Memo

To: Professor Montgomery From: Laura Graham Date: 9/16/12 Re: The Fashion Channel

Problem/Opportunity Identification The Fashion Channel (TFC), is a successful fashion network that wants to strengthen its competitive position and increase revenue. Recently, competing networks have stolen key viewers; however, marketing initiatives can attract viewers and advertisers.
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Situation Analysis TFC wishes to strengthen its competitive position and generate more advertisement revenue. It has the advantage of being the only channel dedicated solely to fashion. While competition for viewers between cable channels is fierce, TFC has the opportunity to seize the key 18-34 female demographic. The company’s strengths stem from its identity as a broadly accessible niche network. TFC sells approximately 2,000 minutes of advertisements a week to cosmetics companies, brand name clothing designers, and car manufacturers. As a basic channel, most consumers automatically receive it with their cable package. On the other hand, the company is facing pressure from other channels whose fashion segments are gaining popularity. To gain wider viewership and higher ad revenue, TFC must use marketing to lay a foundation for future growth. External market conditions seem reasonably stable for business at this time (2006-2007). Consumer prices are expected to rise by about 4% in 2007, which is above 2006’s 2.5% price increase. Inflation remained fairly constant at 2.8%, and real GDP growth is expected to stay near 4.8% (Exhibit 1). GDP per capita is expected to rise, albeit only slightly. Regarding customers, TFC’s main strength is its ability to attract women between ages 35-54. The network’s main weakness lies in attracting men. A large threat to the company involves cable affiliates, who pay TFC a subscriber fee that composes significant portion of its revenue. Because TFC is at the low end of the industry range, some affiliates may be tempted to drop it (Exhibit 2). In addition, consumer interest ratings also lag behind competition (Exhibit 3). Despite these threats, marketing initiatives can be used to improve consumer interest, awareness, and perceived value. The competitive environment is especially challenging for TFC. Lifetime and CNN recently launched fashion programming that has achieved strong viewership. Lifetime took away younger female viewers, and CNN attracted men (Exhibit 2). Both channels have higher ratings than TFC (Exhibit 4). Despite these weaknesses and threats, TFC achieved revenue of $310.6 million in 2006. With the right strategy, TFC has the opportunity to take viewers back from its competitors.
Alternatives
------------------------------------------------- TFC’s goal of gaining viewers in key demographics and subsequently attracting advertisers can be accomplished in a number of ways. The network could continue broadly targeting all viewers; use market penetration to steal viewers from other networks; use market development to attract new customers; target three main clusters; selectively target two groups; or target the most interested cluster.
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One compelling strategy involves broadly targeting the three primary viewer types: Fashionistas, Planners & Shoppers, and Situationalists (Exhibit 5). To do so, TFC would invest in a major marketing and advertising campaign to increase awareness and viewers. Programming would also be enhanced. While ad sales would likely drop by 10%, ratings would rise from 1.0 to 1.2 (Exhibit 6).
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An alternative plan requires targeting Fashionistas and Shoppers/Planners. Ratings and advertisement price would increase by 20% and 25% respectively (Exhibit 6). An additional $20 million would be spent on programming to maximize the entertainment of both segments.
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Finally, a third option involves targeting Fashionistas. This segment is relatively small, and ratings might decrease by 20%. However, this method would strengthen customer value, and advertisers would be willing to pay 75% more (Exhibit 6). TFC would invest $15 million in new programming.
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Recommendation Selectively targeting Fashionistas and Shoppers/Planners seems like the best bet. This decision can be implemented by investing in new programming and targeting these groups in TFC promotions. Success can be judged by TFC’s TV ratings, consumer interest ratings, and advertisement revenue. Risks of this plan include losing viewers and being dropped by some affiliates; however, in this event, broadening the marketing mix to include Situationalists should remedy the problem.

Exhibit 1
Inflation rates

Exhibit 2
TV viewer patterns | All TV Viewers | TFC | Lifetime | CNN | Male | 49% | 39% | 37% | 45% | Female | 51% | 61% | 63% | 55% | 18-34 | 30% | 33% | 43% | 27% | 35-54 | 41% | 45% | 42% | 40% | 54-74 | 21% | 20% | 14% | 26% | >74 | 08% | 02% | 01% | 02% |
__ = Advantage
__ = Disadvantage

Exhibit 3
Consumer Interest | TFC | Lifetime | CNN | Consumer interest | 3.8 | 4.5 | 4.3 | Awareness | 4.1 | 4.5 | 4.6 | Perceived value | 3.7 | 4.4 | 4.1 |
Scale: 1-5 (with 5 being best)

Exhibit 4
TV Ratings | TFC | Lifetime | CNN | Rating | 1.0 | 3.0 | 4.0 | Millions of viewers | 1.1 | 3.3 | 4.4 |

Exhibit 5
Types of viewer | Fashionistas | Planners & Shoppers | Situationalists | Basics | Size | 15% | 35% | 30% | 20% | Fashion attitudes | * Anticipate trends * Stay up to date * Think a lot about fashion * Enjoy shopping * Fashion is entertaining | * Stay up to date * Enjoy shopping * Interested in value | * Shop for specific needs * Fashion is entertaining and practical | * Do not nejoy shopping | Age range | 30% 18-24 | 53% 18-24 | 45% 18-34 | |

Exhibit 6 | Current Plan | Plan 1 | Plan 2 | Plan 3 | Cost Per Moment paid by advertiser (in thousands) | $2.0 | $1.80(10% decrease) | $2.50(25% increase) | $3.50(75% increase) | Ratings | 1.0 | 1.2(20% increase) | 1.2(20% increase) | .8(20% decrease) |
__ = Advantage
__ = Disadvantage