[Year] THE FASHION CHANNEL Market Segmentation and Targeting MK-1 Assignment Quantitative and Qualitative Analysis of three strategy options for TFC: a broad multi segment approach, a focused one segment approach and a two segment strate gic approach. GROUP NO. 9 Anuja Bhargava Ganeshprasad Arote Mayur Macharla Prakarsh Aren Sauri sh Suhas Jagdale Vikalp Kumar Nigam . (2012PGP055) (2012PGP113) (2012PGP192) (2012PGP263) (2012PGP343) (2012PGP436)Contents A. B. Background ............................................................... ...................................................................... 3 Analysi s .............................................................................. ............................................................. 4 1. 2. 3. C. SWOT Analysis....................................................................... .................................................. 4 Qualitative Analysis of thr ee Strategy options ............................................................ ........... 5 Quantitative Analysis of three Strategy options .................. ................................................... 6 Decision ....................................................................... .................................................................... 7 The Fashion Channel Page 2A. Background The Fashion Channel is a 24/7 cable TV network which exclusively serves a fashio n interested audience. Since its founding in 1996, TFC has experienced a steady revenue and profit growth above industry average. Although TFC is still the only pure fashion channel, new entrants in the fashion segment like CNN and Lifetime have increased competition and threatened its market share, because of this, Da na Wheeler, the senior vice president of marketing, has been chosen to develop a modern brand strategy. To convince management of the strategic change she devel oped three Strategy Options: a broad multi segment approach, a focused one segme nt approach, and a two segment strategic approach. I. II. Broad multi segment ap proach: The first strategy option provided a special focus on women aged 18-34 w ith the target clusters as Fashionistas, Planners & Shoppers and Situationalists . Focused one segment approach: The second strategy option identified offers a n arrow strategic approach exclusively focusing on Fashionistas. Although this clu ster only accounts for 15% of the accessible households, it is most valuable to advertisers. Two segment strategic approach: The third strategy option targeted two segments; the Fashionistas and the Shoppers & Planners. III. Regardless of which strategy option will be chosen, TFC is in need to actively d efend and increase its current market share, reputation and awareness in order t o stay competitive and profitable. Although it was quite popular among its viewe rs the competition was able to gain remarkable numbers and satisfaction rates re cently. So far, TFC relied on its competitive advantage as the only exclusive fa shion so occupying a niche market. Strategies and advertising were not based on actual research but on supposed knowledge and assumptions of the market and the demand. The Fashion Channel Page 3B. Analysis 1. SWOT Analysis STRENGTHS: Only Exclusive TV network dedicated to fashion 24x7 broadcasting Oper ating in a niche market Accessibility: HIGH (accessible to all cable customers) Attractive for advertisers; because of: Large no. of subscribers Low advertising fee WEAKNESSES: Poor market research Segmentation: POOR Target Audience: POOR A dvertisers are not able to attract a particular target group or cluster through TFC, resulting in less than expected ad revenues. Reluctance to make drastic cha nges, it, in turn, hinders them so far from developments. THREATS: Increased com petition Lack of reputation and awareness resulting in loss of market share, adv ertising revenues and audience. Cable operators might consider offering TFC in l ess appealing packages thereby losing its broad audience. Change might upset cur rent audience and employees.OPPORTUNITIES: New focused advertising strategy Better segmentation Targeting th e viewers of certain clusters and age groups will increase advertising revenue a nd profit margin. Identifying the prime, most valuable consumer groups will brin g huge profits. According to the SWOT analysis, TFCs competitive advantage will not be sustainabl e as already other fashion programmes from different players are eroding its mar ket share and showing higher audience awareness. In order to sustain in this env ironment, the company has to develop and renew its strategy and introduce a segm entation approach, targeting more profitable consumers and specific age groups. The Fashion Channel Page 42. Qualitative Analysis of three Strategy options Strategy Option I: Broad multi segment approach Pros Reduced risk as approach is consistent with company mission (Fashion for everyone) and past strategic appro aches No additional programming costs 1.0 to 1.2 increase in ratings Less expect ed internal and external reluctance due to minimal changes Cons 10% drop in CPM to 1.8 Continued loss of market share due to strong competition Loss of advertis ing revenues No strategic improvement or development, lack of focus Strategy Option II: Focused one segment approach Pros Strengthen the value of au dience to advertisers as it appeals to a specific segment (Income > 100K) Increa sed CPM up to $ 3.50 High focus, unique niche strategy Cons Most competitive seg mentRisk to lose loyal audience Smallest cluster, less audience Additional programmi ng costs of $ 15 Million Drop in rating from 1.0 to 0.8 Lack of strategy-company fit (fashion for everyone) Strategy Option III: Two segment strategic approach Pros Increase in rating from 1.0 to 1.2 Growth in CPM to $ 2.50 Low Risk as focus is not as narrow as in str ategy option 2 Companys past mission is still feasible to retain, i.e. fashion fo r everyone Cons Higher programming expenses of additional $ 20 Million The Fashion Channel Page 53. Quantitative Analysis of three Strategy options Exhibit 4: Ad Revenue Calculator Current TV HH Average Rating Average Viewers (T housand) Average C PM Average Revenue Per Ad Minute Ad Minutes/Week Weeks/Year A d Revenue/Year 11,00,00,000 1.0% 1100 $2.00 $2,200 2016 52 $23,06,30,400 2007 Ba se 11,00,00,000 1.0% 1100 $1.80 $1,980 2016 52 $20,75,67,360 Strategy Option 1 1 1,00,00,000 1.2% 1320 $1.80 $2,376 2016 52 $24,90,80,832 Strategy Option 2 11,00 ,00,000 0.8% 880 $3.50 $3,080 2016 52 $32,28,82,560 Strategy Option 3 11,00,00,0 00 1.2% 1320 $2.50 $3,300 2016 52 $34,59,45,600 Exhibit 5: 2006 Actual Revenue Ad Sales Affiliate Fees Total Revenue Expenses C ost of Operations C ost of Programming Ad Sales C ommissions Marketing & Adverti sing SGA Total Expense Net Income Margin $23,06,30,400 $8,00,00,000 $31,06,30,40 0 2007 Base $20,75,67,360 $8,16,00,000 $28,91,67,360 Strategy Option 1 Strategy Option 2 Strategy Option 3 $24,90,80,832 $8,16,00,000 $33,06,80,832 $32,28,82,56 0 $8,16,00,000 $40,44,82,560 $34,59,45,600 $8,16,00,000 $42,75,45,600 $7,00,00,000 $5,50,00,000 $69,18,912 $4,50,00,000 $4,00,00,000 $21,69,18,912 $9, 37,11,488 30% $ $7,21,00,000 5,50,00,000 $62,27,021 $6,00,00,000 $4,12,00,000 $23,45,27,021 $ $7,21,00,000 5,50,00,000 $74,72,425 $6,00,00,000 $4,12,00,000 $23,57,72,425 $9,4 9,08,407 29% $ $7,21,00,000 7,00,00,000 $96,86,477 $6,00,00,000 $4,12,00,000 $25,29,86,477 $15, 14,96,083 37% $ $7,21,00,000 7,50,00,000 $1,03,78,368 $6,00,00,000 $4,12,00,000 $25,86,78,368 $1 6,88,67,232 39% $5,46,40,339 19% According to the Ad Revenue Calculations, Strategy Option 3 offers the highest r evenue prospects per year. In case this strategy is selected, revenues are expec ted to increase by more than 50% in comparison to the current year. Though Expen ses for Strategy Option 3 are the highest (Exhibit 5) it offers the highest profi t margin (39%) too. The expected net income when choosing Strategy Option 3 is 8 0% higher as in the year 2006 and 77.9 % higher as in Strategy Option 1. Strateg y Option 2 is expected to be almost as successful as Strategy Option 3 with a pr ofit margin of 37%.The Fashion Channel Page 6C. Decision Strategy Option 1 is not viable as this option not only offers the least net inc ome & revenue, it is disadvantageous as the company would lose audience, awarene ss and reputation to its main competitors. Strategy Option 2, although, offers a higher CPM and its profit margin is only marginally less than in Strategy Optio n 3, the concept is entirely too risky. While advertisers might favour this narr ow target market, supervisors and the broad audience would be hard to convince a s it alters the current concept completely. Strategy Option 3 seems to be the mo st fitting long-term strategic option Dana can suggest to her supervisors. Altho ugh this strategy does not offer the highest CPM, it generates the highest profi t margin and net income. Strategy Option 3 is not a drastic change to the curren t strategy and hence less resistance is expected from supervisors and target aud ience.The Fashion Channel Page 7