CASE ANALYSIS OF
SUBMITTED BY: ARUN TOM (34) ARUNANSU KUMAR (35) ASHWINI G.BHAT (36) ESHA VERMA (54) BATCH – 17 STRATEGIC MARKETING (B) XAVIER INSTITUTE OF MANAGEMENT AND ENTREPRENEURSHIP
SITUATION: HubSpot was formed by the combination of Brian Halligan’s marketing, sales and venture capital expertise and Dharmesh Shah’s technological knowledge and experience as a successful entrepreneur, in 2006. It was a perfect time to launch, as the effectiveness of the traditional marketing and sales methods were on the wane, with the emergence of Web 2.0. They showed strong market sensing by recognizing the transformative power of the internet, especially in the operations of the small businesses. HubSpot had the advantage of being located in the vicinity of the entrepreneurial hotbed at MIT, sourcing of eager and passionate MIT students as staff, and a solid financial foundation. HubSpot came to be known for its inbound marketing strategies and practices that pulled prospective customers toward a business and its products, through the use of Web 2.0 tools and applications, like blogging, search engine optimization, and social media. The software tools that it offered were also based on the same principle of inbound marketing. HubSpot’s customer funnel describes the critical processes firms undertook to attract prospective customers to their business, qualify those prospects to determine which ones had the highest probability of converting to paying customers, and close the sale. In the initial stages of its operations, HubSpot sold to any customer who was interested in buying its products, which made their customer set very diverse. This is also due to the mass marketing orientation of inbound marketing. With increase in prospective customers, it began qualifying leads before turning them over to sales force. They observed their customers ranged from professional services, health care, software, real estate, to construction materials. The segmentation that they could observe were businesses selling to other businesses (B2B), as well as businesses selling directing to consumers (B2C). They broadly segmented their customers as Owner Ollie (small business owners) and Marketer Mary (marketing professionals), who made up the 73% and 27% customer portfolio of HubSpot. The cost to acquire them was $1000 and $5000 respectively. This customer-based positive segmentation strategy of HubSpot was the basis of its expansion possibilities. The situation which HubSpot currently faced was with respect to scaling up its business operations based on the huge market potential envisaged by its venture partners. In order to begin their expansion, they had certain strategic issues to be addressed, pertaining to the diverse customer base, and the complexity associated with it. PROBLEMS: 1. The primary problem of HubSpot was that it was serving very diverse market, making it difficult to standardize processes across customers.
2. Difference in familiarity and comfort among B2B and B2C were totally different that posed as a problem for them. The fact that this tool added more value to B2B customers more than B2C customers was also a problem. 3. Owners Ollie(The Small Business Owner Customer) gains the maximum value out of it initially when compared to Marketer Mary but the retention ratio of Owners Ollie is quite low than that of Marketer Mary though they are a harder sale upfront. 4. The problem of customers not putting in 10 hours per week of work on hubspot was certainly another pain point for HubSpot which did not yield to desired results. 5. Traditional marketers prospected for new customers based on a predetermined target market that was strategic, inbound marketers fished for customers, took what they caught, and then figured out who their actual market was. This left HubSpot with a very diverse customer base and made strategic planning more difficult. 6. Different types of customers valued different features, and prioritizing items in the long list of potential software updates proved to very difficult. 7. HubSpot was in a spot of dilemma as to which segments were the best customer segments to cater to. Was it the B2C or B2B market? Was it Owner Ollies which were more in number and were likely to stick around longer but with lot macroeconomic risk associated like recessional risks or Marketer Marys from more money could be extracted? 8. Due to high churn rate among the Owner Ollie the company also doubted its pricing model. 9. They were also in a spot of fix in terms of whether a right mix of inbound and outbound marketing strategies should be adopted due to aggressive growth rates seen in the market.
DECISIONS: 1. Which customer segment to cater to? 2. Was there any any change required in the pricing model due to high churn rate after obtaining initial burst of value? 3. Was there a need of inculcating outbound marketing tools with inbound ones despite the company preaching and selling inbound marketing tools? This would be at the cost of losing its own credibility.
EVALUATION: 1. Evaluations of the customer funnel in greater detail. For example, analyzing the traffic to prospect %, prospect to lead %, lead to opportunity %, and opportunity to sales % based on its
customer segments. This is required, as we observe that although the numbers of customers have increased, there has been a decrease in the opportunity to sales %. 2. Evaluations of the product portfolio preferred by the various customer segments. Currently, 68% of their clients are into B2B, while the remaining 32% are B2C clients. Thus evaluation of the preferences will help them to understand better the customer segments, and formulate their pricing and marketing strategies accordingly. This will help in maximizing the satisfaction and loyalty of current customers, and attract new customers. Also, B2C customers have a higher average churn rate in all the business sizes considered. To attract and retain them, evaluating their product portfolio is essential. This will also complement their existing HubSpot Owner and HubSpot Marketer portfolios. 3. Highest churn rate is seen among 16-18 month old customers. The churn rate of Owner Ollies could be a part reason for this. More evaluation of Owner Ollies, apart from the CMS related retention, needs to be carried out. 4. Assess whether they could achieve enough scale through inbound marketing efforts, or whether they need to supplement their inbound programs with traditional, interruptive outbound programs. 5. The growth pattern during the recession-hit year of 2008 has made the company realize that they need to relook at their strategy in line with their vision.
Macroeconomic risks add more
uncertainty, and this has to be addressed during strategy formulation.
Since Web 2.0 is a
relatively new concept, the historical data required to evaluate the role of macroeconomics in marketing strategies with respect to Web 2.0 might be found wanting.
HYPOTHESIS: 1) Catering to various segments HubSpot has 4 major segments of customers, Owner Ollies, Marketer Mary, B2B and B2C. Major problem faced by them is which customer segment they should focus on as each segment has different needs. Owner Ollies and Marketer Mary have different needs to cater to. Owner Ollie’s primary objective is to generate more leads for their businesses and Marketer Mary are more interested in the analytics and reports that HubSpot provided. HubSpot should take keep this in mind and develop their products according to these needs not just creating developing different versions of the same product. HubSpot should focus on retaining Owner Ollies as they form 73% of HubSpot’s customer portfolio and are easier to convert from leads to customers. Owner Ollies in the future can be a major customer for HubSpot.
HubSpot can provide basic package to Owner Ollies and for additional services like lead tracking and intelligence they can charge extra. They have to keep in touch with the customers so that they spend required time on the package. By understanding the needs of the customers, information regarding the additional services should be provided which can help solve the problems faced by the customer. This will lead to retention of the customers. Marketer Marys were more educated than Owner Ollies and ran many more inbound marketing programs than Owner Ollies. They needed more robust and sophisticated tools to design them and measure their results. Marketer Marys had more money to spend but are harder to reach plus they have a longer selling cycle. But the biggest advantage of Marketer Marys is that they stay with Hubspot longer than Owner Ollies. 2) Inbound marketing v/s Outbound marketing HubSpot has always preached inbound marketing so much so that the founders became evangelists of inbound marketing. If they go for outbound marketing, they will be going against the basic principle on which HubSpot was formed. They can offer packages which will have some aspect of outbound marketing but the main product is inbound marketing.
OTHER ALTERNATIVES: Though the founders’ vision was centered around inbound marketing but the reality was that most businesses, including HubSpot customers, would likely have a mix of inbound and outbound marketing. HubSpot can segment its customers on the basis of who can be more effectively targeted by inbound, outbound marketing and a combination of both. 1. They are already targeting customers who want to adopt inbound marketing so HubSpot don’t really have a problem in this regard. 2. HubSpot cannot shift from Inbound to total Outbound marketing as the founders have turned into evangelist for inbound marketing so, do so would go against their business philosophy and model and harm their brand value and credibility. 3. HubSpot should identify which customers cannot afford to do away with outbound marketing. Such customers need a complete package which suits their needs rather than switching completely to inbound marketing. The only way HubSpot could grow is by targeting this segment and provide them with a comprehensive plan rather than not having them as customers.
