HUBSPOT CASE

“Inbound Marketing and Web 2.0”

Marketing Principles
MK1021.09

María Navarro Herráiz

Boston College
September 29, 2016
Hubspot Case

What is Hubspot objective and current scope?

Hubspot objective was to build software products that helped companies execute inbound
marketing programs to supplement or replace their traditional outbound programs. In the
current environment, outbound marketing’s effectiveness was diminishing because
consumers, feeling bombarded by the daily deluge of commercial messages, began to turn
out. Traditional direct mail, trade shows and telemarketing were attracting less and less
potential customers while search engines, blogs and social media started to generate new
business at higher rates.

Is Hubspot offering a product, a service or both?

I think Hubspot is offering both, a web based software product and a consulting service to
teach how to use and implement the product.
On the one side, the product consisted on an inbound marketing system to help business
attract prospects, qualify their potential and convert them into paying customers, with the
goal of enabling firms to generate more qualified leads, generate those leads more efficiently
and to convert them into sales. On the other side, also a service was offered with the software
because customers were required to purchase an onboarding package with four hours of
Hubspot consulting. This package was designed for consulting and teaching consumers how
to set up and run the software and how to analyze the results obtained.
It is also important to mention that Hubspot used a software-as-a-service pricing strategy for
its product

“Hubspot is more than software. We have a complete inbound marketing methodology

comprised of best practice guides, training materials, software tools, a community and
support. Plus, Hubspot is hosted on demand software, meaning that you don’t need any IT
staff to get started. We don’t just give you a new marketing tool. We teach you to be an expert
in how to use it.”
- Halligan, Hubspot CEO

Customer segmentation: who should they target?

(1) What value does Hubspot offer to each customer segment?

To OO: simple and quick solutions to its problems, with the objective of generating more
leads for their business.

MM companies -which are supported by a marketing team and are more educated than OO
about Web 2.0-, need more robust and sophisticated tools to design marketing programs and
measure their results. Hubspot offers them assistance to run their own programs, evaluate
their results and justify their return on investment to senior management.

(2.1) What is the value to the firm of a customer from each segment? (3) Which one of this
segments should the firm target?

Consumer Lifetime Value predicts the net profit attributed to the entire future relationship
with a customer; in other words, how much profit we expect to have from a given type of
customers while he stays being so. It is an important measure because it represents an upper
limit on spending to acquire new costumers.
In this case, as you can see in the excel screenshot, the CLV of MM is 11.125, while the CLV
of OO is 5313,95. It is true that it is harder and costlier to acquire MM type of costumer than
OO ($5.000 vs $1.000), but MM has more money to spend on products like Hubspot and
stays longer as a customer than OO (longer customer life). These two latter factors are what
makes MM more profitable for Hubspot to target on the long run.
If we compare the two values, we expect to get 5811,05 more dollars with a MM customer
than with a OO one. That is the reason I would recommend the company to target its strategy
to MM’s products; even though they are harder to get on board, they stay longer than OO and
spend almost twice the quantity this latter is willing to spend on Hubspot.

OO MM
Advantages Disadvantages Advantages Disadvantages
Easier to reach High churn rate Lower churn rate Harder to reach
Low cost of Revenue generated High revenue per Longer selling cycle
acquisition is less customers
Basic and simple Unstable business Longer relationship CMS usage less than
solutions model 2%
Shorter selling cycle LOWER CLV! HIGHER CLV!! Acquisition cost is
$5.000

(2.2) Can we calculate the value of other segments?

Yes. As we know how many OO’s and MM’s customers hosted their websites on Hubspot ‘s
content management systems (CMS:13% of OO and 2% of MM), and how may did not
(NON CMS: 87%OO, 98%MM), I have calculated the percentages of each type of costumer
(CMS and NON CMS). Having that percentages, I have been able to calculate the weigh
average monthly revenue Hubspot gets if it offers or not the service.
My conclusion here is that it would be more profitable to focus on CMS service ($13.492),
than not to do so ($6.953).
*We have to keep in mind that segment CMS - NON CMS is based on the type of service
provided, not the type of customer.
For B2B, B2C I have done the same. I send you enclose the Excel File so you can see the
operations

Is there anything missing from Hubspot’s consideration of CLV and their customer
segments? Offer an analysis of their considerations and the impact of your
recommendations.

- We are not taking in count the future value of money. We should add a discount rate
and keep in mind that nominal CLV predictions are biased slightly high, going higher
the farther into the future the revenues are expected from the customers
- Segment inaccuracy. We should always keep in mind it is a prediction and therefore it
is difficult to assess and introduce in the model some values such as the nature of the
relationship.
- CLV is a dynamic concept, not a static model. Meaning that if we change any of the
process inputs, the average CLV will also change.
- We should not forget that low value customers can be turned into high value
customers by effective marketing. In other words, if we design a successful marketing
campaign for OO customers and we attract a larger number of them, it could happen
that it becomes more profitable to target them instead of a smaller number of high
value customers.
- Possibility of Saturation of high value consumers. In this example is difficult to
arrive at that point, but it could happen that, at some point, no more “big” companies
need our services because they already have acquired it. It is more likely to run out of
big business to serve than running out of small companies.