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 company’s 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 HubSpot’s most valuable customers? From Exhibit 1 we know that

Marketing Mary’s (MM) customer lifetime value (CLV) of $10,625 is higher than Owner

Ollie’s (OO) CLV of $4815. However, this does not imply that MM are the most valuable

customers. Firstly, 73% of HubSpot’s 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 HubSpot’s 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 HubSpot’s 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 HubSpot’s

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. HubSpot’s 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 HubSpot’s product. It pushes these

businesses to the purchasing stage sooner because of a lower commitment. Once, the business

start using HubSpot’s 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 OO’s and MM’s demands for the

product are inelastic. This is because the OO “doesn’t even think about marketing most of the

time… He typically doesn’t 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 MM’s 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 HubSpot’s 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 HubSpot’s 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 OO’s and MM’s 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), HubSpot’s

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 HubSpot’s

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 HubSpot’s 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 HubSpot’s

search engine optimization (SEO) services but should ask these websites to mention HubSpot

or visibly put up HubSpot’s 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 Segment’s Customer Lifetime Value

OO MM B2B B2CChurn Rate 4.3% 3.2% 3.3% 6.0%Consumer Lifetime 23.26 months

31.25 months 30.3 months 16.67 months

Acquisition Cost $1000 $5000 - -Monthly Profit $250 $500 - -CLV $4815 $10,625 - -

Exhibit 2 HubSpot Customer division

Exhibit 3

Exhibit 4 New Customer Acquisition

Exhibit 5 Current Age of Customers

Exhibit 6 AIDA model for HubSpot

Awareness Interest Desire Action0

1

2

3

4

5

6

Promotion and AIDA

IMIM & OM

Effec

tiven

ess