It is 2009, Brian Halligan and Dharmesh Shah, founders of Hubspot, leader of Web 2.0 and Inbound marketing, are facing an important decision to make.
In 2006, they launched a web-based software that offered small and large businesses to replace traditional and hardly cost-effective marketing and sales methods (direct mailing, trade shows, telemarketing) with new tools such as online blogging, search engine optimization and social media platforms.
Only 3 years after their company’s foundation, they hit the milestone of 1,000 customers base. Nevertheless, the two founders know they have a unique product and are aware of huge market potential (Case Table C) still unattained. Also, they had new financial partners coming in 2007 and 2008, who expected the Hubspot to make substantial progress in those market potentials. Halligan and Shah know they have to increase profitability and accelerate growth rate for the company.
Interestingly enough, these goals present a direct challenge to Inbound Marketing as effective tool to achieve them.
In fact, despite the company’s achievements, they are acknowledging some warning signs. In 2008, even though Hubspot did generate over 24,000 leads, the conversion rate to opportunities to new customers were quite small (Exhibit 1). In 2009, already 50% of new leads brought in by inbound marketing program were trimmed out tagged as low quality.
To increase profitability, Halligan and Shah realize that they might need to target more profitable customers and understand their sensitivity to price; then elaborate a relevant pricing structures in order to meet those customers’ demand. With regards to accelerate the company growth rate, they need to establish whether just Inbound Marketing campaigns are effective enough to scale up or they need to integrate traditional outbound methods to expand sale.
Up to date, Hubspot has served both B2B and B2C customers across several different industries. Two are the main clients’ types: small business owners (Owner Ollie) and professional marketers in big firms (Marketer Mary).
At this point, Halligan and Shah face the dilemma of which customer segment (B2B or B2C) and/or customer target (small business owner or professional marketers) to focus on as they come to the realization that such diverse clients’ portfolio made strategic planning for growth just too difficult.
In a nutshell, they need to address the real elephant in the room: are Inbound Marketing practices effective enough to achieve more scale and margin growth or traditional Outbound Marketing is a necessary complement to them?
Recommendation 1: target Owner Ollie, B2B, CMS logins
1. Ollie vs. Mary
If we are here to segment the market through jobs-to-be-done lens, Owner Ollies is HubSpot call to action.
Owner Ollies are fairly easy to acquire as customers. They own small businesses up to 25 employees, usually do not have a dedicated marketing manager. They come with little to no experience in digital marketing and need consultation on branding, building their websites and mostly guidance on how to optimize leads’ generation. Hubspot proposition has definitely a larger impact on Owner Ollies business. Moreover Owner Ollies are not very price sensitive as they are not likely to shop prices around thus can absorb more easily price increase. Their acquisition cost is one fifth of Marys’s, $1,000.
Nevertheless, they present higher churn rate (Case Exhibit xxx), lesser ongoing fees ($250 per month) and are more susceptible to downturns and recessions hit than Mary’s fims.
However, Owner Ollie accounts only for the 73% of Hubspot’s customer portfolio, contributing so the highest customer value $3,687,883.74 (Exhibit 2). Given the pool of currently untapped market (Case Table C), Halligan and Shah have an opportunity for growth. Targeting Owner Ollies would not just be cost-efficient but also within HubSpot’s core competencies.
2. B2B vs B2C
When targeting Owner Ollies, I would recommend an heavy focus on B2B segment. B2B customers are the ones who get the best results from inbound marketing. In fact, they lack expertise with Web 2.0 marketing and little to no exposure to marketing consultants. In Exibit 2 we see that their churn rate is half of B2C customers (3.3% vs. 6%), have longer average customer life (30 months vs. 16.67 months) and almost a double CLV ($4,910,575.76 vs. $2,544,666.67).
3. CMS VS. no CMS
Hubspot’s Content management system (CMS) help customers to create a powerful web presence thanks to hundreds of templates for website, blogs and social media and hosting services that make online publishing easy. In general, customer who host their websites with CMS present lower churn rate than customers who host with other companies, so they should be targeted. CMS services have an up-front extra cost of $500 for XXXhours…
Even more so, Ollies with logins to CMS are the most valuable customer with a total CLV of $7,914,904.76, customer lifetime of 47.62 months and the highest retention rate 97.9%.
Recommendation 2: Price Bundle to reduce churns
1. Reduce churn rate
I recommend to use a bundling structure pricing.
Hubspot should continue to offer a base package with low cost features but should at the same time promote and incentivize Owner Ollies to host their websites CMS solutions. The monthly fees of $250 should include the use of CMS, $350 without use of CMS. The churn rate of customers with CMS logins is low (2.1%) compared to customers who do not use CMS (5.5%), so the bundle will optimize Owner Ollies retention rate.
2. Improve Customer Lifetime
I recommend offering annual plane to lock in customer longer. According to Exhibit 2, the average customer lifetime for Ollies is 12.7 months. An annual plan will lock in customers for longer periods of time
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