Hubspot Case

1. Do you agree with HubSpot that the “rules of marketing” have changed? If so, how? Is
inbound marketing the answer? Why or why not?
Hubspot is doing a great job in inbound marketing, which rises a fierce debating of
changing the “rules of marketing’. From my point of view, inbound marketing is growing
rapidly to match the nowadays market and fast developed social media. Inbound marketing,
an innovative marketing strategy, keeps delivering lower costs for customers than outbound
marketing does. Many years ago, marketers spread out messages through different channels
like advertisements or trade shows to get in touch with the prospects that may join the sales,
but things have changed. For one thing, technology changed. Customers are allowed to suffer
on the Internet to learn and gather whatever information they want to make the purchase
decision. They are more active than in the old days, since Internet is fast and easy to use. For
another, customer behavior changed. People are now good at searchers by using the
Facebook, blogs and websites. Being in the roles of searchers, they have capacities to sort
and filter thousands of marketing messages. Afterwards, they reject unwanted messages and
retain useful ones. Even if they don’t buy online, they will learn online before engaging in a
potential buying discussion. Moreover, business changed. Due to economic globalization,
many firms or individual businesses were born rely on Internet, such as a single seller on
eBay (online market platform). From business point of views, social network, like blogs and
Facebook, are growing so fast compare to traditional marketing strategies.
Inbound marketing uses interactive market tools to attract people and distribute
comprehensive contents easily found by prospective customers. Therefore, more and more
salespeople need to discover and develop their market through the web channel provided by
companies like Hubspot. HubSpot is one of the leading companies that provide customers
with Web 2.0 service. HubSpot focus mainly on inbound marketing and its core value is
established on inbound marketing which creates market niches for the firms and draws
followers. Compare the traditional marketing rules; inbound marketing strategy has many
competitive advantages and becomes a trend in today’s marketing environment.

2. Is HubSpot finding and serving the right set of customers? Given its position as a start-
up company, should it widen its focus to serve any customer that comes its way? Or
should they narrow their target by focusing exclusively on either the Owner Ollies or
Marketer Marys? Or alternatively, by focusing exclusively on either B2B or B2C
customers?
Currently, Hubspot’s has different features towards different customer’s needs. Since the
customers are very diverse, the company feels difficult to standardize process across
customers. The mix of customers leads costs to the sales and technology services. By looking
at Hubspot’s business model, 50% of the leads are weeded out before sales team gets
connected to customers. From Hubspot’s customer growth rate (exhibit 10), there is only a
conversion rate of 3.7% (910 new customers/24,084 leads = 3.7%) of the leads will finally be
converted into customers. In this circumstance, I think Hubspot should narrow down its
customer set to increase efficiency in sales and have a chance to scale up its business. Then,
Hubspot has to figure out who should be focused to as a target market. Looking at Hubspot’s
current customer sets, they can be roughly divided into sevral major groups, Owner Ollie,
Marketer Marys, B2B and B2C.
Owner Ollie vs. Marketer Marys
OO’s Pros and Cons
Pros Cons
More OO in the potential market Less revenue than MM
Lower acquisition cost of $1,000 More macroeconomic risk
Easier to sell High churn rate 4.3%
Shorter selling cycle Bad business model
More customer host website with Hubspot
13%
Need quick and simple solution
MM’s Pros and Cons
Pros Cons
More educated and higher sophistication Harder to sell
level
Lower churn rate 3.2% Higher acquisition cost of $5,000
More revenue generated Longer selling cycle
Stay longer and use more Hubspot services Less customer host website with Hubspot
2%

MM will be using many Hubspot products extensively since they are more professional.
Whereas, OO only use very few applications of Hubspot in comparison with MM who
use other applications that will help Hubspot improve its product portfolio. Although
MM cost more, but they stay with Hubspot longer, so Hubspot is able to gain revenue
from them. Last but not least, dealing with OO seems to be more risky, since they are not
as stable as MM.

B2B vs. B2C

B2B’s Pros and Cons
Pros Cons
Can derive greater value Less sophisticated
Less churn rate 3.3% Longer decision-making cycle
Complex business
B2C’s Pros and Cons
Pros Cons
More sophisticated Higher churn rate 6%
Less consulting required

B2B should be more focused, because they can derive greater value delivered from
Hubspot. B2C found Hubspot’s templates too rudimentary for their need, so B2B value
Hubspot’s product more than B2C do, and B2B also have much lower churn rate. B2B
are more complex than B2C, so they tend to have more needs from Hubspot’s lead-
qualification analysis. Hubspot’s products are effective feeders of B2B customer funnel.

Analyze from customer growth rate, we can look at the new customer acquisition of
Hubspot from September 2008 to December 2008. (In the case: Exhibit 5
 B2B B2C Total
OO 64 52 116
MM 155 88 243
Total 219 140 359

From the table, it is obvious that B2B is the choice compares to B2C, and MM is the
choice compares to OO. B2B and MM have bigger growth rates. This is to say, B2B and MM
should be valued a bigger potential market.

3. HubSpot has begun do differentiate its products as it has learned more about its
customers. Should it do more? Should its pricing strategy change too? Does the
software-as-a-service (SaaS) pricing model work for both Marketer Marys and Owner
customers?
There are two major criteria can be used to judge if Hubspot need to do more in
differentiation. One is conversion rate, and the other is customer needs. On the aspect of
conversion rate, Hubspot only has a 3.7% conversion rate for all customers, which is low.
This is to say, Hubspot faces a very diverse customer set, and it has different level to
reach different customer. It is easy to sell products or services to Owner Ollie, but hard to
reach Marketer Marys. Thus, it is important to carry out different strategies to attract
different customers. For the customer needs, Hubspot also should do more to differentiate
its products. B2C customers are very sophisticated and found Hubspot’s content
templates were too rudimentary for their need. In contrast, customers Owner Ollie just
want quick and simple solutions to help them generate leads. Marketer Marys who are
marketing professional customers run many more inbound marketing, so they need more
robust and sophisticated tools to design them and measure their results. Extending the
products differentiation, Hubspot should never lose its sight of product’s value and
quality; especially it is a technology-based company.
Hubspot’s current pricing strategy SaaS should reflect its monthly charges and
customers churn rate. SaaS pricing model does not charge big up-front payment when
start-up, but there are fees charged over time, so the revenue comes in over time. Thus,
Hubspot’s coming in revenue should at least cover its acquisition cost to a customer. For
example, acquiring a new Owner Ollie cost $1,000 and Hubspot charge $500 initial fee
plus $250 per month on this customer. It means, in order to make money, Hubspot should
make sure this specific Owner Ollis will host its website with Hubspot for more than two
months. With Marketer Marys, the cost is $5,000 and Hubspot charges initial fee $500
plus $500 per month as revenue. In this case, Hubspot need to host with Market Marys
for more than 9 months to make revenue. Therefore, it is also important to know
customers’ churn rate by age. Looking at Hubspot’s customer churn rate by age of
customer (Exhibit 8), we can see the churn rates are roughly constant around 4% till the
age of 16 months which begin to peak. This is to say Hubspot has to begin to earn
revenue before the 16th month. The good thing is Hubspot has a solid financial foundation.
Besides SaaS, an upfront fee charge for the software can lock in customers.
 Due to different customer characteristics,Hubspot’s SaaS pricing model should be
more capable to hold different customers and let them stay longer. One solution could be
lower the monthly fee, which will lower the churn rate consequently. However, lower
monthly fees require longer time to cover the acquisition cost. Thus, Hubspot should
narrow down its target market, which allows it to cut costs associated with unfocused
customers approach. A well matched pricing strategy should be in line with value
delivered to different customers. Since B2B customers derive greater value from
inbound marketing than B2C customers do, Hubspot may consider charge more to B2B
customers for training.

4. Are Halligan and Shah being too stubborn by not doing any outbound marketing? Or
should they continue to practice what they preach by focusing on inbound marketing
alone?

I do not think Hubspot should expand a more traditional way of outbound

marketing. Contrarily, I believe one of Hubspot’s strength is its clear objective. The
company has a broad vision of what product should produce. It has a slogan claimed, “At
Hubspot, we live and breathe inbound marketing. We know a lot about it. We love to
teach. We will make you an expert.” Inbound and outbound marketing are two different
strategies, so that a combine may misunderstand Hubspot’s mission, and undermine its
credibility of brand. Inbound marketing is a pull-based approach while outbound is an
interrupt-based approach to marketing. With inbound marketing, Hubspot is very
competitive in the marketplace, with its advantages of low cost and ease of use. Hubspot
insist preaching by focusing on inbound marketing instead of making mass cold callings
and printing advertisements. This makes Hubspot better targeting to people who self-
qualify themselves; while outbound campaign throw out mass messages to attract limited
customers. Also compare to outbound customers, inbound customers should have more
interests in products, and they should be easier to persuade purchases. Moreover,
Hubspot consider its software more a system of tools than a piece of product. Thus, on
the customer side, what they pay to Hubspot can be more marketing or technology
investment than expenses. Hubspot helps firms rank on top of results from searching
engines, so that they get leads out there. The firms keep obtaining value from Hubspot’s
software even if they cancel their Hubspot subscription. Therefore, adopting traditional
marketing may not be helpful for the company targeted its right customers. Furthermore,
there is a chance that Hubspot would lose some customers due to low brand credibility
with inbound marketing.
Even Hubspot is hindering scale a little bit by not creating outbound marketing
programs; I still do not believe Hubspot should go outbound. As a young startup,
Hubspot has a solid financial foundation which can support it with a current SaaS pricing
strategy. Outbound is not that necessary for the company to generate more revenue to
recover the cost. More importantly, Hubspot strategy should never against its core value,
which can hurt the company’s image badly.

5. Halligan and Shah want HubSpot to be to marketing, what Salesforce.com is to sales.

What would your plan of action be to make this happen? Why would you take these
actions? What keeps you up at night about your plan?
 Sales.com dominated in the sale segment, and became the industry standard for managing
and tracking sales efforts. Hubspot hopes to dominate the lead-generation and
analysis/qualification stages of the customer funnel, just like Sales.com dominate sales
segment. To achieve this goal, there are several actions can be taken, but not all of them are
feasible. Hubspot can cut its price to lead a price war for more market shares, however it is
unfair competition. Or, it can get support from government and make Hubspot the only
standard within the industry, which is not practical. In my opinion, the best way to dominate
the market is to be ahead in products quality and value that matches customer need.
Hubspot’s competitors in the area of analysis and qualifying leads include consultant and
software companies. Hubspot should try to make itself the first and best choice among
competitors. The company should initially spend more time study its customers. First, R&D
should be outstand that can find out what customers need. For example, they want more
simple or professional solutions. Second, a complete inbound marketing is needed to see who
the prospects are, how should them be converted as paying customers. For Hubspot, they
would narrow down customer set to focus on B2B and Marketer Marys. Third, well
established pricing model is important to keep the customers stay longer. Afterwards,
Hubspot should make more efforts to build a stable but innovative technology. The company
wants to figure out the best way that SEO work for customers and makes them more visible
on the Internet by increasing exposure. It probably should make the software better featured
and institutionalize the process.