The Fashion Channel - Case Analysis

[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 strategic approach.

GROUP NO. 9 Anuja Bhargava Ganeshprasad Arote Mayur Macharla Prakarsh Aren Saurish Suhas Jagdale Vikalp Kumar Nigam

. (2012PGP055) (2012PGP113) (2012PGP192) (2012PGP263) (2012PGP343) (2012PGP436)

Contents A.

Background ..................................................................................................................................... 3

B.

Analysis ........................................................................................................................................... 4

C.

1.

SWOT Analysis......................................................................................................................... 4

2.

Qualitative Analysis of three Strategy options ....................................................................... 5

3.

Quantitative Analysis of three Strategy options ..................................................................... 6

Decision ........................................................................................................................................... 7

The Fashion Channel

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A. Background The Fashion Channel is a 24/7 cable TV network which exclusively serves a fashion 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, Dana Wheeler, the senior vice president of marketing, has been chosen to develop a modern brand strategy. To convince management of the strategic change she developed three Strategy Options: a broad multi segment approach, a focused one segment approach, and a two segment strategic approach. I. II.

III.

Broad multi segment approach: The first strategy option provided a special focus on women aged 18-34 with the target clusters as Fashionistas, Planners & Shoppers and Situationalists. Focused one segment approach: The second strategy option identified offers a narrow strategic approach exclusively focusing on Fashionistas. Although this cluster 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.

Regardless of which strategy option will be chosen, TFC is in need to actively defend and increase its current market share, reputation and awareness in order to stay competitive and profitable. Although it was quite popular among its viewers the competition was able to gain remarkable numbers and satisfaction rates recently. So far, TFC relied on its competitive advantage as the only exclusive fashion 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

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B. Analysis 1. SWOT Analysis STRENGTHS:    

Only Exclusive TV network dedicated to fashion 24x7 broadcasting Operating in a niche market Accessibility: HIGH (accessible to all cable customers) Attractive for advertisers; because of:  Large no. of subscribers  Low advertising fee

WEAKNESSES:    



OPPORTUNITIES:    

New focused advertising strategy Better segmentation Targeting the viewers of certain clusters and age groups will increase advertising revenue and profit margin. Identifying the prime, most valuable consumer groups will bring huge profits.

Poor market research Segmentation: POOR Target Audience: POOR Advertisers are not able to attract a particular target group or cluster through TFC, resulting in less than expected ad revenues. Reluctance to make drastic changes, it, in turn, hinders them so far from developments. THREATS:

   

Increased competition Lack of reputation and awareness resulting in loss of market share, advertising revenues and audience. Cable operators might consider offering TFC in less appealing packages thereby losing its broad audience. Change might upset current audience and employees.

According to the SWOT analysis, TFC’s competitive advantage will not be sustainable as already other fashion programmes from different players are eroding its market share and showing higher audience awareness. In order to sustain in this environment, the company has to develop and renew its strategy and introduce a segmentation approach, targeting more profitable consumers and specific age groups.

The Fashion Channel

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2. 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 approaches No additional programming costs 1.0 to 1.2 increase in ratings Less expected 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 advertising revenues No strategic improvement or development, lack of focus

Strategy Option II: Focused one segment approach 

Pros Strengthen the value of audience to advertisers as it appeals to a specific segment (Income > 100K)



Cons Most competitive segment



Increased CPM up to $ 3.50



Risk to lose loyal audience



High focus, unique niche strategy

   

Smallest cluster, less audience Additional programming 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 strategy option 2 Company’s past mission is still feasible to retain, i.e. fashion for everyone

The Fashion Channel

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Cons Higher programming expenses of additional $ 20 Million

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3. Quantitative Analysis of three Strategy options Exhibit 4: Ad Revenue Calculator Current TV HH

2007 Base

Strategy Option 1

Strategy Option 2

Strategy Option 3

11,00,00,000

11,00,00,000

11,00,00,000

11,00,00,000

11,00,00,000

Average Rating Average Viewers (Thousand)

1.0%

1.0%

1.2%

0.8%

1.2%

1100

1100

1320

880

1320

Average C PM Average Revenue Per Ad Minute

$2.00

$1.80

$1.80

$3.50

$2.50

$2,200

$1,980

$2,376

$3,080

$3,300

Ad Minutes/Week

2016

2016

2016

2016

2016

52

52

52

52

52

Weeks/Year Ad Revenue/Year

$23,06,30,400

$20,75,67,360

$24,90,80,832

$32,28,82,560

$34,59,45,600

Exhibit 5: 2006 Actual Revenue Ad Sales Affiliate Fees Total Revenue

$23,06,30,400 $8,00,00,000 $31,06,30,400

2007 Base

Strategy Option 1 Strategy Option 2 Strategy Option 3

$20,75,67,360 $8,16,00,000 $28,91,67,360

$24,90,80,832 $8,16,00,000 $33,06,80,832

$32,28,82,560 $8,16,00,000 $40,44,82,560

$34,59,45,600 $8,16,00,000 $42,75,45,600

Expenses C ost of Operations C ost of Programming Ad Sales C ommissions Marketing & Advertising SGA Total Expense

$4,50,00,000 $4,00,00,000 $21,69,18,912

$6,00,00,000 $4,12,00,000 $23,45,27,021

$6,00,00,000 $4,12,00,000 $23,57,72,425

$6,00,00,000 $4,12,00,000 $25,29,86,477

$6,00,00,000 $4,12,00,000 $25,86,78,368

Net Income Margin

$9,37,11,488 30%

$5,46,40,339 19%

$9,49,08,407 29%

$15,14,96,083 37%

$16,88,67,232 39%

$7,00,00,000 $5,50,00,000 $69,18,912

$

$7,21,00,000 5,50,00,000 $62,27,021

$

$7,21,00,000 5,50,00,000 $74,72,425

$

$7,21,00,000 7,00,00,000 $96,86,477

$

$7,21,00,000 7,50,00,000 $1,03,78,368

According to the Ad Revenue Calculations, 

  

Strategy Option 3 offers the highest revenue prospects per year. In case this strategy is selected, revenues are expected to increase by more than 50% in comparison to the current year. Though Expenses for Strategy Option 3 are the highest (Exhibit 5)¸ it offers the highest profit margin (39%) too. The expected net income when choosing Strategy Option 3 is 80% higher as in the year 2006 and 77.9 % higher as in Strategy Option 1. Strategy Option 2 is expected to be almost as successful as Strategy Option 3 with a profit margin of 37%.

The Fashion Channel

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C. Decision 





Strategy Option 1 is not viable as this option not only offers the least net income & revenue, it is disadvantageous as the company would lose audience, awareness 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 Option 3, the concept is entirely too risky. While advertisers might favour this narrow target market, supervisors and the broad audience would be hard to convince as it alters the current concept completely. Strategy Option 3 seems to be the most fitting long-term strategic option Dana can suggest to her supervisors. Although this strategy does not offer the highest CPM, it generates the highest profit margin and net income. Strategy Option 3 is not a drastic change to the current strategy and hence less resistance is expected from supervisors and target audience.

The Fashion Channel

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