Humvee is, just stand by—General Motors is going to tell you.

This story starts in 1979, when AM General, a specialty vehicle manufacturer, earned a contract from the U.S. Army to design the Humvee. The Army wanted a new vehicle to replace the Jeep, the ever-present multipurpose vehicle that had transported generations of soldiers. The Army believed it needed a more modern, up-to-date vehicle to meet the needs of the modern soldier. AM General produced the big, boxy Humvee, which labored in relative obscurity until the Gulf War in 1991. In that war, the United States and its allies mounted a military operation against Iraq, which had just invaded Kuwait. Television coverage of the military buildup in advance of the short war and live broadcasts of the war itself introduced the public to the workhorse Humvee.

In 1992, AM General, responding to the Humvee's notoriety, decided to introduce the first civilian version of the Humvee—the Hummer. Weighing in at 7,100 pounds, the Hummer featured a huge, 6.5-liter V-8, turbo-diesel engine that produced 195 horsepower and propelled the Hummer from 0 to 60 miles per hour in a snail-like 18 seconds. But the Hummer's purpose was not speed. AM General designed it, like its military parent, to take people off the beaten path—way off. The Hummer could plow through water to a depth of 30 inches and climb almost vertical, rocky surfaces. It even had a central tire inflation system that allowed the driver to inflate or deflate the vehicle's tires while on the move.

The advertising tag line dubbed the Hummer "The world's most serious 4 × 4," and ad copy played up the vehicle's off-road capabilities and its military heritage. AM General targeted serious, elite road warriors who were willing to pay more than $100,000 to have the toughest vehicle in the car pool. These were people who also wanted to tell the world that they had been successful. To help buyers learn how to handle the Hummer in extreme off-road situations, AM General even offered a Hummer Driving Academy, where drivers learned to handle 22-inch vertical walls, high water, 40 percent side slopes, and 60 percent inclines.

GM's Market Research

In 1998, GM was conducting market research using a concept vehicle that it described as rugged and militaristic. When the vehicle bore the GMC brand name (GM's truck division), the company found that consumers had a lukewarm reaction. However, when GM put the Hummer name on the vehicle, researchers found that it had the highest and most widespread appeal of any vehicle GM had ever tested. Armed with this insight, GM turned to AM General, which had just abandoned acquisition discussions with Ford Motor Company. In December 1999, GM signed an agreement with AM General giving GM rights to the Hummer brand. AM General also signed a seven-year contract to produce the Hummer H2 sport utility vehicle for GM.

Based on its research, GM believed that the Hummer H2, a smaller version of the Hummer, would appeal to rugged individualists and wealthy baby-boomers who wanted the ability to go off-road and to "successful achievers," thirty- and forty-something wealthy consumers who had jobs in investment banking and the like. GM believed that it could introduce the H2 in the luxury SUV market and compete successfully with brands such as the Lincoln Navigator or GM's own Cadillac Escalade. The company charted production plans that called for AM General to build a new $200 million manufacturing facility in Indiana and for GM to launch the H2 in July 2002 at a base sticker price of about $49,000. It predicted that it could sell 19,000 H2s in 2002 (the 2003 model year) and then ramp up production to sell 40,000 units per year thereafter—a number that would make the H2 the largest seller in the luxury SUV market. Further, GM planned to introduce the H3, a still smaller and more affordable version of the Hummer in 2005. It believed it could sell 80,000 units of the H3 per year. These numbers compared with annual sales of only about 800 Hummers.

Softening Up the Market

During 2000, GM and AM General did not advertise the Hummer, but they mapped out a campaign for the year leading up to the H2's 2002 introduction that would raise awareness of the Hummer brand and serve as a bridge to the introduction. GM hired a marketing firm, Modernista, to develop the estimated $3 million campaign. Modernista found that the Hummer had about a 50 percent awareness level among buyers of full-size SUVs, mainly due to its appearance in movies. AM General had been spending less than $1 million a year on advertising and promotion. Further, 13 to 20 percent of these buyers had considered the Hummer.

In mid-2001, GM launched the Modernista campaign using the tag line "Hummer. Like nothing else." Placements in The Wall Street Journal, Barron's, Spin, Business Week, Cigar Aficionado, and Esquire used four different headlines:

"How did my soul get way out here?"

"What good is the world at your fingertips if you never actually touch it?"

"You can get fresh air lots of places, but this is the really good stuff."

"Out here you're nobody. Perfect."

Following each headline was the same copy: "Sometimes you find yourself in the middle of nowhere. And sometimes in the middle of nowhere you find yourself. The legendary H1." One agency official said the ads used journalistic-type photography to make them more believable and to play down the he-man imagery. "Authenticity is probably the most important word when it comes to branding," the official argued. Whereas previous Hummer ads had featured the tough SUV plowing through snow and streams, the new ads featured the Hummer with gorgeous Chilean vistas. The new ads, the agency suggested, were as much about the people who buy Hummers as they were about the vehicle. Hummer owners often believed they got a bum rap as show-offs, the representative suggested, but he argued that the new ads would show the buyer's other side.

The Launch

Right on schedule in July 2002, GM introduced the 2003 Hummer 2 SUT (Sport Utility Truck). GM and AM General designed and built the H2 in just 16 months, much more quickly than the three-to-four-year time normally required. GM built the H2 on GM's GMT 800 truck platform, and it shared a number of parts with other GM models. The H2 was about the same size as the Chevy Tahoe, five inches narrower than the Hummer and about 700 pounds lighter. However, it was about 1,400 pounds heavier than other SUVs. It had a 316-horsepower engine that slurped a gallon of gasoline every 12 miles. It also featured a nine-speaker Bose stereo system. Buyers could upgrade the base model with a $2,575 luxury package that added heated leather front seats and a six-disc CD changer or with a $2,215 Adventure package that added sir suspension, brush guards, and crossbars for the roof rack.

GM had about 150 dealers who would initially offer the H2. The dealers had to agree to build a special showroom and a test track.

For promotion, GM stayed with the Modernista firm. Late in the summer of 2002, TV ads broke on shows such as CSI: Miami and featured a well-dressed woman behind the H2's steering wheel. The Modernista representative indicated that the message was that the H2 is not about blowing things up. Twenty-four print ads showed the H2 not in action but sitting still. Modernista believed that people knew the H2 would be tough—it wanted people to see that the H2 looked good.

The On-Road Test

GM targeted buyers with an average age of 42 and annual household incomes above $125,000 versus H1 owners' averages of about 50 years old and household incomes above $200,000. The questions were, could GM position the H2 to appeal to its target market, and was that market large enough to ensure that GM could reach its sales and profitability targets?

One writer who had driven the H2 found it to be comfortable and surprisingly smooth on the highway. However, he criticized the interior and the lack of storage space. He noted that the H2 seated just six people versus eight or nine for other large SUVs.

Analysts argued that GM was pursuing a risky strategy. Would its having borrowed parts from other GM models to keep costs down and speed the time to market damage the H2's image? Would GM be able to justify the H2's high price when it had so much in common with other SUVs that cost thousands less? Would consumers really spend so much for an off-the-road vehicle that, studies showed, only 10 percent of image-conscious buyers would actually take off road? Finally, could GM make the Hummer 2 stand out in an increasingly crowded market? (See Exhibit 1.)

Arnold Schwarzenegger appeared in an H2 promotional video suggesting, "Don't call it the baby Hummer, you'll make it angry." Will the Hummer H2 be a hum-dinger and make GM happy, or will it get stuck in the rocky luxury SUV market?

HUMMER H2'S EXISTING OR COMING COMPETITION
Model/Manufacturer	Base Price
BMW X5 4.6is	$66,845
Mercedes G500	$73,165
Cadillac Escalade EXT	$50,015
Land Rover Range Rover	$69,995
Lincoln Navigator	$48,775
Porsche Cayenne	$45,000–$75,000
Volvo XC 90	$35,000–$45,000
Cadillac SRX	$40,000–$50,000
Infiniti FX 45	$40,000–$50,000
Source: Gregory B. White and Joseph L. White, "Automakers Take One-Up-Manship to New Level with New Extreme SUVs," Wall Street Journal, July 19, 2002, p. W1.

Required Question:

Question 01:How are the segmentation decisions of GM for Hummer H2 different from AM General's target for the original Hummer? How has GM attempted to position the H2? ( 10 )

Answer 1

The original Hummer segment was different from H2. While the original hummer priced at $100,000 did not find many buyers and was for the people who really wanted to stand out. It was not positioned as an SUV but a military truck and people who would like to buy them would be less. Thus, its segment was niche, people who are very rich and also want to take the passion of driving off-road in reality. Because, there was also Hummer academy, to help buyers learn to handle tough terrains. As mentioned there were the least luxuries in the original one, to impress many wealthy people.

However, H2 was positioned as a luxury SUV or Sport Utility Truck, it was lighter. Had luxury accessories. Also, it was lower in price at around $40,000

Thus, it was targeted towards the people who were 40+, wealthy enough to purchase and sustain it, highly individualistic, and would like to go off-road or have a passion for it.

Thus, original hummer, much more in price with lesser urban facilities was for niche customers, who are actually passionate to take it off-road

While H2 had customers who were individualistic, wealthy, urban, and have an interest in off-road driving.