Marketing: Segmentation, Growth, Building Brand
Hummer Case Study
Marketing 801
Lisa Jarrell
Peter Lucas
Rick Papes
Rob Steier
Kris Wong
Question 1: What types of market segments exist for the Hummer in the business-to-business market and in the consumer market?
Business Market Segmentation (B-2-B)
AM General produced a vehicle known as the HUMVEE exclusively for the military until GM took over marketing and sales in 1999. Now known as the Hummer, the vehicles produced for the US military are still the largest part of the brand's B-2-B sales. These vehicles meet a strict set of specifications that call for maximum utility and protection. In addition to the ongoing demand from the US military, there are some growth opportunities for the Hummer brand in various other business market segments including the INS Border Patrol, ambulance and fire rescue teams, private military contractors, and private leasing companies. Overall, however, the business-market side of the brand promises somewhat limited growth opportunities, even with the ongoing US war on terrorism. In response to the changes in this market and the need to reach a wider target audience, Hummer has aggressively expanded its operations in the consumer market.
Consumer Market Segmentation (B-2-C)
When GM originally took over marketing for the consumer side of the Hummer brand, only one version of the vehicle was available, the H1. This vehicle bore a close resemblance to its military counterpart. It was marketed as the ultimate off-road vehicle. Because of its extremely high price and unique styling, it appealed to only to a small percentage of the auto market. Realizing the limitations of this version of the Hummer, GM quickly launched a second version, the H2. The H2 was smaller, more practical, and most importantly, much more affordable. While the vehicle still exuded everything that symbolized Hummer, it was the first offering by the brand that was feasible for upper-middle class consumers to own.
Hummer has always appealed to consumers of a certain mindset. Susan Docherty, Hummer General Manager, describes the Hummer brand as "... a brand proposition of iconic design and unparalleled off-road capabilities."[i] This type of market segmentation focuses on benefits sought by the Hummer consumer, specifically, status and utility. Hummer could also segment its markets psychographically, targeting adventure-loving and self-reliant individualists who often happen to be male, self-employed, or entrepreneurs.[ii] However, we believe the most appropriate characteristic for segmentation in the consumer market is income level. A lack of affordability has been the primary factor preventing interested consumers from purchasing a Hummer since they first became available to the public. The H1 line today ranges between $129,400 and $140,800 and is therefore only available to the wealthiest of consumers. Even the H2 line, which starts at a comparably modest $53,855, is out of reach for the majority of consumers. Recognizing this, GM began production of the H3 in 2005 in an effort to tap into an even larger segment of the consumer market. The H3 ranges between $29,500 and $32,730 and has an average fuel consumption of 20 miles per gallon, a big improvement over previous versions.
Question 2a: What are the pros and cons of the market segments? (See table below)
(P = Primary Markets, S = Secondary Markets, Green = Potential Market or Product Synergies.)
Market Segments
↓
group attributes
pros & cons
↓
by
products→
H1
Alpha
H2
H2
SUT
pickup
H3
H3T
pickup
H3ST
soft-top
B-2-C
1.Demographic:
Income-
"Upper Class"
+ can easily afford
- small market
P
S
S
S
S
S
B-2-C
2.Demographic:
Income-
"Upper-Middle Class"
+ slightly larger market
- competition
P
P
S
S
S
B-2-C
3.Demographic:
Income-
"Middle Class"
+ best long-term growth potential
+ appeals to much wider audience
+ very large market
- lower status than H1/H2
P
P
P
B-2-C
4. Demographic:
Gender-
"First time Female owners"
+ previously male dominated brand seeking growth in female ownership
P
B-2-C
5.Geographic- "Global Markets"
+ a growth market
+ Hummer now expanding to S.Africa, Canada
- cultural barriers
P
B-2-C
6. Psychographic
"Adventure-loving"
+ unparalleled off-road capabilities
P
P
P
P
P
P
B-2-C
7. Psychographic
"Self-reliant"
+ appeals to wealthy non conformists who don't care what others think
P
P
P
P
P
P
B-2-C
8. Benefits
Sought:
"Status"
+ "iconic design"
P
P
P
P
P
P
B-2-C
9. Benefits Sought:
"Utility"
+ "unparalleled off-road capabilities
P
P
P
P
P
P
B-2-B
10. Government
"Military"
+ US military primary B-2-B customer for "war on terror"
+ ongoing needs
P
P
P
P
P
B-2-B
11. Government
"Border Patrol"
+ pending legislation could increase need for additional purchasing
- limited market
P
P
P
P
B-2-B
12. Government
"Emergency Operations"
+ hurricanes earthquakes, other disasters increasing
- limited market
P
P
S
S
S
B-2-B
13. Private
"Leasing Companies"
+ potential short-term work projects or leisure
- limited market
P
P
B-2-B
14. Private
"Gov't / Military
Contractors"
+ "war on terror" operations
- limited market
P
Question 2b: Which markets should GM target given the falloff in demand from the government segment and possibly in some consumer segments? (See highlighting above)
Hummer Should Primarily Target the Middle-Class Market Segment
The middle class demographic segment offers the best growth potential and the H3 is designed with the middle class in mind. Susan Docherty said, "It's ideal for consumers who wanted a Hummer, but either because of the size of the vehicles or their budget, hesitated. The H3 is a great next logical move for us because it makes the brand more accessible for those who really want to get into the brand."[iii] The H3 has a good marketing mix of price (~$30,000), promotion (safety and unique style), place (widely distributed in the US and starting soon in a few global markets) and product (a lighter, gas-saving Hummer that can be driven easily in the city as well as off-road). If it became necessary to consolidate the brand into one market segment, we believe the middle class consumer segment offers the best prospects for future growth and market synergies. The Argument for Primarily Targeting the Middle-Class Market Segment
The middle class market segment offers far more opportunity for growth and new product offerings than other segments. Because of its price, the H1 is affordable for only a very small segment of the consumer market, which is reflected in the fact that less than a thousand are sold annually. The H2 has more market potential than the H1 since the consumer base for this vehicle is larger. This vehicle competes with BMW, Mercedes, Lexus, Infinity, Cadillac, etc. Although GM has the benefit of consumer perception of the Hummer brand in this segment, it still represents a relatively small part of the consumer market and therefore has limited growth potential. By targeting the middle class consumer, Hummer avails itself to the largest of the three demographic/income segments and therefore has the most potential for growth. Not only could Hummer offer products that would be a primary product for this segment, but these products may also be a secondary product for other segments. As GM is currently taking this direction with Hummer, offering new products and expanding the marketing activities to this segment has enormous potential. Since Hummer is also relatively new in this market, they have more flexibility in finding the marketing plan that works best for the brand. The only difficult aspect of expanding operations in this segment is doing so while still maintaining the brand image currently associated with Hummer.
When considering factors outside the automotive industry, the rising cost of oil is an obvious concern. While fuel economy has never exactly been high on the typical Hummer customer’s priority list, rising gas prices are giving increasingly more consumers cause to think twice about purchasing fuel-inefficient vehicles. If Hummer continues to grow into the middle class segment, this will become an increasing concern, not only from a fuel economy perspective, but also from an environmental awareness perspective. While the H3 does provide better gas mileage than either of its predecessors, there is still work that needs to be done in this arena. With the advent of new engine technologies and alternative fuels, Hummer has opportunities to improve in this area. Failure to address this issue would restrict future growth.
[i] Road Test: Hummer H3: In the Army Now: Vanessa Suarez. Newsweek New York: Oct 24, 2005. Vol.146, Iss. 17, p.80
[ii] Cars.com website. http://www.cars.com March 31, 2006
[iii] More Fuel Efficient H3 Aims to Pump Hummer: Karl Greenberg. Brandweek New York: May 16, 2005. Vol.46, Iss.20, p.18
Marketing 801
Lisa Jarrell
Peter Lucas
Rick Papes
Rob Steier
Kris Wong
Question 1: What types of market segments exist for the Hummer in the business-to-business market and in the consumer market?
Business Market Segmentation (B-2-B)
AM General produced a vehicle known as the HUMVEE exclusively for the military until GM took over marketing and sales in 1999. Now known as the Hummer, the vehicles produced for the US military are still the largest part of the brand's B-2-B sales. These vehicles meet a strict set of specifications that call for maximum utility and protection. In addition to the ongoing demand from the US military, there are some growth opportunities for the Hummer brand in various other business market segments including the INS Border Patrol, ambulance and fire rescue teams, private military contractors, and private leasing companies. Overall, however, the business-market side of the brand promises somewhat limited growth opportunities, even with the ongoing US war on terrorism. In response to the changes in this market and the need to reach a wider target audience, Hummer has aggressively expanded its operations in the consumer market.
Consumer Market Segmentation (B-2-C)
When GM originally took over marketing for the consumer side of the Hummer brand, only one version of the vehicle was available, the H1. This vehicle bore a close resemblance to its military counterpart. It was marketed as the ultimate off-road vehicle. Because of its extremely high price and unique styling, it appealed to only to a small percentage of the auto market. Realizing the limitations of this version of the Hummer, GM quickly launched a second version, the H2. The H2 was smaller, more practical, and most importantly, much more affordable. While the vehicle still exuded everything that symbolized Hummer, it was the first offering by the brand that was feasible for upper-middle class consumers to own.
Hummer has always appealed to consumers of a certain mindset. Susan Docherty, Hummer General Manager, describes the Hummer brand as "... a brand proposition of iconic design and unparalleled off-road capabilities."[i] This type of market segmentation focuses on benefits sought by the Hummer consumer, specifically, status and utility. Hummer could also segment its markets psychographically, targeting adventure-loving and self-reliant individualists who often happen to be male, self-employed, or entrepreneurs.[ii] However, we believe the most appropriate characteristic for segmentation in the consumer market is income level. A lack of affordability has been the primary factor preventing interested consumers from purchasing a Hummer since they first became available to the public. The H1 line today ranges between $129,400 and $140,800 and is therefore only available to the wealthiest of consumers. Even the H2 line, which starts at a comparably modest $53,855, is out of reach for the majority of consumers. Recognizing this, GM began production of the H3 in 2005 in an effort to tap into an even larger segment of the consumer market. The H3 ranges between $29,500 and $32,730 and has an average fuel consumption of 20 miles per gallon, a big improvement over previous versions.
Question 2a: What are the pros and cons of the market segments? (See table below)
(P = Primary Markets, S = Secondary Markets, Green = Potential Market or Product Synergies.)
Market Segments
↓
group attributes
pros & cons
↓
by
products→
H1
Alpha
H2
H2
SUT
pickup
H3
H3T
pickup
H3ST
soft-top
B-2-C
1.Demographic:
Income-
"Upper Class"
+ can easily afford
- small market
P
S
S
S
S
S
B-2-C
2.Demographic:
Income-
"Upper-Middle Class"
+ slightly larger market
- competition
P
P
S
S
S
B-2-C
3.Demographic:
Income-
"Middle Class"
+ best long-term growth potential
+ appeals to much wider audience
+ very large market
- lower status than H1/H2
P
P
P
B-2-C
4. Demographic:
Gender-
"First time Female owners"
+ previously male dominated brand seeking growth in female ownership
P
B-2-C
5.Geographic- "Global Markets"
+ a growth market
+ Hummer now expanding to S.Africa, Canada
- cultural barriers
P
B-2-C
6. Psychographic
"Adventure-loving"
+ unparalleled off-road capabilities
P
P
P
P
P
P
B-2-C
7. Psychographic
"Self-reliant"
+ appeals to wealthy non conformists who don't care what others think
P
P
P
P
P
P
B-2-C
8. Benefits
Sought:
"Status"
+ "iconic design"
P
P
P
P
P
P
B-2-C
9. Benefits Sought:
"Utility"
+ "unparalleled off-road capabilities
P
P
P
P
P
P
B-2-B
10. Government
"Military"
+ US military primary B-2-B customer for "war on terror"
+ ongoing needs
P
P
P
P
P
B-2-B
11. Government
"Border Patrol"
+ pending legislation could increase need for additional purchasing
- limited market
P
P
P
P
B-2-B
12. Government
"Emergency Operations"
+ hurricanes earthquakes, other disasters increasing
- limited market
P
P
S
S
S
B-2-B
13. Private
"Leasing Companies"
+ potential short-term work projects or leisure
- limited market
P
P
B-2-B
14. Private
"Gov't / Military
Contractors"
+ "war on terror" operations
- limited market
P
Question 2b: Which markets should GM target given the falloff in demand from the government segment and possibly in some consumer segments? (See highlighting above)
Hummer Should Primarily Target the Middle-Class Market Segment
The middle class demographic segment offers the best growth potential and the H3 is designed with the middle class in mind. Susan Docherty said, "It's ideal for consumers who wanted a Hummer, but either because of the size of the vehicles or their budget, hesitated. The H3 is a great next logical move for us because it makes the brand more accessible for those who really want to get into the brand."[iii] The H3 has a good marketing mix of price (~$30,000), promotion (safety and unique style), place (widely distributed in the US and starting soon in a few global markets) and product (a lighter, gas-saving Hummer that can be driven easily in the city as well as off-road). If it became necessary to consolidate the brand into one market segment, we believe the middle class consumer segment offers the best prospects for future growth and market synergies. The Argument for Primarily Targeting the Middle-Class Market Segment
The middle class market segment offers far more opportunity for growth and new product offerings than other segments. Because of its price, the H1 is affordable for only a very small segment of the consumer market, which is reflected in the fact that less than a thousand are sold annually. The H2 has more market potential than the H1 since the consumer base for this vehicle is larger. This vehicle competes with BMW, Mercedes, Lexus, Infinity, Cadillac, etc. Although GM has the benefit of consumer perception of the Hummer brand in this segment, it still represents a relatively small part of the consumer market and therefore has limited growth potential. By targeting the middle class consumer, Hummer avails itself to the largest of the three demographic/income segments and therefore has the most potential for growth. Not only could Hummer offer products that would be a primary product for this segment, but these products may also be a secondary product for other segments. As GM is currently taking this direction with Hummer, offering new products and expanding the marketing activities to this segment has enormous potential. Since Hummer is also relatively new in this market, they have more flexibility in finding the marketing plan that works best for the brand. The only difficult aspect of expanding operations in this segment is doing so while still maintaining the brand image currently associated with Hummer.
When considering factors outside the automotive industry, the rising cost of oil is an obvious concern. While fuel economy has never exactly been high on the typical Hummer customer’s priority list, rising gas prices are giving increasingly more consumers cause to think twice about purchasing fuel-inefficient vehicles. If Hummer continues to grow into the middle class segment, this will become an increasing concern, not only from a fuel economy perspective, but also from an environmental awareness perspective. While the H3 does provide better gas mileage than either of its predecessors, there is still work that needs to be done in this arena. With the advent of new engine technologies and alternative fuels, Hummer has opportunities to improve in this area. Failure to address this issue would restrict future growth.
[i] Road Test: Hummer H3: In the Army Now: Vanessa Suarez. Newsweek New York: Oct 24, 2005. Vol.146, Iss. 17, p.80
[ii] Cars.com website. http://www.cars.com March 31, 2006
[iii] More Fuel Efficient H3 Aims to Pump Hummer: Karl Greenberg. Brandweek New York: May 16, 2005. Vol.46, Iss.20, p.18
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