The problem in this case is that Hubspot needed to make a transition from its initial start-up structure (organizational structure, target customers and pricing strategy) in order grow, and the dilemma was how to best approach this change. Hubspot faced three main issues for this: a) identify target customers, b) modify their pricing model and c) how to develop the growth strategy.
Hubspot was good at building a community, e.g. over 300000 unique visitor in 2008, and thousands of freeware subscriptions in 2009. Nonetheless they had a diverse universe of customers, from small business owners (Ollies) to marketing professionals (Marys), different type of business ranging B2B or B2C, and size (over or under 25 employees). Table C shows there was a potential market evenly distributed among B2B and B2C. For Hubsport, the decision to identify a target customer was difficult. This is seen when contrasting exhibits 6 where 73% of customers were Ollies and exhibit 5 which indicated that Marys accounted for 68% of new customers from Sep-Dec 2008. Although the B2B customers were important for Ollies and Marys, there was an interesting growth of Marys in B2C. Thus a segmentation of customer was required to better assess their different needs.
At the end of 2008, Hubspots’s products responded to the main two customers (Ollies and Marys), still its pricing model was similar for both, where Marys paid a slightly higher monthly amount as its software package included more features (exhibit 7). This was something Hubspot needed to analyze as Ollie and Marys had various pros and cons as customers. Ollies represented a lower cost to acquire ($1000) and where quick to sign in, but cancel subscription early, while Marys cost more to acquire ($5000) and took longer to sign in, by stayed for longer using the product. Assuming no churn rate an Ollie had to maintain subscription for 2 months and Marys had to maintain subscription for 9 months, to pay off their acquiring cost. The previous scenario meant that HubSpot’s 2008 projections including the 100 paying customers from 2007 made the current pricing model not viable to support the high cost of Marys (see appendix 1).
Another issued faced was the Hubsport was still a small company, seen in that it only had few engineers to build the software therefore it was hard to catch up with the sales team. Thus the product vs customer vs pricing situation presented an optimization and planning issue to keep the company growing.
The previous two points require a growth strategy. At the same time it made the owners question their vision, i.e. to inbound or outbound. The strategy for growth had to clarify which customer to target, how to roll-out the respective products, whether to keep it a SaaS, and the transition into a new pricing structure to maintain current customer and capture more value from new ones.
The objective of our proposed solutions is to keep Hubspot as the software-to-have for inbound marketing and grow financially from a start-up to an established business. For this we set out the following actions:
Hubspot’s culture and vision should be maintained. Web 2.0 is continuing evolving as more businesses are using the various channels and HubSpot can differentiate itself as the inbound marketing which weighs more than outbound marketing (inbound represents 37% marketing budget while outbound 30%). HubSpot has the expertise to create traffic and analyze and qualify leads filling the respective demand of Ollies and Marys. At the same time we differentiate from our two main competitors by proving a lower price (Eloqua is more expensive) and focusing on inbound marketing (Marketo is a mix of inbound and outbound). Our conclusions are founded by overlaying HubSpot’s competitive field (exhibit 3) with customers’ needs a) traffic creation and b) leads analysis and qualifications, in line with HubSpot’s main strengths, as seen in appendix 2. Thus the company should not consider outbound as an alternative.
As showed in appendix 4, our two segmented customers have showed different needs in terms of product features and consumption behavior. Based on the current churn out rate, we can estimate consumer lifetime value of Ollies is $4,750 and Marys $10,500 (see calculation in appendix 3). Therefore, according to our segmentation strategy, we propose following product bundles by differentiating product price and product features: 1) Product pricing:
As Ollies have a shorter customer life and less marketing budget, we suggest keeping current up-front fee and a lower monthly fee. As suggestion, up-front $500 and monthly fee in the range of $150 to $250. As Marys have a longer customer life and lower price sensitivity we suggest increasing both up-front and monthly fee. As suggestion up-front $600 and monthly fee in the range of $600 to $750. Meanwhile, Marys are interested in deeper analytics, we suggest additional fee for each service of deeper analytics. As CMS system helps lower churn rate, we suggest initial fee of $300 covering 6 hours consulting to encourage both of them to use such service. 2) Product features:
As Ollies prefer quick and simple solutions, we suggest tailor-made product focusing on generating leads. As Marys have a high demand of analytics, we suggest tailor-made product with more sophisticated tools to meet the needs of deeper analytics. As frequent log-in helps lower churn rate, we suggest to provide service update on a regular basis to encourage a continuous use of our service.
After clearly identifying the segmentation of consumer and differentiation of products, we need ensure market-centered organizations that are capable of translating strategy into actions:
To invest on product development and innovation to continuously provide with relevant service to enhance our competitive advantage of generating leads as well as analytics
. 2) Sales force:
To divide sales force to separately serve Maryer & Ollies by providing Maryer with long-term, more sophisticated support, providing Ollies with quick & simple service.
To continue make a buzz for inbound marketing to create inbound marketing community rather than a simple business
Finally the strategy has to be sensitive to our current customers, Appendix 5 indicates a tentative layout of the plan. Starting with the internal reorganization, then gradually change the product offering for consumers.