ISSUES TO BE ADDRESSED

How would you interpret the consumer and market data if you were Dana Wheeler?

1. According to the data presented, The Fashion Channel (TFC) was the first TV channel to offer fashion TV shows, reaching 80 million viewers in the USA, initially giving the company an advantage as the original leader in the market. However, now the company is facing tough competition: “Fashion Today” on Lifetime and “Fashion Tonight” on CNN. At the moment this new competition arose, TFC did not have any plan for strategic segmentation or market positioning.
The demographic data shows that 61% of the total audience for The Fashion Channel is comprised of women between 35-54 years old, similar to CNN’s audience. However, the Lifetime audience is 63% women between 18-34 years old; that means that TFC has older viewers than Lifetime. Another interesting figure is that CNN has the greater number of men with 45%, mostly between 35-40 years old.
Given these figures, it’s clear that Dana Wheeler is focusing on attracting a younger segment of women to TFC, competing directly with Lifetime. She is not interested in reaching the male segment.
TFC dedicates more broadcast time to fashion programming than any other network. However, TFC’s fashion programs rank lower in the ratings than its competitors’ shows. That negatively affects TFC because lower-rated shows are less attractive to advertisers, resulting in lower income from commercials.
According to a study conducted by GFE Associates, people who are interested in fashion can be divided into four segments: Fashionistas (serious fashion followers), who represent 18% of this population; Planners and Shopers (less serious fashion followers), with 35%; Situationalists (people who are interested in fashion only once in a while), with 30%; and Basics (people with no interest in fashion), with 20%.
In this last segment – Basics – fall most men. The Fashionistas are mostly women, with 61% between 18-34 years old.
Another interesting finding of this study is that people generally love shopping for new clothes but don’t tend to take fashion TV shows into account when deciding what to buy; people tend to just do it for special occasions.
Even though TFC is considered the most prestigious and best-established fashion channel in the USA, it has the lowest preference rating among viewers.

2. What is the expected outcome of each of the targeting scenarios? Attempt to complete a financial impact of the scenarios.

Dana Wheeler, TFC’s vice president, developed three scenarios for mixing the most popular elements of her channel’s programming, with the main objective to raise the advertising prices the company can charge. Wheeler is convinced that the channel must improve its ratings and its position in cable/satellite packages (making TFC available to more viewers) in order to increase advertising prices, and thereby increase the company’s revenue. In 2007 the company will spend $25 million in promotions, advertising and public relations. With this amount in mind, Wheeler created these three scenarios.
The first scenario will target Planners/Shoppers, Fashionistas, and Situationalists. According to Table 4, this scenario will increase viewership from 1.0% to 1.2% but the CPM (Cost per Thousand Impressions) will decrease from 2.00% to 1.80%; in other words, this scenario will increase advertising revenue by 8%.
The second scenario would be focused on the segment of the fashionistas which according to the study is the strongest group. This approach has on favor that it shows a radical change: is the segment that generates economic gains. The effort in applying this segment means consumer loyalty and therefore more interest from advertisers. The only thing against it is that, although they can make significant gains, this is a small segment and the benefits could not be high as the costs.
The third scenario focuses on two segments, fashionistas and shoppers / planners. This approach shows a moderate change, these two segments divided joint efforts to be successful. It is possible that the marketing and advertising campaign can increase both segments, strengthening the relationship with fashionistas and perhaps attract new customers in both segments. The promise of this option is to raise the ratings over 20% and achieve an increase in the CPM of around 25%. Also with this option, Wheeler seeks to attract the younger audience ranging from 18-34 years old.
The downside of this segment is that it will invest $15 million per year which would be very costly for the company.

3. Develop a factual analysis of the segmentation options and evaluate PROS and CONS of each option. The first option will cover the whole market, targeting all demographic groups, and it is expected to increase revenue. However, while the intention is to reach more TFC viewers, the CPM will surely decrease because it will target less fashion-minded people.
Under option two, TFC will benefit by developing more programming directed at clearly identified target audiences (Fashionistas and Planners/Shoppers), and that could position the company as the most important fashion entertainment channel. The downside of this scenario is the investment of an additional $20 million per year, a significant cost for the company.
Finally, the objective of the third option is to increase both ratings and CPM, diversifying customer segments. This is the most expensive approach, but the profit margin of this scenario is the highest at nearly 39%. 4. If you were Dana Wheeler what would you recommend and why? I would choose Option 3, reaching the younger segment, including Fashionistas and Planners/Shoppers. According to graphic number 3, these segments are the most interested in fashion; if FTC attracts the new audience, ratings will increase 1.2%, and advertising sales will increase $2.50 CPM. 5. Dana is filling the role of change agent in this organization. How should she manage the discussion and meeting to be most effective in leading the group to make the right decision? Wheeler knew that his recommendation would have to prove that her proposals would increase the income of TFC, and also quantify the risks in case her plan does not meet the expectations. She needed to be prepared to answer many of the questions of the members of the channel, who had high expectations in order Wheeler could provide solutions to faced the competition. Although everyone knew that there was a situation of change, no one knew exactly what they were facing to continue as market leaders. Wheeler had to convince the staff that her proposals were the best to face competition. SITUATIONAL ANALYSIS 1. Market Analysis

The Fashion Channel, a successful cable TV network, was created in 1996, and presented entertainment and information related to fashion 24/7. Its main audience was women of the 35-54 age group. In 2006 TFC was the leader in fashion TV. One of TFC’s most popular series in 2006 was “Look Great on Saturday Night for Under $100.” TFC earned revenues of $310 million in 2006.
Also in 2006 TFC experienced for the first time tough competition from channels like CNN and Lifetime, which started producing programs related to fashion that quickly became more popular than TFC’s offerings. These channels represented fierce advertising competition to TFC.
Like rival networks CNN and Lifetime, TFC was a basic cable channel, so most consumers received it automatically when they signed up for basic cable service.

2. Competitive Analysis

After the initial success of TFC, two other channels began offering fashion programming: CNN and Lifetime; those rival networks 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. Soon TFC’s competitors starting producing new fashion shows which attracted much larger audiences still. The highest average household rating for CNN’s fashion programming was 4.4, while Lifetime reached 3.3 and TFC just 1.0.
After seeing these marketing results, TFC was concerned that the other two channels were taking almost all the market revenues. Soon TFC became aware that its problem was that the channel had not segmented the market. In response, the channel started doing market research, hiring GFE Associates to review demographic data, consumer behavior and attitudes of viewership. 3. Customer Analysis

i.- The study analyzed the three major fashion channels, TFC, CNN, and Lifetime. According to the data collected, TFC’s two competitors each attract more viewers than TFC with their fashion news and features on fashion celebrities. 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.
Another research from National Consumer Survey shows that in general consumers are very interested in fashion since they watch fashion shows in oder to make a good decision on what kind of cloth wear to feel comfortable in their daily life and special events.
Also, people rely on television reports 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.

ii.- Analysis of Attitudinal Clusters

There are four clusters for the Fashion Channel on the analysis of attitudinal. The first one is the Planners and Shoppers, mainly controled by women. For this people is very important the fashion value but they are not really interested in the lastet trends.
The second cluster are the situationalists, who care about fashion just in special situations. This cluster is doinated mostly by children. Fashion is both entertainment and practical.
The third one are fashionistas who are very interestd in fashion and are aware of the latest fashion trends. fashion is entertainment for them.
The fourth one is the basics who is people not interested in fashion, don’t spend much time thinking what to wear or even no shopping.

3.- SEGMENTATIONAL ANALYSIS

TABLE I

|Scenario |PROs |CONs |
|2007 Base |Cover the whole audience |No segmentation |
|1 |Cheapest scenario |Risk od loose viewrship. |
| |Eeasy implementation |No new tv shows |
|2 |Increase CMP. |Reach just 15% viewership. Costly $15 |
| |More loyal audience |million more |
|3 |Attract women 18-34 years old. |Invest $20 million. |
| |No decrease in viewership |Smaller audience |

4.- FINANCIAL ANALYSIS

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

✓ In order to increase TFC’s ad revenues the company has to decrease its ad pricing by 10% or to increase its viewership by improving the quality of tv programs.

✓ According to graphics, there are 110 Mn households in USA with cable service and TFC had a rating of 1.0 or 1,100,000 persons watching the channel.

✓ Advertising slots were divided in 30 seconds and 60 seconds.

✓ 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 pay.

✓ There are two types of TFC revenue: one for advertising and the another one is by cable users.

✓ Households subscribe to cable through local affiliates and multi-system operators (MSO).

b.- Predict the financial outcome of the 2007 BASE (proyected without segmentation) on the three scenarios. These two tables are in the excel spreadsheet provided.

Please, see excel spreadsheet….

5.- RECOMMENDATIONS

a.- MARKETING: What is your recommendation for TFC based on your pros and cons of each scenarios and your financial analysis WHY?

After reviewing the three different scenarios, I concluded that the best solution is scenario 3 because, according to the information provided and figures, the fashionistas contains the segment of people most valuable into the market, those females between 18-34 years, and the another segment are the Shoppers/Planners, who are really interested in fashion. TCF has not been really succeed reaching the youngest people, in comparition with its competitors, so this is the opportunity for the channel to make a positive change. Other two big benefits for the company with this scenario are the raiting and CPM. With this proposal the rating would increase by 20% and the CPM 25%. If the company is able to achieve these goals its revenue will increase and that could compensate for the fact that this is the most expensive of the 3 scenarios.
Scenario 3 will produces highest net income, and highest margin at 39%.

|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 | | NOT PROVIDED | NOT PROVIDED | $ 15,000,000 | $ 20,000,000 |
|Expense | | | | | |
| | | | | | |

|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 & |$45,000,000 |$41,200,000 |$41,200,000 |$41,200,000 |$41,200,000 |
|Advertising | | | | | |
|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% | | | | |