Case Analysis

HubSpot: Inbound Marketing and Web 2.0

Case Overview
The case discusses about a company Hubspot and a new marketing strategy called ‘inbound
marketing’ propagated by them. The term “inbound marketing” is used to describe marketing
strategies and practices that pulled prospective customers towards a business and its products,
through the use of Web 2.0 tools and applications like blogging, search engine optimization,
and social media. It is different from conventional outbound marketing because in this way
the companies provide contents that are of value to the customers online and customers reach
out to the companies. This is obtained through the use of tools like search engine
optimization. On the other hand, in the case of outbound marketing, the companies used to
reach out to masses through advertising and many of those customers were not even
interested in buying their products. Hubspot provides services like content design, exposure
optimization and lead tracking and intelligence. The customers range from small businesses
to experienced marketers in functioning organizations. The founders are now looking for
options to scale up their business

I. Statement of the problem

HubSpot aims to sell an inbound marketing experience which involves strategies and
practices that pull customers towards the product as compared to the traditional method of
approaching potential customers through telemarketing, commercial messages or direct mail.
HubSpot prides itself on being the leader in utilisation of Web 2.0 tools and a variety of
approaches such as blogging, search engine optimization and social media to provide the
ultimate marketing experience.

Embracing its own philosophy, the HubSpot Web-based software product is a complete
inbound marketing system that helps businesses identify prospects, qualify their product and
convert them into final customers. It helps clients to generate genuine leads efficiently and
convert them into sales. Their user-friendly interface has provisions or designing content for
websites, blogs and social networking platforms. Its unique software helped HubSpot acquire
1000 customers over a period of four years.

HubSpot is also one of the more reasonably-priced marketing services. Although they did not
target a specific type of customer, they were able to attract a diverse set of customers from
different industries (B2B and B2C businesses). Broadly, they classified their clientele as
small business owners – ‘Owner Ollie’ and marketing professionals in larger firms –
‘Marketer Mary’. HubSpot’s customer portfolio comprised of 73% Owner Ollies & 27%
Marketer Marys. Their churn rates (the rate at which customers cancelled their HubSpot
subscriptions) were 4.3% and 3.2% respectively. The objective of Owner Ollies was to
generate more leads and grow their small businesses while Marketer Marys focused on
market demand analysis reports.
HubSpot defines the following issues -

1. Need to efficiently sort through their customer base and decide which ones will be
best to serve in terms of company’s profitability
2. Arrive at a concrete decision about their pricing strategies to attract new customers
and retain existing customers – Marketer Marys were harder to acquire as clients but
much easier to retain than Owner Ollies
3. Assess whether they can achieve the scale of outreach that they want, solely by
inbound marketing methods or would they have to supplement their strategy with the
traditional outbound program

II. Causes of the problem

HubSpot has a vision for what their product should do. At this point of time, the company is
still small with limited resources, in a market which has a very huge potential. This also poses
them with an issue of building the required features at the right time. Halligan and Shah built
this business on inbound marketing and over time, have recognized challenges that they need
to tackle to achieve higher growth and profitability.

The company faced difficulties because of catering to a diverse set of customers who
demanded different features and software updates that further made strategic planning more
challenging. This also led to higher complexity and cost to the sales and customer service
areas when dealing with a varied mix of customers. In short, Owner Ollies and Marketer
Marys have different requirements and goals. Due to this, the design and implementation of
the software must be done differently for the two segments.

III. Decision Criteria and Alternative Solutions

3.1 Owner Ollies vs. Marketer Marys:

The requirement of focus is on Marketer Marys instead of Owner Ollies. Owner Ollies, for
various reasons, after acquiring the services a few times, are likely to leave. This behaviour is
evident from higher churn rate. This includes the initial burst and then later opting out which
is not profitable in long term.
Whereas, Marketer Marys are driven by need of getting more periodic insights and reports
which makes them stay longer. Their churn rate is also low.
However, considering company’s portfolio with 73% Owner Ollies, HubSpot can continue
sales to Owner Ollies on different terms. Company can introduce less sophisticated module of
HubSpot to lower the cost and instead, put efforts on reducing churn rate of Owner Ollies by
encouraging and proposing value in long term engagements.
 For e.g. exclusive benefits for long time subscribers, maintaining good customer relations,
conveying that marketing environment is ever changing and their dynamic services cater to
the dynamism.

3.2. B2B vs. B2C

The Churn rate for B2B is 3.3 whereas for B2C, it is 6.0.
Exhibit 5 and Exhibit 10 show that B2B acquisitions are steadily increasing over the past few
months and it is likely to continue, whereas B2C acquisitions are on decline. Hence, a shift of
focus from one to another to tap into the opportunity would be recommended.

3.3 CMS vs. Non-CMS

Much like the difference of average earnings between Marketer Marys and Owner Ollies,
CMS users get greater value out of Hubspot’s services than Non-CMS users.
Hubspot should aim at targeting CMS users effectively and increase its penetration in this
market segment by offering additional value to them; for e.g. allied services and consultancy
offered to CMS users to ensure effective usage of the latest and the most updated versions of
the software.

3.4 Pricing Policy

It is known that Hubspot’s services deliver additional value to some smaller customer
segments. With a robust policy to ensure deeper penetration in those segments, Hubspot has
the option of charging marginally higher to those segments.
The average profit (after adjusting the cost of service) of a Marketing Mary is about $11,000
and the same is only about $5000 for an Owner Olly; if the Marketing Mary segment can be
increased, charging them marginally higher for the extra returns they get would increase the
business’ profitability.

3.5 Supplementing Inbound with Outbound Marketing?

As we are positioning ourselves as preachers of inbound marketing strategy, it won’t be
prudent idea to adopt outbound marketing at this stage. Given that customers are increasing
their inbound marketing budget and there aren’t a lot of things that Outbound Marketing
strategies exclusively provide, HubSpot should continue with inbound marketing and keep
improving. The growth potential in the Inbound Marketing services is great and adopting
outbound marketing strategy pre-emptively will hamper their industry reputation.

IV. Recommended Solution, Implementation and Justification

4.1 Recommended solution

 As per the alternative solutions drafted and looked at us by revenue and growth of
business point of view, it is best to go for change in the price structure of Owner Ollies
while continuing with the same price structure for the Marketer Marys. The services
offered to customers availing monthly subscription and quarterly subscription should also
differ a little. The customers availing quarterly services should get additional services like
integration with Salesforce.com.

When it comes to the concentration of focus in terms of the conversion of leads, the focus
should be more on the Marketer Marys, as there lower churn rate ensures the value
HubSpot get out of them is much higher in comparison to the Owner Ollies. Also, the
CMS customers get more value out of availing the HubSpot subscription and as a result,
their retention rates are on the higher side. Hence the focus should be on the CMS
customers rather than non-CMS customers.

4.2 Implementation

Who? Brian Halligan and Dharmesh Shah, Co-founders, HubSpot

What? i..Increasing the initial consulting fee for Owner Ollies from $500 to $600.
Introduction of quarterly-package of $650 and yearly package of $2500 for the
Owner Ollies. Additional services provided to quarterly and annual subscribers.
ii. Online Advertisements and use of logo on client websites availing HubSpot
services.
When? At the beginning of Q3 2009
How? Start advertising about upcoming change in pricing policy from the beginning
of Q2. Begin with online advertisements from Q3 2009 and proceed after
analysing the results.

4.3 Justification

a. Increasing the initial consulting a. As it has been observed from

fee for Owner Ollies from $500 the trends of customer retentions
to $600. and benefits that customers draw
out of the HubSpot subscription,
it is observed that Owner Ollies
make great profit in terms of
lead generation. So they would
be willing to pay $650 for the
initial subscription. At the same
Justification of
time, as HubSpot is a much
recommended
established name in the field
plan
now, the risk associated in terms
of expected results would be
very low for the subscribers.

b. Introduction of quarterly b. In case of Olly Owners 51.6

subscription package at $650 percent of customers have
and annual package at $2500. withdrawn within first 12
months, whereas for Marketers
Mary 38.4 percent of customer
 base is eroded within first 12
months. From exhibit 8, it is
evident that within the first 21
months 88.9 customers have
withdrawn from HubSpot
software services.Since Churn
rate for Olly owners within first
few months is more than
Marketer Mary, introducing
Quarterly renewal package for
Olly owners would improve
customer retention. As the cost
of acquiring customers is more
than cost of retention by
introducing quarterly renewal for
Olly owners, customer retention
increases by 11.7 (1.7 + 2.0 +
4.7 + 3.3).

c. Shifting of focus more towards c. Considering the churn rates

Marketer Marys and CMS clients. for Owner Ollie and Marketer
Mary, the acquisition cost, the
initial amount paid by the client
and the monthly amount paid,
the average profit attained by the
customer during their lifetime
for Marketer Mary turns out to
be around $11000 whereas for
Owner Ollie it is around $5000.
Relying on Owner Ollies for
revenue generation is risk prone
as they are susceptible to
recessions and economic crisis.
Similarly, the average profit
attained by the customer during
their lifetime while using CMS
is much greater than non-CMS
clients. Hence, we should focus
on Marketer Mary, and CMS
clients.

4.3 Contingency plan

When it comes to choice between inbound marketing and mixed marketing i.e.
implementing both inbound and outbound marketing, the focus should be on inbound
marketing as that has been the identity of Hubspot. However, ruling out outbound
marketing completely would not be a wise decision. Simple outbound marketing methods
like online advertisement and use of logo on the websites of clients would be helpful in
overall growth of the business.