Case 6 - The Fashion Channel

1. ISSUES

Founded in 1996, TFC has been the only channel that is dedicated to fashion features 24 hours a day 7 days a week to a broad range of audience. This gave the channel a competitive edge marking it as the fashion leader channel in the market. However beginning 2006, the company noticed that other channel namely Lifetime and CNN were including fashion programs in their network and thus attracting audiences and advertisers. Advertisers had more choices to advertise through now and since these competitors were targeting the younger and stronger groups of audiences, this was affecting the commercial sales of TFC. The company is losing more advertisements to its competitors and it is estimated that TFC would need to drop its ad price by 10% if its performance doesn’t change.

The current marketing theme of TFC is “Fashion for everyone” which means they are offering to broad range of viewers to get more viewership but the current market situation interprets that advertisers are interested in going to networks that target the strong segment of the market-Youth.
Dana also found that TFC ranks lower in viewership ratings as compared to its competitor because of targeting broad audience and older females. Since ad rates are based on the number and demographics of the target market, lower viewership rate of TFC was resulting in lower income from commercials. Currently 61% of the total audience for TFC is women between 35-54 years old, similar to CNN’s audience. However, the Lifetime audience comprised of 63% women between 18-34 years old; meaning that TFC has older viewers compared to Lifetime. CNN has the highest number of male viewers 45% but that is not interest area of TFC so Dana is interested in competing with Lifetime to attract more female audience.

Dana plans to build a strategy for segmentation and employ marketing tools to best reach the target segment. This would make TFS an attractive platform for advertisers and since advertisement is the primary growth opportunity of TFC, revenues would increase. GFE Associates studies have classified fashion interested people into four clusters: Fashionistas representing 18% of this population; Planners and Shopers 35%; Situationalists 30%; and Basics 20%. The basics covers the male segment whereas the fashionistas are mostly women from 18-34 years of age.

Dana built up three alternative targeting scenarios aimed at increasing the CPM and increased viewership ratings. She knows that people at TFC are buoyed to provide fashion to everyone and would resist change but she also understands that change has to come for improvement in revenue. She should work closely with Frezier and go to the meeting with more facts and figures including information on competitors, demographics of audiences, and ad sales to prove that her recommendation would actually increase the revenue. And also be prepared for questions.
She should also have a budget plan for the new marketing programming and integrated messages to reach the customers.

2. Develop a factual analysis of the segmentation options and evaluate PROS and CONS of each option. i. Targeting all three groups (Fashionistas, Planners/Shoppers, and Situationalists)
This option is somehow similar to the old strategy of TFC “ Fashion for everyone” because the audience is general. By adopting this alternative solution, TFC would include the audience of 18-34 besides it’s 35 to 54. There will be a 20% increase in ratings. Major investment on marketing, advertising and programming is required to increase viewer awareness. This would increase ratings up to 20% from the current 1.0 to 1.2%. But Ad sales are forecasted to drop by 10%.

ii. Targeting Fashionistas: This strategy focuses more on female Fashionistas from the 18 to 34 year old demographics. Fashionistas represent 15% of overall household viewers. This strategy might lead to a drop in overall ratings; however, this alternative will increase advertising value, and may lead to an increase in CPM from $1.80 to $3.50. If this alternative is chosen, the Fashion Channel will have a defined target segment. In addition, specific programming will need to be provided that would fit this segment and an additional 15million/year would be spent. Competitors such as CNN and Lifetime will no longer be a threat since they do not target this specific segment.

iii. Target dual segments: the Fashionistas and the Shoppers/Planners segments would drive an increase of viewers’ ratings to 1.2 with a possible increase of CPM of $2.50. Since two segments are targeted, an additional $20 million would need to be invested on programming. This is the most expensive approach, but the profit margin of this scenario is the highest at above 30%.

2. SITUATIONAL ANALYSIS 1. Market Analysis

TFC was founded in1996 as the channel that is dedicated to presenting entertainment and information related to fashion 24/7. In 2006, it was the leader in fashion TV networks and its most popular show was “Look Great on Saturday Night for Under $100.” Its popularity earned it a revenue of $310 million in 2006. The target audience for the channel were women between the ages of 35-54. Thomas (president of the company) founded that the company was facing competition in 2006 when other channels such as CNN and Lifetime added fashion programs to their line ups and attracting more groups of audience and advertisers for higher CPM. Their ratings were increasing than that of TFC, this made Thomas worried and he decided to sustain the leadership of TFC by investing in its marketing strategy.

Dana analysed that TFC charged the least rate for cable subscription fee which was $1/year and that TFC came as basic channel with basic cable service where as other channels were premium channels of MSOs and charged way high.

2. Competitive Analysis

CNN and Lifetime earned higher ratings than TFC with their competing content. TFC earned average ratings of 1.0 while CNN enjoyed 4.0 ratings and Lifetime with 3.0. The highest average household rating for CNN’s fashion programming was 4.4, while Lifetime reached 3.3 and TFC had just 1.0. TFC realized that the competitors were taking most of the market. Dana studied the case and found out that the channel has not segmented the market. 3. Customer Analysis

The younger market that are interested in fashion rely on television information and shows on fashion to plan what they will wear to work or on special occasions. Mostof the people agreed that TFC is the best place for fashion information however other competitors are targeting more specific segment and attracting more advertisers. The show Fashion Today, from Lifetime, is the most popular among women between 18-34 years old with 63%. Also, Fashion Tonight, from CNN, is the most likeable fashion program for male viewers with 45% compared to 37% of Lifetime and 39% from TFC. The channel with the younger viewers segment is Lifetime with 43% under age of 18-34. TFC had the most diverse audience.

ii.- Analysis of Attitudinal Clusters

GFE Associates has divided the fashion market into four clusters based on their attitudes and needs. 1. Fashionistas: Females between 18-34. Fashion is very important to this group and they are aware of the trend and ready to spend on fashion. 2. Planners/Shoppers: Comprises of women mostly, they are interested in fashion but not into much latest trend. 3. Situationalists: they spend occasionally on fashion, they are not trendy but do want to wear and look good in special situations. 4. Basic: mostly comprises of men and are not interested in fashion at all and not willing to spend on fashion.

3.- SEGMENTATIONAL ANALYSIS

TABLE I

Scenario | PROs | CONs | 2007 Base | Cover the whole market | No segmentation | 1 | 20% increase ratingMajor investment in marketing needed. Those resistant to change will be happy. Awareness of public will increase and the ratings will increase. | 1. AD sales will decrease by 10%.2. Customer satisfaction will keep going down.3. Audience may move to other competitors. | 2 | 1. Increase CPM2. Increase value of advertising. | 1. Fashionistas represent only 15% of the market. 2. TFC will need to invest additional $15 million on programming. | 3 | 1. CPM will increase to $2.502. Increase rating3. Increase audience. | 1. Will cost additional $20 million investment in programming 2. Risky target and Persistant threat from customers.3. |

4. - FINANCIAL ANALYSIS

a. - Review financial data (exhibits 4 and 5)

* TFC revenue comes from two sources: advertising prices and viewership ratings/cable users. In 2006, TFC was targeted to generate 230.6 Million from advertising. * In the present situation, in order to increase TFC’s ad revenues the company has to decrease its ad pricing by 10% or increase its viewership by improving its performance.

* The cable affiliate fee for TFC is $1/year/subscription, which is the lowest in industry. Households subscribe to cable through local affiliates and multi-system operators (MSO).

* By attracting high valued viewers, TFC could increase its ad prices from 25-75%. There are 110m households in USA with cable service and TFC had a rating of 1.0 or 1,100,000 persons watching the channel.

* National ad time has 6 minutes in each half hour of the programming, totalizing 2,016 minutes per week. Prices were based on CPM (cost per thousands). This means the price that an advertiser pays.

5.- RECOMMENDATIONS

After a through analysis of the figures and the market on three scenarios, I would recommend TFC to go with the third scenario because it includes the strongest segment of the fashion market-The fashionistas and also the potential customers –The planners and shoppers. This dual segmentation will cover the large number of females, in addition to its 35-54 years old females; TFC would target the age group of 18-34 who are the most active adopters of fashion and trend. The competitors of TFC are successful today because of targeting the right segment, Young female, and thus have higher viewership rates and CPM. With this scenario, TFC would attract more young females and also build brand loyality with its present customers thus its CPM will increase by 25% as well as its rating by 20%. It would also differentiate itself from CNN, which focuses on fashion for men- 45%. Also, the profit margin will be above 30%. TABLE 1 | Ad Revenue Calculator | | | | | | | Current | 2007 Base | Scenario 1 | Scenario 2 | Scenario 3 | TV HH | 110,000,000 | 110,000,000 | 110,000,000 | 110,000,000 | 110,000,000 | Average Rating | 1.0% | 1.0% | 1.2% | 0.8% | 1.2% | Average Viewers (Thousand) | 1100 | 1100 | 1320 | 880 | 1320 | Average CPM* | $2.00 | $1.80 | $1.80 | $3.50 | $2.50 | Average Revenue/Ad Minute** | $2,200 | $1,980 | $2,376 | $3,080 | $3,300 | Ad Minutes/Week | 2016 | 2016 | 2016 | 2016 | 2016 | Weeks/Year | 52 | 52 | 52 | 52 | 52 | Ad Revenue/Year | $230,630,400 | $207,567,360 | $249,080,832 | $322,882,560 | $345,945,600 | Incremental Programming Expense | | NOT PROVIDED | NOT PROVIDED | $ 15,000,000 | $ 20,000,000 | | | | | | |

TABLE 2 | Revenue | 2006 Actual | 2007 Base | Scenario 1 | Scenario 2 | Scenario 3 | Ad Sales | $230,630,400 | $207,567,360 | $249,080,832 | $322,882,560 | $345,945,600 | Affiliate Fees | $80,000,00 | $81,600,000 | $81,600,000 | $81,600,000 | $81,600,000 | Total Revenue | $310,630,400 | | | | | | | | | | | Expenses | | | | | | Cost of Operations | $70,000,00 | $72,100,000 | $72,100,000 | $72,100,000 | $72,100,000 | Cost of Programming | $55,000,00 | $55,000,00 | $55,000,00 | $55,000,00 | $55,000,00 | Ad Sales Commissions | $6,918,912 | $6,227,021 | $7,472,425 | $9,686,477 | $10,378,368 | Marketing & Advertising | $45,000,000 | $41,200,000 | $41,200,000 | $41,200,000 | $41,200,000 | SGA | $45,000,000 | $223,426,479 | $223,426,479 | $223,426,479 | $223,426,479 | Total Expense | $216,918,912 | | | | | | | | | | | Net Income | $93,711,488 | | | | | Margin | 30% | | | | |