Hubspot: Inbound Marketing and Web 2.0
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Q. Which is the right segment for Hubspot to target? Why? Which pricing model – Software-as-a-service (SaaS) or Software-as-a-Product (SaaP) is more suitable for HubSpot?Solution: On analyzing the segment to be targeted, we need to analyse three main issues:-Pros and Cons of each segment-Customer Lifetime Value in each segment-Customer Volume in each segmentOwner OllieMarketer MaryProsConsProsCons73% of customer portfolioLower cost to acquire customers ($1000)Larger impact on customer’s business13% used CMS-Lesser ongoing fee ($250 per month)-Higher churn rate (43% per month)- High ongoing fee ($500 per month)- Lower churn rate (3.2% per month)- Used more flexible and sophisticated tools, such as salesforce.com integration- Higher cost to acquire customer ($5000)- Lower initial value derived as compared to Owner Ollie- About 2% used CMS
From the CLV calculations at the back of the page, it can be concluded that adoption of CMS increases that Customer Lifetime Value, while non-adoption decreases it (for both the segments). Although, Marketing Mary generates greater Lifetime value, the percentage of those customers that adopt CMS is only 2% (Ollies 13%). Further, they account for only 73% of the market.Assuming 100 customers,Total Customer Lifetime Value for Ollies = 73*((.13*2022.727273)+(.87*1524.193548)) = 115997.2141Total Customer Lifetime Value for Marys = 27*((0.02*4045.45)+(0.92*3048.387)) = 77906.47608Hence, HubSpot should target Ollies. Within Ollies, customer acquisition is higher and churn rate is lower in B2B, particularly B2B <25. Hence, target this segment.Regarding pricing issue, following the SaaS model leads to a considerable churn rate. However, it should be noted that the low initial cost acts as an attractive factor in customer acquisition. The monthly costs allow customers to pay for the services at cheaper costs. Additionally, customers are charged in line with the amount of services availed.However, this will not be the case in the SaaP model. A higher one-time cost may deter potential customers. Also, it customers will be charged on price, irrespective of the amount of services availed by them.Exhibit: Calculation of CLVOwner OlliesMarketing MaryCMS (Owner Ollies)Non-CMS (Owner Ollies)CMS (Marketing Mary)Non-CMS (Marketing Mary)churn rate4.30%3.20%2.10%5.50%2.10%5.50%retention rate (1-churn rate)95.70%96.80%97.90%94.50%97.90%94.50%Fee at start -up500500500500500500Margin250500250250500500Acquisition cost100050001000100050005000CLT Value (assuming 10% discount rate)1673.0769233666.666672022.7272731524.1935484045.4545453048.387097