CASE: The Civilian HUMMER

Positioning A Product And Selecting Target Markets

In 1979 the U.S. Army developed specifications for a High-Mobility Multi-Purpose Wheeled Vehicle (officially designated the HMMWV, and later nicknamed the Humvee by American soldiers). The objective was to produce a versatile, lightweight vehicle to carry troops and a wide variety of equipment and military hardware over difficult terrain. Six firms submitted proposals, and three - Teledyne, General Dynamics, and AM General - were selected to produce prototype* vehicles. After rigorously testing three versions - a missile launcher, a-cargo-troop carrier, and an ambulance-provided by each bidder, the Army awarded AM General the contract to initially build 55,000 vehicles. AM General calls its HMMWV the HUMMER. Surprisingly for a military product, the name is not an acronym. It was simply selected by the company to represent the vehicle.

In 1992 AM General introduced a civilian version of its military vehicle, the High Mobility Multipurpose Wheeled Vehicle (HMMWV, or Humvee). The Hummer, as the civilian vehicle was called, became the largest production SUV (sport utility vehicle). General Motors Corporation acquired the Hummer line in 1999.

The HUMMER is the latest in a line of military vehicles that probably began with pack animals. Armies need to transport equipment, weapons, and soldiers from place to place quickly and efficiently. For the U.S. military the most versatile vehicle for that purpose, and a mainstay since World War II, has been the Jeep. Though it has gone through many variations and upgrades over the years, the Jeep always maintained its characteristic appearance. And when it was made available to the civilian market, the Jeep quickly became a familiar sight on American roads. Now AM General would like to make the same transition with the HUMMER. Following its initial purchase, the Army contracted for another 48,000 HUMMERS. However, AM General recognizes that the shrinking military market will soon be saturated, so customers for the HUMMER will have to be found elsewhere. One alternative is foreign military sales. HUMMERS have been purchased by the Philippines (150), Mexico (1000), Thailand (150), Djibouti (10), Luxembourg (29), and Taiwan (1,000). Other countries around the world have expressed interest, but sales have yet to materialize.

The other alternative is the civilian market. AM General Concluded in an unusual way that there may he business and consumer markets for the HUMMER- Actor Arnold Schwarzenegger was highly impressed with the video news footage he saw of the HUMMERS in use during Operation Desert Shield and Operation Desert Storm. For years, he claims, he had been booking for a vehicle "that-looked different, that looked powerful, that looked special." Convinced that he had found it with the HUMMER, he contacted AM General and talked the management into making and selling him a custom-built version. That started the wheels turning, so to speak. In 1991 four commercial versions of the HUMMER for civilian use were announced, with the first vehicles to be available for delivery in 1992. James Armour, president and CEO of AM General, described the strategy behind the HUMMER this way: "Although AM General is first and foremost a defense contractor, the defense industry's now changing and defense contractors must respond by looking for applications for existing products and reinvesting in new business. AM General has met the challenge with the civilian HUMMER. AM General envisions two primary business markets and a consumer market. The business markets are: Nonmilitary U.S. government agencies. Several agencies, such as the Border Patrol, Forest Service, Bureau of Land Management, and National Park Service require superior off-road mobility. Large and small businesses. Many firms operate off-road and would find a vehicle with exceptional durability highly desirable. Examples include ski resorts, timber harvesters, oil exploration firms, public utilities, ranchers and farmers. There may also be an export market of government, non-military, and business applications. The first foreign government to buy the nonmilitary version of the HUMMER was China. The Chinese Ministry of Petroleum bought five specially designed HUMMERS for use in oil exploration. The consumer market consists of off-road enthusiasts, hunters, and fishermen who are attracted by HUMMER'S performance, durability, and rugged image. The civilian HUMMER is basically the same as its military cousin. The vehicle is 6 feet tall and 7 feet wide, with a diesel V-8 engine, and 16 inches of ground clearance. It has the same drive train, chassis, engine, and basic body as the military version. Adaptations include a 12-volt electrical system (as opposed to the military's standard 24-volt system) and exterior lighting and markings to comply with federal highway standards. It also has more comfortable seats, interior padding for added safety, steel doors for improved side-impact protection, and different locks and latches for improved security. Its miles per gallon rating, is 13.6 on the highway and 13.4 off-road. The four versions of the civilian HUMMER and their base prices are: 2-passenger hard-top, $46,550 4-passenger open canvas top, $48,500 4-passenger hard-lop, $49,950 4-passenger wagon, $52,950 A number of options are available, including air conditioning, a 12,000-pound winch, a spare lire carrier, a deluxe interior package, a trailer-towing unit, and others. Some of the options are unique,

resulting from the technology developed for the Army. For example, the central tire-inflation system allows the driver to adjust tire pressure according to driving conditions. From inside the cab and while on the move, all four tires can be deflated for better traction and a smoother ride on rough terrain. Later they can be re-inflated, also from inside the cab. The complete set of options raises the top-of-the-line model's price to $65,000. The warranty on the vehicle is bumper to bumper for 36 months or 36,000 miles, whichever comes first. After 12,000 miles there is a $100 deductible charge on warranty service. Initially the product was sold from the factory. By the end of 1992, 25 dealers around the country had been granted franchises, and there were plans to add 25 more. All franchisees are existing car or truck dealerships that are adding the HUMMER as a non-competing extension of their current product lines. Dealers get an 18 percent gross margin on the selling price of each vehicle, but must provide their own financing. The franchise agreement specifies that the dealerships service manager and two mechanics be factory-trained by AM General; and requires the purchase of some special factory tools and $16,000 in spare parts. The HUMMER received an enormous amount of publicity in Operations Desert Shield and Desert Storm and as a result of the purchase by Schwarzenegger. To kick off the introduction of the civilian HUMMER, AM General announced that the first production run would be limited to 1,000 special edition vehicles, each with an identification plate engraved with the vehicle's serial number and the customer's name. AM General also received extensive publicity as a result of an arrangement with the Dallas-based Neiman-Marcus department store. For 30 years this chain has produced a Christmas catalog that offers a wide variety of gift items and a matched pair of "his and hers" super gifts. In 1991 the super-gifts were $50,000 HUMMERS. The civilian HUMMER is advertised using a combination of media. Television spots are run on a variety of cable networks such as ESPN and CNN, Print ads have appeared in The Wall Street Journal, USA Today, and in several special interest magazines such as Construction Equipment, Farm Journal and Fire Fighter News. Billboards have been purchased in Chicago, Tampa, and Toledo. Another form of promotion is to display the vehicle at construction equipment trade shows and automobile shows. In fact, it has become such a popular trade show attraction that AM General is receiving more invitations than it can satisfy. The HUMMER is also being used in movies. It appears in Arnold Schwarzenegger's film The Last Action Hero and in Sylvester Stallone's Demolition Man. At the local level, dealers are doing direct-mail advertising and newspaper advertising. The HUMMER received very favorable exposure in several automotive publications. Typical are these quotes: ''We were believers- For dirty work, this warlike roughneck has no peer" {Popular Mechanics, June 1992), ''This is an outrageous truck with amazing traction-anything better has bulldozer tracks'" (Car & Driver, July 1992).

"In the past hour, the HUMMER and I had forded a rushing stream 30 inches deep, blazed a trail up and over the river's three-foot sand embankment and torqued our way up rainsoaked trails with grades approaching 60 degrees. I swallowed my gum in amazement and, boy, did we have fun" (Road & Track, July 1992).

To reinforce the HUMMER name and image, AM General has licensed its use on a wide variety of items from key chains to clothing. The vehicle apparently delivers on its promise. An Oregon dealer spent a day on the Rubicon Trail in Northern California, the toughest of all off-road routes. He reported that the HUMMER managed the climb in about half the lime it normally takes a Jeep "and with minimal body damage." Described by AM General's president as "the most serious 4-by-4 (four-wheel drive) in the world," the HUMMER is expected to compete with the lop-of-the-line Range Rover, which sells for over $40,000. In the 1992 model year, 3,831 Range Rovers were sold in the U.S. Though the HUMMER doesn't compete directly with trucks (because of the price difference), AM General management hopes it can take advantage of their current popularity by being the "ultimate sports utility vehicle." Sales after the first year are forecasted to be 2,000 to 5,000 units annually. The civilian HUMMER has gotten off to an encouraging but slow start. Only 350 of the 1,000 limited-edition models were sold. However, AM Generals managers claim they are not disappointed by the result, since they had very little idea of what to expect. Dealerships are reporting a brisk traffic of "lookers" but relatively few sales. At the 1992 Chicago Auto Show, a dealer gave away 20,000pieces of HUMMER literature. Despite the interest generated among consumers, AM General sees commercial or fleet sales as having the greatest potential. For example, 15 HUMMERS were sold by one dealer to an American oil exploration company. QUESTIONS 1. What was the main problem with the Civilian Hummer the functional vehicle or the positioning? Explain 2. What, if any, research should AM General have done before introducing the civilian HUMMER? 3. How would you go about segmenting the market, for this vehicle? 4. What consumer behavior concepts would come into play in designing consumer advertising for the civilian HUMMER? 5. Is the civilian HUMMER a good product idea? Explain Theodore Levitts Total Product Concept keeping in mind the Civilian Hummer. Where will Service come in here?

-----------------------------------------------Sources: Michael Green, HUMMER, Motorbooks International, Osceola, WI. 1992; Paul Dodson, "Hummer Maker Targets Fleet Sale*. South Bend Tribune. Feb. 28. 1993, pp. D1 +; Greg Johnson, "Demand for Hummer Has Dealers Humming a Happy Tune," Los Angeles Times,Oct. 13, 1992, pp. D1+.