HubSpot Case Analyses

Intro to Marketing Professor Cohen Archie Carlson Tantular 4/23/2012

Q1.

I agree with HubSpot that the rules of marketing have changed. Many marketers

have realized the importance of web marketing and have begun to turn to it. Social Medias have become a major part of web marketing because of their large followings. Inbound marketing (IM) is definitely a growing trend for many companies. Despite this, the rules of marketing are still very different for specific companies. For example many automobile companies cannot rely solely on IM to achieve their targeted number of customers. In fact most companies rely on a balance of both marketing strategies. The rules of marketing may have changed but it definitely does not mean that IM is the only answer for marketers. For a company like HubSpot, whose products appeal to a certain type of customer, specifically people who are familiar with 2.0 and know what product they are looking for, IM is effective because potential customers are already familiar with the platform and are shopping around. IM is also good because it is cheaper and provides very informative details on the companys products. However, if a business only offers products which appeal to older or specific customers who are not familiar with web 2.0, IM will not work. One example of a business where IM will not work is a business that that sells electric wheelchair. Additionally, companies looking to sell products to a wide range of people and are looking to have large number of sales will not find IM as useful as outbound marketing (OM). While IM is good because it is cheaper to imploy and brings in higher value potential customers, it only captures a small market. OM should still be pursued if a company is seeking for large sales and large customer base. The most optimal marketing strategy may still be to apply both methods of marketing with the right balance. Q2. As a new start-up, HubSpot should not widen its focus to serve any customer that

comes its way. By widening its focus HubSpot will need to cater to a wider range of

customers who have different familiarity and comfort with the web 2.0 tools. Furthermore, different customer value different types of features. Because of this, HubSpot will need to divide its product development processes further, hence increasing the cost of production or updates. Moreover, it will not be able to focus on developing the products which are most valuable to their existing customers. Instead HubSpot should narrow its target to its most valuable customers for now. Although HubSpot will risk losing a lot of potential customers, narrowing its focus will allow it to concentrate developing better products as there is less conflict from trying to maintain the demands of different customers. HubSpot will also reduce its cost and build a stronger brand identity. When HubSpot has earned enough customers and has grown bigger as a company, it can consider widening its focus. However, by pursuing this strategy, HubSpot may have to change their marketing and pricing strategy or even loosen their funnelling methods. These will be discussed further in question 4. Who are HubSpots most valuable customers? From Exhibit 1 we know that Marketing Marys (MM) customer lifetime value (CLV) of $10,625 is higher than Owner Ollies (OO) CLV of $4815. However, this does not imply that MM are the most valuable customers. Firstly, 73% of HubSpots customers are the OO. (Exhibit 2) This means that HubSpot collects more revenue from the OO than from the MM. Secondly, Market potential for small businesses is a lot larger than the market potential for medium or large businesses. In addition, the customer acquisition rate for small businesses (B< 25) is also much larger than that for larger businesses (B>25). (Exhibit 3 & 4) This shows that HubSpot has higher potential in converting the OO into their customer and can derive greater value from them.. Additionally, because HubSpots acquisition cost for OO is one-fifth of that of MM, the breakeven point for OO (3 months) is much lesser than the breakeven for MM (10 months). If

the main rule for HubSpot is to become profitable as quick as possible then a shorter breakeven time means that HubSpot can become profitable sooner. HubSpot should also focus on the B2B (business-to-business) customers. This is because the acquisition rate for the B2B customers is a lot higher than that for a B2C (business-to-customers) customer. Furthermore, the B2B companies also derive greater value from the lead-qualification analysis that HubSpot provided due to their buying processes. Since the B2B companies are the ones that benefit the most from HubSpots products, they will be more loyal to HubSpot and will not hesitate to commend its services. Finally, the churn rate for B2B (3.3%) id lower than the churn rate for B2C (6%). This means that the B2B customers have higher CLV. Overall, I think that HubSpot should narrow their focus on the OO B2B. They offer high market potential, have the lowest churn rates, and derive greater value from HubSpots products. By narrowing to only the OO B2B, HubSpot can also focus its development resources on features that are valuable. Q3. No, HubSpot should not differentiate its product further. HubSpot is still a germinal

start-up company, most of its customers have not been around long and a lot of them are probably not fully acquainted with its products yet. Differentiating its products more will mean that HubSpot will need to divide its product development further. It will not be able to promote the better products because it will be focused on satisfying the needs of its differentiated customers. This will make current customers unhappy because services rendered to them are going to diminish. Instead HubSpot should focus on one set of services that can be developed further and that is most valued by the customers. HubSpot should not change their pricing strategy but rather should tweak the prices a little in order to capture more immediate value from its customers. HubSpots software-as-a-

service (SaaS) pricing model is good because it does not force the customer to pay a huge upfront cost for its products. Instead the pricing model allows customers to pay cheaper monthly instalments hence lessening their immediate burdens. This is attractive to most businesses that are not familiar with the effects of HubSpots product. It pushes these businesses to the purchasing stage sooner because of a lower commitment. Once, the business start using HubSpots product and derive great value from it, it will continue with the monthly payments. The SaaS pricing model should entice both the OO and the MM. Both types of customers will like the low upfront cost and the non-binding policy. In order to capture more immediate value from its customers, HubSpot can increase the initial payments for its product. Even though increasing the price of the product may make existing customers unhappy, new customers should not be affected by this price change. The rationale behind this theory is that both the OOs and MMs demands for the product are inelastic. This is because the OO doesnt even think about marketing most of the time He typically doesnt shop around and try to find any other software competitive. The MM on the other hand has more money to spend on marketing products. Since both the OO and MMs demands for the products are inelastic, HubSpot will not lose these customers by increasing its price. Instead by increasing the upfront cost and monthly cost of its product, it will increase the immediate value from the customers and hence decrease the breakeven time. HubSpot should also address the churn rate of its customers. Exhibit 5 shows that a large number of HubSpots customers discontinue their services at the 18 months stage. HubSpot should find out the reason behind this sudden jump in churn rate and change its pricing strategy to tackle the 18 month point problem. Additionally, HubSpot should address those people who rarely log-in to their accounts as they do not gain as much value and will complain about HubSpots services. HubSpot can include routine checks with customers as part of the pricing package.

Overall, HubSpot should maintain its SaaS pricing strategy. The pricing strategy is good because it provide low initial commitment fee but instead derive a constant flow of revenue provided the customers continue subscribing to the service. HubSpot should also take into consideration the OOs and MMs indifference towards price and increase its prices to derive higher immediate customer value. However, the price increase should not be too steep as to drive out all the demand. Finally, HubSpot should not differentiate its products further. Doing so will just increase its product development and maintenance costs and it will not be able to prioritize updating and developing its best valued products. Q4. Yes Halligan and Shah are too stubborn by not doing any OM. As discussed in the

previous questions, IM do not capture enough market potential. This has two implications for HubSpot: firstly, HubSpot loses a lot of potential revenue that OM can bring in, secondly, HubSpot risks losing its market share to its competitors who use OM to capture market potential. Both implications are undesirable for HubSpot, which wish to be the market leader in the product they offered and wants to grow as quickly as possible. On the other hand, as mentioned in the case, the cost of acquiring new customers through traditional OM is about six to seven times larger than the cost through IM. This means that while OM will generate more customers, the breakeven point for these customers are so much later than the initial customers pulled in through IM. This means that extensive OM may not be an answer too due to its sheer cost. However, Halligan and Shah should look more into OM that do not require as much investment. This will be discussed further below. In terms of the awareness-interest-desire-action (AIDA) model (Exhibit 6), HubSpots current IM strategy has very ineffective awareness stage. However, its popular IM strategy that employs interesting blog posts and videos causes the interest stage to be very effective. The effectiveness will decrease slowly at the desire and action stage because HubSpots

strategy is pulling not pushing the customers. With OM, HubSpot can increase the effectiveness of the awareness stage. This will push the curved up and change its curvature. Naturally an increase in awareness will lead to more generation of customers. Therefore, the AIDA model also suggests that HubSpot should employ certain OM to capture more awareness for its products. Meanwhile, employing OM may devalue HubSpots brand image and loyalty. For HubSpot to pursue even the slightest OM its executives can continue preaching the values of IM but they should not disparage the use of OM. Instead they should promote the use of IM as a very powerful supplement to traditional OM. In terms of OM HubSpot exclude the pricey bill-boards, TV ads, and magazine ads because it will increase acquisition costs steeply. Rather, it should focus on internet ads on the most popular websites. HubSpot should be able to identify the websites that most potential customers dwell around through their lead-generation software. It can either put up its ads on these websites or it can build a partnership with these websites. For HubSpot to partner with existing popular web services, it can provide these websites free HubSpots search engine optimization (SEO) services but should ask these websites to mention HubSpot or visibly put up HubSpots logo on their website. By putting their ads on popular websites, HubSpot will also increase the credibility of its products. To conclude, HubSpot should focus on some OM to achieve their goal of being market leader and to generate more profit. Before pursuing this strategy they should stop disparaging OM in order to not hurt its brand image. After all, the best companies employ the right balance of OM and IM.

Appendix Exhibit 1 Segments Customer Lifetime Value MM B2B B2C 3.2% 3.3% 6.0% 31.25 months 30.3 months 16.67 months $5000 $500 $10,625 -

OO 4.3% Churn Rate Consumer Lifetime 23.26 months $1000 Acquisition Cost $250 Monthly Profit $4815 CLV

Exhibit 2

HubSpot Customer division

Exhibit 3

Exhibit 4

New Customer Acquisition

Exhibit 5

Current Age of Customers

Exhibit 6

AIDA model for HubSpot

Promotion and AIDA

6

Effectiveness

IM IM & OM

Awareness

Interest

Desire

Action