A Case Study On Growth Strategy: Hubble Contact Lenses
Imagine if you could double your market share with a single strategic move. That’s what this case study is about. Hubble is a subscription-based, direct-to-consumer (DTC) seller of contact lenses. It’s a traditional, concentrated industry (with 4 large companies owning >50% market share). They’ve mastered customer acquisition and revenue growth through paid digital marketing with a wildly successful launch. But their next challenge could prove to be even more daunting — and the stakes are high as they move into the next round of fundraising.
This is the task: Hubble has done exceedingly well in acquiring customers and growing their revenue in the last few years. They now have to take strategic action to start their next phase of growth. What’s the right move?
First, here’s a summary and analysis of Hubble’s Business Model for context:
We propose that Hubble should focus on product and customer segment extensions. This will be the most resource-effective, high-growth marketing strategy for their next phase of expansion. Essentially, Hubble should compete with offline discount retailers (Grocery Retail) for their market share (read on to know more).
Favoured Strategy: Product Extension and Target Market Expansion
Hubble currently only sells spherical lenses. However, this constitutes only 58% of the market. Expanding into Toric lenses will increase its addressable market by 50% [Exhibit 1]. While there may be supplier issues, the product easily fits into the marketing and supply-chain infrastructure of the brand. It will also help capture more conversions from the audiences of their paid marketing efforts.
A majority of Hubble’s customers are aged 24–40, with 70% of them female. However, customers aged 35+ constitute 75% of the market [Exhibit 2].
While Hubble’s brand design appeals to millennials, a strong value prop and marketing effort can overcome design barriers for older demographics. This is especially true in Hubble’s case since its brand language focuses on simplicity and a streamlined consumer experience. They have consistently used free trials as an activation strategy for new consumers — they can continue this tactic to build activation trust for older demographics.
Boomers tend not to favour subscription models — Hubble may have to repackage its products into a one-time bulk purchase format. This should be feasible since it does not require significant resource investment for Hubble.
This growth strategy would probably lead to the highest payoff with the lowest investment, unlike the other strategies discussed below. We therefore recommend Hubble strongly consider this strategy for expansion.
Other Strategy Explorations
Distribution Channels Expansion
The company should not expand its existing retail distribution channels. It could significantly impact one of its primary value propositions — its inexpensiveness. They are only able to price their products low because they’ve cut out the middlemen, and not through strategies like product R&D (that the incumbents employ).
Moreover, selling to a retailer is very different from selling to a consumer — they will need to create an entirely new DNA.
The supplier market is concentrated (<40 FDA-approved suppliers worldwide). It’s therefore reasonable to assume that economics of scale will not drastically lower prices unless the volume is exceptionally large. Hubble will certainly not be able to reach that scale in the near term.
Currently, only 25% of lens sales in the US occur online [Exhibit 3]. Of the remaining 75%, every single format has a decreasing trend in market share. In particular, Grocery Retailers (offline discount retailers) also compete on pricing. This makes for an attractive target for Hubble. Rather than entering this distribution channel, they should target customers who currently shop in this format (32.25%). This more than doubles Hubble’s obtainable market, providing ample space to grow.
Growing the number of customers originating from Optometrists seems reasonable, especially considering all customers in the US have to visit one to be able to order lenses. However, considering the trend of slowing growth of new patients visiting optometrists every year [Exhibit 4], it isn’t an attractive strategy. Low growth implies that Hubble would have to compete with brands that have an existing relationship with optometrists, which could quickly devolve into an expensive incentive war.
Geographic Expansion
North America is the biggest market in this category with a market share of 37% [Exhibit 5]. It doesn’t make sense to move to another market until Hubble’s full growth potential has been reached.
Value Proposition Expansion
Hubble’s entire marketing strategy is focused on Acquisition (80%+ originated through paid marketing) and Retention (convenient subscription model). This strategy makes sense for Hubble’s primary value propositions: Convenience and Price. It also implies that customers come to Hubble not because of reputation, but because the value proposition directly resonates with them. Hubble’s major differentiator from other products offering the same value proposition is its brand design — it’s appealing to their current target audience. Expanding their value proposition would therefore entail very high costs with uncertain results, as this would be new territory for them.
Churn & Reactivation
A churn rate of 4% is not very high. Its impact will increase as CAC increases, and therefore it makes sense for Hubble to focus on customer reactivation and retention. But its impact would not be high enough for it to sustain the exponential growth of its topline.
These are some of the other strategies a company like Hubble could — and often does -consider. By relying on accurate market data and matching it to the company’s business model, it becomes far easier to hone in on the right strategy.
By focusing on product extension and targeting new customer segments, Hubble can achieve substantial growth with minimal investment. This strategic play will position Hubble as a formidable competitor in the contact lens market, poised for long-term success.
Appendix
Link to the case study: https://www.hbs.edu/faculty/Pages/item.aspx?num=54733
Business Model
Value Proposition: Convenience And Affordability
Hubble offers direct-to-consumer contact lenses, cutting out the middleman to lower prices and save consumers time, with a flexible subscription service promoting eye health.
Revenue Model: Recurring Revenue through Subscriptions
Hubble’s subscription model ensures monthly delivery of contact lenses, driving revenue through competitive pricing and customer retention.
Market Opportunity: Capitalizing on Trends
Hubble targets price-sensitive, tech-savvy millennials seeking cost-effective alternatives to traditional brands. They sell ”daily disposables” lens through e-commerce.
Competitive Environment: Standing Out in a Crowded Market
Hubble differentiates itself by simplifying online ordering, competitive pricing, and data-driven marketing, creating a distinct value proposition in a market dominated by established retailers.
Competitive Advantage: Tailored for a Younger Audience
Hubble stands out with competitive pricing, a convenient subscription service, and a unique brand targeting younger women through friendly packaging, a simple website, and strategic marketing.
Market Strategy: Building a Digital Powerhouse
Hubble focuses on a seamless customer experience and aggressive digital marketing, reinvesting revenue to build brand awareness and drive profitability through strategic partnerships and influencer campaigns.
Organizational Development: Optimizing for Growth
Hubble prioritizes scaling by investing in supply chain management, customer service, and tech tools to enhance their e-commerce platform and data analytics.
Management Team: Talent with Domain Expertise
Hubble’s success relies on a senior team with expertise in optics, e-commerce, digital marketing, and supply chain management to translate strategic vision into reality.
