Hubspot: Inbound Marketing and Web 2.

0
Brian Halligan and Dharmesh Shah co-founded HubSpot in 2006. Within a short span of 2 years,
they were on the right path to convince corporate America that rules of marketing had changed.
They coined a term "Inbound Marketing" to describe the practices used by them to pull a
prospective customer towards a business. Despite being a young start-up, they were able to raise
17 million dollars from the venture capitalist. So they had a solid financial foundation. Also, they
had just reached a milestone of 1000 customers by practicing what they preach. It was critical for
them to be able to scale up HubSpot as a business. If they couldn't grow their own business using
inbound marketing, then they would face a hard time convincing the customers that inbound
marketing was the right choice for them. So the problems faced by protagonists are as follows:
1. Diverse customer base: Hubspot had a very diverse customer base as they were not
focusing on a predetermined target market like traditional marketers instead caught those
customers who came along by themselves. So they had to choose whether they should
continue focussing on a wide range of customers or they should narrow down their focus
to a particular target market.
2. Customer segment: Halligan and Shah were facing trouble to decide as to which is the
best customer segment to cater to. Was it B2C or B2B market? Was it Owner Ollies or
Marketer Marys? Who was more profitable in the long term? Another view was why
should they even choose? Shouldn't they serve whoever was willing to buy their product?
3. Pricing strategy: There were also the concerns about the pricing strategy being useful.
On the one hand, the pattern in customer churn rates showed that software as a service
(SaaS) monthly pricing model provided a constant source of revenue. On the other hand,
few customers were cancelling the subscription of software within the first several
months after extracting maximum value from it.
4. Role of outbound marketing programs: Some employees were of the view that
inbound marketing tactics should be used along with traditional outbound marketing
programs (Targeted telemarketing and traditional advertising) to achieve aggressive
growth targets.
With regard to the type of customers they should cater to, Halligan and Shah wondered that
they should focus on a particular segment. Mark Roberge, the vice president of sales for
Hubspot quotes, “If we picked one type of customer to focus on, we would likely get to success
faster. There are certain applications that are specific to Ollie and they would be designed and
implemented differently. And then it affects customer support and how well we really get to
know our customer, understand them and then ace the product.” The problem is also
substantiated by the fact that the churn rate i.e. the rate at which the customers cancelled their
Hubspot subscription, was higher for Owner Ollies (4.3%), B2C (6%) and non-CMS (5.5%) as
compared to Marketer Marys (3.2%), B2B (3.3%) and CMS (2.1%) customers respectively.
With regard to their pricing strategy, while the software-as-a-service pricing model seemed the
right way to capture market, some customers, after obtaining initial value from the software,
were cancelling it, might be due to the high price, some of whom were the Owner Ollies (4.3%),
B2C (6%) and non-CMS (5.5%) customers. This also made them consider the adequacy of the
two products and price points they had developed for Owner Ollie and Marketer Mary.
With regard to the type of marketing – inbound or outbound, some employees were
questioning the effectiveness of inbound marketing looking at the aggressive growth targets.
 Roberge felt that in case of inbound marketing, they have to wait for leads to be brought in by
inbound marketing which is not the case in outbound marketing. Hubspot has been qualifying
outbound marketing as “for losers” and implementing it would hurt the sentiments of Hubspot.
According to Roberge, they have to sit back and be dependent on what marketing brings to them,
therefore they are hindering their scale by not creating outbound marketing programs.

Alternative Solutions:
1. Dividing customers into groups under the current pricing model
2. Dividing customers into segments under new pricing model
3. Supplementing with outbound marketing
The decision criteria for the above alternative solutions are
a. Segmentation of the customers
b. Price change
c. Marketing technique

Marketer Mary

Cons Pros
It has a longer cycle for selling the product. The company receives a greater revenue per customer.
The cost of acquiring is higher at $5000. The churn rate is lesser.
Customers are more difficult to reach. Customers have a longer relationship.

Owner Ollie
Cons
The revenue earned per customer is lower.
The business model is not long term feasible.
There is a higher churn rate.
Pros
The cost of acquiring is lesser at $1000.
The cycle for selling is smaller.
The customers are better reachable.

Outbound Marketing

Cons Pros
It hurts the public image of the company. There is a faster lead generation.
It opposes Hubspot employees’ passion for inbound marketing. There is a wider reach/more audience.
It is nearly 5-7 times more expensive.

Marketer Mary CMS Owner Ollie Non-CMS Owner Ollie

Acquisition Cost($) 5000 1000 1000
Current Price per month($) 500 250 250
Suggested Price per month($) 650 325 250
Current break-even period (months) 10 4 4
Resulting break-even period (months) 7.69 3.08 4
Churn Rate (%) 3.2 5.5 2.1
Expected Duration of life (months) 31.25 18.18 47.62
Profit in current duration ($) 10625 10905 3545
Resulting Profit in expected duration ($) 15312.50 4908.50 10905