The fashion channel.pdf

 

 

The Fashion Channel – Case Analysis - Bharath Raghunath 25/09/2013

Central Problem: The critical problem for this case is the competitive threats faced by TFC. The management team for The Fashion Channel (TFC) must decide which customer segment(s) or cluster they should target in their new marketing strategy and how they should position TFC to ultimately increase company revenue. When deciding their marketing strategy, TFC must consider how they can increase their share of the market (ratings) versus the increasingly competitive fashion programming on CNN and Lifetime, and if they can maintain or increase TFC’s satisfaction level among the Large Multi-System Operators. According to Dana Wheeler, senior vice president of marketing for TFC, the two key levers to drive revenue growth would be (1) increased viewership (ratings), and (2) increased advertising pricing. Therefore, the scenario that The Fashion Channel will implement must increase TV ratings and advertising revenue. TFC needs to identify the customer groups that are most worth the effort to pursue. For that they use market research not only for demographic data but also to study consumer behavior and attitudes—how viewers use the network, what they value, and what needs they have. For this market research they hired a research company called GFE associates, The researchers had asked a national panel of consumers more than 100 questions about their attitudes toward fashion and TFC as a way to understand the needs that the network served. GFE associates then constructed profiles for clusters of consumers who had common attitudes and needs. The report suggested four unique groups of viewers: Fashionistas, Planners & Shoppers, Situationalists, and Basics. Critical Factors: RATINGS: One of the most important goals of The Fashion Channel’s new marketing plan was to improve their average rating compared to similar programming on CNN and Lifetime. According to Exhibit 1, TFC’s average rating was 1.0 (1.1 million households), while CNN and Lifetime enjoyed average ratings of 4.0 (4.4 million households) and 3.0 (3.3 million households) respectively. A major difference between The Fashion Channel and the other two networks is the time period of their programming. The main purpose of TFC is fashion and therefore programs around fashion 24 hours a day, 7 days a week. CNN and Lifetime, however, serve a larger purpose than fashion, and therefore only present programs dedicated to fashion Monday through Friday from 9-11pm (Lifetime) and Monday through Friday from 8-9pm and Saturday to Sunday from 10-11pm (CNN). Because they are not devoted to a specific niche, CNN and Lifetime have the opportunity to capture a larger audience that may have never looked for fashion programming if it weren’t for Fashion Today and Fashion Tonight.

ADVERTISING REVENUE: The Fashion Channel also implemented their new marketing plan to bolster their Advertising revenue. According to the case study, advertisers would ―pay a premium CPM to reach certain groups; in 2006, these were men of all ages and women aged 18-34. Compared to CNN and Lifetime, TFC is currently in an undesirable position in terms of consumer demographics. CNN boasted the best percentage of the male audience at 45% (TFC – 39%) while Lifetime captured the best percentage of the 18-34 female audiences at 43% (TFC – 33%). Consumer interest, awareness, and perceived value of The Fashion Channel could be indirectly affecting their advertising revenue. According to an Alpha research study, TFC is below average on many important categories. They received a rating of 3.8 for consumer interest in viewing, a 4.1 on awareness, and a 3.7 on perceived value. CNN and Lifetime outscored TFC by at least .4 points on each question. This could be another consequence of programming for a very specific niche market. Regardless of their market, ―the ad buyers (are) most interested in buying ratings and demographics, so if The Fashion Channel wants to increase advertising revenue, they must find a way to penetrate the certain premium CPM groups.

POSSIBLE SOLUTIONS Broad-Based Marketing Pros: Compared to the 2007 base numbers, the broad-based marketing scenario delivers almost $40 million more in terms of net income ($94.9 million vs. $54.6 million). Also, compared to the other two scenarios, the broad-based marketing scenario does not require an incremental programming expense that costs the other two scenarios at least $15 million to implement. There are women aged 18 to 34 in all four clusters, so TFC would be marketing to 100% of all 18 to 34 year-olds. Also, because TFC would be investing in a major marketing campaign across all clusters, awareness and viewing of The Fashion Channel would go up. Cons: Although the broad-based marketing scenario produces a higher net income than the 2007 base, the CPM is still $0.20 lower than the current CPM. This $0.20 decrease would take place because TFC’s current target audience would not provide enough maintain the $1.00 CPM. Also, because The Fashion Channel would not target a specific audience under this scenario, TFC would run the risk that their competitors could continue to penetrate the premium CPM groups—causing TFC’s CPM revenue to decrease even further. There would also be a lack of differentiation from what The Fashion Channel’s positioning was before and after the implementation of this scenario. TFC would still struggle to compete with Lifetime and CNN without changing the programming offered by the channel. “Fashionista” Segmentation Pros: Compared to the 2007 base numbers, the fashionista segmentation scenario produces almost $100 million more in terms of net income ($151.4 million vs. $54.6 million). The fashionista segmentation scenario also improved TV ratings from 1.0% to 1.2%. Because this scenario targets a premium CPM group, TFC’s average CPM would increase from $2.00 to $3.50. Targeting the fashionista segment would strengthen the value of the audience to advertisers because 50% of fashionistas are females between the age of 18 and 34. Targeting the fashionista segment could also help TFC compete against Lifetime, which currently boasts the largest share of female audience members between the age of 18 and 34. Cons: The fashionista segmentation scenario results in a 0.2% decrease in TV ratings for TFC. Also, because TFC would re-position its programming, this scenario requires a $15 million incremental programming expense to cover the new programming. The fashionista cluster is also the smallest of the four clusters, which could lead to a decrease in viewers from the other clusters. And, although TFC would be able to differentiate its programming from its current competition, the fashionista segment may be too specific that the programming does not attract new consumers and therefore fail to compete with other channels that offer programming for a broader segment. Also, because this scenario targets the smallest cluster, TFC awareness by consumers would not change, and their TV ratings might decrease even more.

“Fashionista” plus “Planners/Shoppers” Segmentation Pros: Compared to the 2007 base numbers, the fashionista plus planners/shoppers segmentation scenario yields almost $115 million more in terms of net income ($168.8 million vs. $54.6 million). Also, this scenario improves TV ratings from 1.0% to 1.2% and average CPM from $2.00 to $2.50. Targeting fashionistas and planners/shoppers, TFC will market to 50% of US TV households and advertise to clusters that are made up of 50% and 25% females ages 18-34 respectively. If TFC can target these two segments effectively, they will help increase advertising revenue by increasing the number proportion of females ages 18-34 audience members. With this new re-positioning, The Fashion Channel could differentiate its programming from its current and future competition by producing programs specific to the fashionista and planner/shopper consumer audience. Their offering would be differentiated enough to reach their target audience without being too specific that it neglects the majority of consumers. Cons: Although the fashionista plus planners/shoppers segmentation scenario producesdesirable numbers in terms of TV ratings and CPM, this scenario requires a $20 million incremental programming expense to account for re-positioned programming. Under this scenario, TFC would only be targeting about 50% of US TV households that make up the fashionistas and planners/shoppers. This could lead to a decrease in their loyal viewers and might negatively affect their TV ratings. DECISION AND RATIONALE: The Fashion Channel should position their new marketing plan towards fashionistas plus planners/shoppers. The risk involved with this scenario is tremendous. TFC jeopardizes losing some of their most loyal consumers by re-positioning the channel towards fashionistas and the planners/shoppers. This scenario also calls for a $20 million incremental programming expense that could truly set the company up for disaster. If it weren’t for the implied benefits of this scenario, this would seem like a foolish decision. However, the benefits truly do seem to outweigh the risks in this scenario. Besides the increase in average rating, average CPM, and almost 40% margin, this scenario puts The Fashion Channel in the most opportune situation. According to Exhibit 3, fashionistas and planners/shoppers make up about 50% of all US Television Households, and in their specific clusters, the 18-34 female audience market represents 50% and 25% of the cluster respectively. Therefore, TFC should not only garner higher TV ratings from this scenario, but they should also increase advertising revenue because of the increase of the premium CPM that the 18-34 female audience market should bring in. The third scenario is more favorable than the second scenario, which did not include planners/shoppers in the new marketing plan. Although the data shows that both scenarios result in substantial increases in net income, if TFC neglected the planners/shoppers, they would be neglecting a cluster that makes up 35% of all US Television Households and consists of 25% 1834 female audience members. Altogether, The Fashion Channel gives itself the best chance to increase viewership and advertising revenue by re-positioning the channel toward fashionistas and planners/shoppers.