Inbound Marketing- an innovative marketing strategy founded by the Hubspot creators, was developed on the concept that to get customers to be interested in your product, “pulling” them in by use of Web 2.0 technology was much more effective than using traditional methods of marketing that pushed products and services to target audience who may be unwilling or uninterested in the offer at the particular time.
Hubspot created software products that enabled its customers to market their products/services with the use of new age tools like Search Engine Optimization(SEO), Social Media, Blogs, Podcasts and social networking websites like Twitter, Facebook etc. This effectively replaced the traditional marketing strategies used by them.
Hubspot is challenging the Marketing world by implementing new rules through a new age platform. And this is not without achieving results.
Marketing Platform :- Inbound Marketing, a term coined by Hubspot is in itself is a dramatic shift from previously followed Marketing principles and guidelines. It focuses on the insight that customers who need a service/product will do relevant information search through all the available sources of knowledge to find out the best fit for their requirements. This search platform was the Internet and its ubiquity. All a firm had to do was make its presence on the web felt through informative, interesting and interactive ways to get the consumer’s attention.
Traditional Marketing methods place negligible importance on these methods, concentrating mostly on television commercials, print ads and OOH.
Strategy used :- The strategy used by Inbound Marketing “pulls” interested customers by making available relevant information and disseminating data based on customer search processes. Instead of going and hunting for customers, interrupting their everyday lives through telemarketers and direct selling, Hubspot realized the simple efficiency of being there for the customer to find you. Instead of aggressive marketing, Inbound marketing focuses on sensible marketing. Hubspot created blogs with useful content which made interested consumers visit the websites to know what was being said.
Traditional marketing principles however, consider direct selling, telemarketing and other means of advertising that create brand awareness by using advertising and promotion tools more effective in today’s dynamic world.
Interactive :- Inbound Marketing tools provided the benefit of the consumer interacting actively with the company as well as with each other. With Hubspot practicing what it preached, it realized the unique advantage of having knowledge of word-of-mouth publicity of its product and services.
It created entertaining YouTube spoofs and videos like “Cold calling is for losers” to attract consumers interest. It received 35000 hits. This itself points to the fact that not only was it liked by a large number of people, but this strategy also made the effective audience exposure measurable. This included only those viewers who saw the video due to their own interest and not as a disinterested viewer seeing a TVC that interrupted their favourite soap/movie on air. The online buzz created enabled the marketing effort to be a two way street between consumers and Hubspot. Questions were asked about content provided and relevant answers were given.
Feedback oriented: – Hubspot also created communities where customers using their products could comment on their experience with Hubspot softwares and add their feedback to it. This earned Hubspot credibility in the consumer minds, about its reliability and usability.
Although it can be said with reasonable conviction that the traditional rules of marketing are being challenged, some of it still stand true. Hubspot uses an eclectic mix of both inbound as well as outbound marketing practices. It uses inbound marketing to draw customers towards it. However, to retain such customers Hubspot uses traditional marketing methods like advertising (YouTube and Podcasting), encouragement of employee enthusiasm towards customer service and implementation of differentiated market strategies to suit different target segments.
Is Hubspot finding and serving the right set of customers?
Hubspot differentiated its customers based on two broad parameters.
Small Business Owner customer vs. Marketing professional customer
The small business owner or Owner Ollie was the entrepreneur heading a business ranging in between 1 to 25 employees. The cost of acquiring these customers was $1000. Their primary objective was to create maximum leads for their businesses. OOs are busy with all the functions of the organization and rarely have a defined marketing department. Paucity of time and resources enabled them to focus on the top of the customer funnel to generate maximum possible leads. OOs were less knowledgeable of the Web 2.0 technology and have great use for the training and guidance that comes along with the Hubspot software package. They make up for 68% of Hubspot’s customer portfolio. However, the churn rate for OOs is 4.3% (Table A) per month. This meant that the OOs were not sustainable customers despite having great usage potential for Hubspot software products and services.
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The marketing professional, or Marketer Mary are trained marketing professionals working in companies, often supported by a team and answerable to senior management. They are knowledgeable about marketing tools and new age practices. What MM’s were looking for in Hubspot was the analytics and reports it provided. MMs had the potential to invest heavily in Hubspot’s products since they not only had the need for tools to design robust in-practice inbound marketing programs but also the financial resources. The churn rate compared to OOs are lesser at 3.2%. However, the selling cycle was considerably of a longer time period than with OOs. The cost of acquiring was also higher at $5000 i.e. 5 times higher than acquiring an OO. MMs constituted 31% of Hubspot’s consumer portfolio.
Analysis
Hubspot, taking into consideration the differences between these two consumer segments, has accordingly designed diverse product portfolio to suit each individual target segment of OO and MM. Hubspot’s pricing strategy includes differential pricing for different customer segments i.e. Owner Ollies (OO) and Marketer Marys (MM). Since the cost of acquiring an OO is one-fifth of that of a MM, Hubspot could afford to charge a lesser monthly fee to OOs ($250 per month as compared to $500 per month charged to MM). Also, since OO as consumers were more in number than MM, the reduction in the monthly price charges was made up for by economies of scale. Therefore, Hubspot has identified its customer segments and serves it according to the returns expected from them.
However, with the increase in number of small and medium sized business (Table C), it is recommended that Hubspot place more emphasis in increasing the percentage of OO’s in its customer portfolio. Although the churn rate is high, it is these firms which have more use for Hubspot’s products and services. With the right informational content persuading these customers the churn rate can be reduced and profit generated through OO’s can be maximized.
B2B customer vs. B2C customer
The B2B customer had meager experience with Web 2.0 technology. They required the consultancy services that Hubspot provided along with the effective ingratiation of the software in their business models. B2B companies generally provided complex products that made it necessary for their consumers to have a thorough understanding of their product before investing in it. This made Hubspot the perfect product to fulfill the needs of B2B customers. B2B customers needed the support of Hubspot’s technicians and software during start-up and later on as well.
B2C customers however found that Hubspot content and templates were too rudimentary for their needs. They seemed to derive much lesser value than B2B customers. B2C customers dealt with products/services which already required them to have strong online presence. Most of them had engaged Web 2.0 consultants and agencies to work for them already.
Analysis
Here, it is recommended that Hubspot place more importance on acquiring and retaining B2B customers taking into account the above mentioned points. Also, the churn rate of total B2B customers is almost half of that of B2C customers. (Table A) This fact holds true since B2C customers have low utility for Hubspot products. Therefore, catering to B2B customers will maximize profit for Hubspot.
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Is Hubspot being too stubborn by not doing any outbound marketing? What do you advise to Halligan and Shah?
Hubspot coined the term Inbound Marketing. It sold the marketing strategies which it itself devised. Hubspot faces a dilemma of principles here. If it uses Outbound Marketing, how should it justify selling Inbound Marketing solutions to its clients? It becomes a marketing paradox which may prove harmful to the company’s stellar image.
Outbound Marketing would involve infusing more financial resources into marketing. In this case the cost per lead generated is much more than Inbound marketing.
One key issue that hampers current marketing strategy of Hubspot is that since they pull customers to them, it becomes very difficult to determine the correct strategy to implement before they know what segment of customers are finally getting attracted towards them. It creates a Catch-22 situation where knowing the strategy to implement depends on knowing what particular customer segment the strategy should be implemented on and the latter cannot be determined until the former is implemented.
In this, Outbound marketing has a huge advantage over Inbound marketing since, strategies are formulated and implemented after deciding the target audience. This kind of marketing also tends to attract a larger and more diverse set of customers. Hubspot current marketing strategies filters out customers who have a greater potential to buy and narrows their focus to target them. This eliminates almost 50% of the customers from the top of the customer funnel.
However, all the above concerns about Inbound Marketing can be addressed pertinently. According to Volpe, “the market we are going after is very, very large and today our product is a small, small fraction of what it needs to be”. Table C shows the market potential of Small and Medim Sized Businesses. Almost all of these are Owner Ollies ( half of them being B2B) which are Hubspot’s greatest customer base. Therefore, the growth potential in terms of profit maximization is immense. Hubspot is not being stubborn in using Inbound Marketing. Rather, it is an ingenious method of marketing which generates measurable results and makes optimum use of financial resources.
Recommendations for Halligan and Shah
Web content and social media promotion techniques should be given importance over traditional marketing techniques. Depending on the type of customer segments the marketing tools should be modulated accordingly. This is tough for the organization to carry out since it has such a diverse set of customers. However, what Hubspot can do is put more efforts on Owner Ollies and B2B customers since they are our largest customer base with the biggest growth potential.
As per Volpe, Hubspot is yet to develop its product to suit the new emerging market scene. This also forms a factor to take into consideration for the future growth and development of Hubspot’s market share. It being a software sector, the more up-to-date its products are the better its chances to generate revenues.
However, Outbound Marketing should not be completely dismissed. It is advisable to use traditional mode of marketing to retain existing customers. In the case of B2C and Marketer Mary’s which have a high churn rate, the upgradation of the product will suitably satisfy their needs. Using traditional modes of marketing such as direct marketing and personal selling will be effective in such cases.
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