Thursday, July 12, 2012

Hummer case study

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1 Introduction

This study provides a market positioning assessment for the Hummer, a product of AM General.

Section of this document contains an analysis of the strengths, weaknesses, opportunities, and threats (SWOT) of AM General. Section provides an analysis of the alternative market segments that may be pursued for the Hummer. Section 4 provides a brief assessment of market sizes. Section 5 draws conclusions and makes recommendations for the marketing mix for the Hummer.

SWOT Analysis

This section reviews the strengths, weaknesses, external opportunities, and external threats (SWOT) for AM General.

Internal Strengths

· Proven innovation in the design of special-purpose vehicles.

· Ownership by a parent company, ameliorating cash-flow concerns and facilitating long-term capital investment.

· Strong public perception as the provider of an important military vehicle.

· Public perception of the Hummer as a product that evokes off-road-orientation, machismo, and high status.

· A continuing anchor customer in the US military.

· A small but growing consumer market.

Internal Weaknesses

· A historical focus on the government as a customer, which may introduce cultural attitudes and procedures incompatible with other markets.

· A high unit price for current products, most likely reflecting costly features to meet military specifications.

External Opportunities

· Potential markets including foreign militaries, other government agencies, businesses needing special-purpose vehicles, and consumers.

· Potential for expansion into other specialty vehicles for business and governmental use, such as fire engines, police cars, ambulances, and other specialty vehicles for construction and other rugged use.

External Threats

· Reliance on the US military as a single primary customer is a source of risk. The level of production for the US military may be subject to significant fluctuations.

· The consumer market may be highly sensitive to changes in consumer sentiment and in economic conditions. Most individual consumers will view the product as a discretionary expense.

· Expansion beyond niche markets may be problematic, given the maturity and operational efficiency of established automobile manufacturers.

Alternative Market Segments

The products of AM General could potentially be focused on the following market segments

· Consumers

· Businesses with special vehicle needs

· Non-military government agencies

· US military

· Foreign militaries

This section examines the pros and cons of each of these market segments for the Hummer and suggests methods for further expoitation of each market segment.

The Consumer Market

For buyers in this market, the “Hummer” has a strong emotional appeal, providing a sense of ruggedness, toughness, and preparedness for all situations. It can also provide a sense of status, connection with military, and an out-of-doors, off-road, orientation. Most buyers in the consumer market will not require most the capabilities of the vehicle, but are instead will buy it as a discretionary purchase for self-actualization.

The pros of the consumer market are

· The product is image-based, and sales are susceptible to being highly influenced by well-placed advertising.

· The similar history of the Jeep Wrangler, followed by its continuing success, suggests that the consumer market may prove to be a steady and enduring one.

· The Hummer has a competitive advantage of the Jeep due to its current military use.

· A fledgling market in this segment has already been established.

The cons of the consumer market are

· Price barriers limit the size of the current consumer market.

· Notwithstanding the competitive advantage mentioned as a pro of the consumer market, there is likely to be strong competition from the Jeep Wrangler as a lower-cost alternative.

· The current product has some notable disadvantages for on-road use, such as low gas mileage and difficulty parking, which may discourage some potential buyers.

· AM General’s history has been focused on meeting specific needs of large customers with extensive purchasing processes. Marketing to a consumer market may require a very different product development and sales approach, for which AM General may have little experience.

The key step to expanding in the consumer market is to lower the price barrier and establish sufficient distribution outlets. Lowering the price barrier requires a producing a consumer-specific model at lower cost that corrects shortcomings of the product for consumer use and which eliminates expensive features required specifically for the military. An associated risk of this path is a possible loss of the status associated with the product.

It appears from the website “http//” that AM General is working to expand in this market, having taken such steps as expansion of color options and features, the introduction of the H model, and the establishment of consumer dealerships, including two in the Boston area.

Business Market

Some businesses have special vehicle needs. One example is the Baca Ranch in New Mexico. Although purchased by the federal government in 000, this large property continues to be operated as a working ranch. The ranch has several large streams that are too deep to be crossed by, for example, a GMC Jimmy. Thus the Hummer has been adopted as the vehicle of choice for managing the property. Other businesses that may have special needs include ranges, mining, logging, ski resorts, construction.

The pros of entering the business market are

· AM General has an established product with a unique set of capabilities suitable for niche businesses.

· AM General’s demonstrated ability to produce innovative design to meet specific needs may facilitate adaptation to the special needs of a customer or industry.

· The sales and marketing approach used for the US military may be easily adapted to working with large customers in the commercial sector.

The cons of entering the business market are

· The size of the market for special-purpose vehicles is likely to be very small, with sales occurring erratically for orders of medium and occasionally large size.

· Development of special-purpose vehicles may require years of negotiation, making the time period for the return on investment rather long.

· There may be competition from jeep and truck manufacturers, and other manufacturers of specialized vehicles.

Entering the business market may not require significant changes to the business structure. It may require establishing and appropriate sales force to develop the needed business contacts, possibly in conjunction with consumer dealerships.

Non-military Government Market

There are several branches of the federal government, plus state and local governments, that may have use for the Hummer. For example, forest services, fire-fighting, and rural police forces may all have use for the Hummer.

The pros of the non-military government market are

· This market segment is likely to exhibit similar requisition procedures to those of the US military.

· AM General is well positioned to provide product modifications to meet special needs.

The cons of the non-military government market are

· The requisition processes, although familiar to AM General, are also quite cumbersome.

· There may be cost barriers due to limited budgets of non-military agencies

AM General does have a history of sales in this market, including the production of nearly 00,000 vehicles for the US Postal Service [see http//]. Therefore potential sales of the Hummer in the same market can rely on previous sales experience.

US Military Market

The US military is the current anchor customer of the Hummer, and is likely to remain so. Continued marketing to this customer, including updates to the vehicle in accord with evolving requirements, is clearly an important part of the overall business strategy.

The pros of the US military market segment are

· The US military is an established customer.

· The Hummer is an established product for the customer.

· The US military has a large budget for purchases of vehicles and a need to continue AM General as a source of them.

The cons of the US military are

· The size of purchases from the US military are subject to budgetary swings, so that the size of production required may fluctuate.

· The market size of the US military is limited.

Continuing sales to the US Military will require continuing current relationships and being attentive to evolving military needs.

Foreign military market

Military branches of foreign governments have many of the same needs as the US military. Marketing the Hummer to foreign governments may provide a significant additional market for the product. According to the history provided at http//, AM General has a history of selling military trucks to “friendly overseas nations.” Sales of the Hummer could easily follow this pattern.

The pros of foreign military markets are

· The Hummer is an established product directly applicable to their needs.

· International sales may diversify from the dependence on the health of the American economy.

The cons of foreign military markets are

· International sales may require significant expansion of sales offices and training.

· Export restrictions of military vehicles may be cumbersome and bureaucratic.

· Sales to governments potentially hostile to the United States may raise ethical issues.

Exploitation of this market may use the same channels developed for international sales of AM General trucks.

4 Market Size Assessment

The potential consumer market may be large. According to the Bureau of the Census [see http//, Table for United States], the number of families with incomes over $150,000 is approximately . million. If we assume that two-thirds of one percent of these families purchase a Hummer each year, the annual sales would be 6,000, several times larger than the US military market. If a lower-priced model were available generally available to enable purchase by families with an annual income between $75,000 and $150,000, an additional market of 15.6 million families could be targeted.

The size of business markets requiring the Hummer is more difficult to estimate, but it is reasonable to assume that its size is a small fraction of the size of the consumer market. Similarly, the non-military government uses of the Hummer are likely to be fairly limited and specialized in scope. Therefore pursuit of these markets may be best viewed as extensions of either the consumer or government markets.

5 Conclusions and Recommendations

All of the market segments reviewed in this analysis are fundamentally viable for the Hummer. The key question then is not which markets can be exploited, but what role should each take in the market position of AM General. Recommendations for the marketing mix of these segments are stated in this section and presented with brief supporting rationales.

The US military can be expected to continue as an anchor customer, and maintaining an ongoing relationship with the US military is recommended. A specific segment of business and production should be established to serve US military needs, including adaptation to evolving requirements and flexibility in production rates.

The market segment that diverges most from AM General’s history is the consumer market, suggesting that it may have some of the highest barriers to entry. However, since it appears that AM General has made and investment in that market and is well on the path to working through the entry barriers, continuation of that path is strongly recommended. The advantages of this market segment are that it does provide some diversification of the customer base and that the size of the market is potentially large. The key business direction enabling exploitation of this market segment is to develop a lower-cost version of the Hummer that is affordable to a larger number of potential buyers. Pursuing this business segment requires developing a segment of the business that is focused on efficient, stable production of vehicles on a continuing basis.

These two segments, the US military and the consumer market, are recommended as the core business segments upon which AM General’s sales of the Hummer rest. It should be noted that these business segments will have different modes of operation, and that careful management will be required to maintain the two segments in a symbiotic relationship.

The other market segments mentioned here, businesses, non-military government, and foreign government, should be pursued as secondary markets. Many customers in these market segments can be served through the consumer segment of the business. Customers with special needs can be pursued on a case-by-case basis via the military segment. In addition to the revenue and customer diversification special-needs customers may provide for the military segment, they can also be viewed as a means to promote continuing honing of innovation and continuing strengthening of the Hummer’s reputation.

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