The Fashion Channelcase study

PRESENTED BY:IKRAM ULLAH KAKAR SHEHZOOR ALI

TALAL ASGHER TANOLI

Current Scenario

Dana Wheeler, senior vice president of marketing for The Fashion Channel (TFC)

Preparing recommendations for TFC’s new Segmentation & Positioning Strategy

Strengthen competitive position (spending $60 million) Attracting new customers with new marketing and advertising

approaches Focusing on revenue stream for TFC when presenting to CEO

Jared Thomas at senior management meeting.

About The Fashion Channel Founded in 1996 as the first TV cable network devoted only to fashion (24/7) Constant revenue and profit growth above the industry average since the

beginning $310.6 millions as revenue were forecasted for 2006 Niche networks reaching almost 80 million U.S. household Women between 35 and 54 years are most avid viewers No details about viewers in general and no attempt to focus on any segment TFC marketing massage “Fashion for Everyone” trying to achieve highest

viewership numbers Some of board members felt that no need to change. “break something

that isn’t broken” Main competitors: Lifetime and CNN

Main Sources of RevenueGenerally TFC had two main sources of revenues:1) Advertising Revenue model:

Target to achieve $230.6 million of revenues generated by advertising. The adverting business model was based on “Rating” (the % of TV

households watching on average during measured viewing period.) TFC average rating 1.0; with 110 million TV households in U.S. TFC’s

average was 1,100,000 viewers at any point of time. These viewers can be reached via advertising spots (30 or 60 seconds in

length.) Total of ads time during one week is 2,016 minutes Consumers spent about $20 billion buying spots on cable networks The competition for ad revenue was always fierce among all networks,

since there were several hundred cable networks competing for viewers.

Main Sources of Revenue

1) Advertising Revenue Module: Cont. CPM (Cost Per Thousand) Audience characteristics:

General competitive trends Ratings General Competitive Trends

Main groups of viewers that advertisers were interested in are: Men of all ages Women aged between 18-34

TFC Ad Sales team could achieve CPM pricing increase from 25% to 75%.

Advertising revenue for an individual spot = (Households x

Ratings)/1,000 x CPM

Main Sources of Revenue

2) Cable Affiliate Fees: Cable affiliate fee revenue stream were expected to generate

$80 million in 2006 Most of U.S. households subscribed to cable television through

local affiliates, by paying monthly fee for a basic channels and paying extra fee for premium channels

TFC was positioned as a basic channel so most consumers received automatically.

Large Multi-System Operators (MSO) are interested in signing multi-year contracts with networks that specify the fee of the network upon customer subscription

Main Sources of Revenue

2) Cable Affiliate Fees: TFC negotiated average fee of $1.00 per subscriber per year TFC should maintain their viewership to maintain their fee TFC was at the low end of the industry range, because of their

niche network

Main Competitors There are two main competitors for TFC in the fashion market.

I. LifetimeII. CNN

These 2 competitors achieved notable rating vs. TFC

Main Competitors Both competitors had launched fashion-specific programming

blocks Lifetime attracting younger female demographics CNN attracting all men segments

Wheeler had to react against these new programs, so she focused on previous research study on customer satisfaction.

This study showed that TFC was facing competitive challenges in its attractiveness to cable affiliates.

The scale used from 1 to 5 (5 is highest possible score)

TFC CNN LifetimeInterest in

viewing 3.8 4.3 4.5

Awareness 4.1 4.6 4.5Perceived Value 3.7 4.1 4.4

Main Competitors

The previous data was used to by cable operators to determine how much to pay for each network

If network underperformed the average, they will risk being offered in less appealing packages, which will eventually reduce the number of households.

SWOT Analysis for TFC to obtain new segmentation and positioning strategy

STRENGTHS WEAKNESSESTFC was the only dedicated network to fashion 24/7

Most of the management unwilling to change to new strategies

CEO wants the change with $60 million in budget

Using generalization market strategy “Fashion for Everyone”

Dana Wheeler with good experience in advertising

Bad position vs. competitors “Low average rating & Low number of HH”

OPPORTUNITIES THREATSFinding loyal untargeted segment Lifetime & CNN with new programs

attracting more and more viewersAbility to increase rating and Households rating, and increasing profit

Viewers may not like new programs, which may lead to drop of TFC out of main cable operators

Main Problems to Solve for TFC

o Improving competitive position vs. Lifetime and CNN

o Changing marketing strategies, opportunity for growth

o The need to increase rating vs. competitors

o Increasing charges from Ad buyers by improving market

position strategy

Market Research Findings

Wheeler was interested in the most recent consumer research reports, which are mainly 2 reports.

1. Highlights of a national consumer field study Which is a list of questions about consumers attitudes toward fashion and TFC.

2. Compiling previous results into attitudinal cluster They run the previous answers through a statistical correlation program to analyze

patterns in the way consumers answered. The report suggested 4 unique groups of viewers: Fashionistas, Planners &

Shoppers, Situationalists, and Basics Segments were varied in size (among the total participants of households.)

Market Research FindingsHighlights of a national consumer field study

Strongly Agree

Agree

Somewhat Agree

Somewhat

Disagree

Disagree

Strongly

Disagree

Knowing most up to date trends 16% 20% 19% 20% 15% 10%

Fashion is interesting 15% 12% 15% 24% 19% 15%Finding best value

clothes 14% 25% 20% 20% 15% 6%Spending on special

clothes 15% 20% 20% 20% 15% 10%Watching fashion is

entertaining 25% 20% 10% 10% 20% 15%TFC favorite channel

on cable 15% 10% 20% 16% 16% 23%TFC is best place for fashion information 9% 21% 28% 20% 12% 10%

Market Research FindingsCompiling previous results into attitudinal cluster

Cluster Involvement in Fashion

Size of Cluster (%HH)

Index: Interest in Fashion on

TV*

Demographic Highlights

Fashionistas

Highly engaged in

fashion15% 140

Female: 61%Income: >$100k,

30%Age: 18-34, 50%

Planners & Shoppers

Participate in fashion on a regular basis

35% 110 Female: 52%Age: 18-34, 25%

Situationalists

Participate in fashion for

specific needs

30% 105Female: 50%

Children in HH: 45%Age: 18-34, 30%

Basic Disengaged 20% 50 Female: 45%Male: 55%

Suggested Solutions

According to the previous market research findings Wheeler found several possible multi-cluster schemes, each of these solutions should be judged according to the following three questions:

1. How the scheme would impact the quantity of viewers? (Rating)2. What the CPM advertising revenue potential would be? (CPM)3. How TFC could be different from current and future competition?

(Competitive Advantage)

Suggested Solutions

After analyzing the previous results from researches Wheeler found that (Basic Cluster) is all men, so it would be unwise to target more men viewers, instead TFC should focus its segmentation and positioning on women, particularly between the ages 18-to-34.

Since that segment (women aged 18 to 34) were included in all of the clusters, she found three segments that should be targeted.

1) Board appeal to a cross segment of: Fashionistas, Planner & Shoppers and Situationalists.

2) Single segment approach: Fashionistas3) Two segment approach: Fashionistas and Planner &

Shoppers

Segment 1Fashionistas, Planner & Shoppers and

Situationalists

Cross-Segment: Fashionistas, Planner & Shoppers, and Situationalists

All segments include women aged between 18-34 Awareness and viewing and will increase rating 20% Ad sales forecasted to decrease 10% in CPM to $1.80 This strategy will not change audience mix so the competitive

risk will not be eliminated No additional cost for new programming

Segment 2:Single segment approach: Fashionistas

Focus on single target segment: Fashionistas. “Aggressive Approach”

This represent 15% from total households Dropping the rating 20% to 0.8 strengthen the value of the audience to advertisers which will

lead to an increase in the CPM to $3.50. Investing in new programming costing additional $15 million

Segment 3Fashionistas and Planner & Shoppers

Dual targeting segment: Fashionistas and Planner & Shoppers Driving rating to 1.2 Increasing CPM Ad price to $2.50 Investing in new programming costing additional $20 million

Segments Comparison

Scenario 1 Scenario 2 Scenario 3

Rating Increase 20% (1.0 to 1.2)

Decrease 20%(1.0 to 0.8)

Increase 20% (1.0 to 1.2)

CPM Decrease 10%($2 to $1.8)

Increase 75% ($2 to $3.5)

Increase 25% ($2 to $2.5)

Programming Cost No Cost $15,000,000 $20,000,000

Financial Analysis

Wheeler knew that her recommendations should show how her plan would increase TFC revenue and also quantify risks if the plan was unsuccessful.

She created a revenue calculator spreadsheet to calculate the impact of Ratings and CPM increases on potential TFC Ad revenues.

Also conducted a Financial Calculator, to see what different impacts these segments have on the net income of TFC.

The next slides will show the calculations and impacts of each scenario.

Estimated Financials (Figures are in Millions)

Current 2007 Base Scenario 1 Scenario 2 Scenario 3

RevenueAd. Sales $230.63 $207.57 $249.08 $322.88 $345.95

Affiliate Fees $80.00 $81.60 $81.60 $81.60 $81.60Total Revenue $310.63 $289.17 $330.68 $404.48 $427.55

ExpensesCost of Operations $70.00 $ 72.10 $72.10 $72.10 $72.10

Cost of Programming $55.00 $55.00 $55.00 $70.00 $75.00

Ad Sales Commissions $6.92 $6.23 $7.47 $9.69 $10.38Marketing and

Advertising $45.00 $60.00 $60.00 $60.00 $60.00

SGA $40.00 $41.20 $41.20 $41.20 $41.20Total Expenses $216.92 $234.53 $235.77 $252.99 $258.68

Net Income $93.71 $54.64 $94.91 $ 151.50 $168.87Margin 30% 19% 29% 37% 39%

Scenario: 3Analysis

Advantages Disadvantages

Compared to 2007 Base, it will generate almost $115 million more in terms of net income ($168.8 - $54.6 Million)

$20 million cost for new incremental programming

TV Rating increase 20% (1.0 to 1.2)CPM Increase 25% ($2 to $2.5) Targeting only 50% of U.S. TV households

Targeting 50% of U.S. TV Households, of which 50% female and 25% of them are 18-34 age

Might decrease loyal customers if they are not included in these segments

Different programming offering for both "Fashionistas and Shoppers & Planners" Could decrease rating in the long-run

Recommendation and Decision: Scenario: 3

According to the previous studies and after analyzing market and financial information we suggest the TFC should apply Scenario 3, which is: Targeting two segments in the market (Fashionistas and Planner & Shopper)

This will generate the largest financial return compared to the other scenarios, also will generate the highest margin

Not Generalized targeting all the market, Not Risky targeting only one segment

Focusing on specified segments, which will increase the awareness and improve the competitive position vs. CNN and Lifetime

Improving TFC image with cable operators

THANK YOU FOR YOUR ATTENTION

ANY QUESTIONS ?