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The Fashion Channel 
 
Category: Case Study Analysis | Word(s): 1371 | Page(s): 6 | View(s): 5363 | Rank: 0
 
1. Interpretation of consumer and market data.
From its inception in 1996 until recently, The Fashion Channel (TFC) enjoyed great success by appealing to as a broad an audience as possible. Overall viewer numbers were the main focus, and so long as TFC had no significant competition in terms of the fashion-specific content it offered, this “something for everyone” approach was a winner.
But competitors such as CNN and Lifetime made note of TFC’s success. They began to offer fashion-specific programming. Consumers now have a choice, and the ratings show that non-loyal consumers are starting to choose alternatives to TFC. Reasons for this can be found in the recent Alpha research study on customer satisfaction, which shows that when it comes to consumer interest, awareness and perceived value, both CNN and Lifetime outscore TFC. TFC’s 2 main revenue streams—cable affiliate fees and advertising—are threatened by the attraction of CNN’s and Lifetime’s fashion programming to  an  audience formally exclusive to TFC, and the inability of TFC currently to adequately differentiate itself from its competitors.  
So who are TFC’s viewers? A detailed demographic breakdown shows a 39%-61% split in favor of women, with 33% of viewers aged 18-34 and 45% aged 35-54.  A survey of consumers by GFE Associates identifies four groups that make up potential viewers: Fashionistas (the fashion devoted, who comprise 18% of those surveyed); Planners and Shoppers (enjoyers of fashion, 35%); Situationalists (occasionally interested in fashion for specific purposes, 30%) and Basics (generally uninterested in fashion, 20%).   Attitudinal research by GFE indicates that male consumers tend to fall into the Basics group, while 61% of Fashionistas are women. Also, 50% of Fashionistas are aged 18 to 34—a demographic highly desirable to advertisers.
2.  What is the expected outcome of each of the targeting scenarios?
TFC’s senior vice president of marketing, Dana Wheeler, believes increasing both viewership (ratings) and advertising pricing would increase the advertising revenue that the company was seeking.  She developed three different scenarios to mix their most popular viewing segments and the expected results it would have on advertising pricing (CPM).  
The first scenario would target the Fashionistas, the Shoppers/Planners and the Situationalists.  This would create a broader marketing base, but miss the primary group that advertisers are seeking.  Based on this scenario, the viewership could increase over time from 1.0% to 1.2%, while the average CPM would decrease from $2.00 to$1.80 (see Exhibit 4).  Overall, this scenario would generate an increase in advertising revenue of 8% from 2006 revenues to $249 million.
Scenario #2 narrows the focus on the Fashionistas, preferred by advertisers.  In this scenario, the average viewership rating would drop from 1.0% to .8% due to the narrow focus, but the CPM would increase dramatically from $2.00 to $3.50 resulting in an increase of 40% in advertising revenue or roughly $92 million (see Exhibit 4).  This scenario would also require and additional programming cost of $15 million per year, but given the additional revenue it would generate, the investment seems like a good one to make.
Finally, the third approach focuses on both the Fashionistas and the Shoppers/Planners segments.  This dual approach would increase viewership form 1.0% to 1.20% and increase CPM from $2.00 to $2.50(see Exhibit 4).  By using this approach TFC would increase the advertising revenue by 50% or over $115 million.  This approach would also require an additional investment in programming costs of $20 million.  
Each of these scenarios would increase the net income from the $93 million generated in 2006 (see Exhibit 5).  Scenario #1 would generate almost $95 million in net income and has the most general appeal for all viewers, but it does not emphasize the segment that advertisings want to target resulting in a decrease in CPM.  The net income of $151 million generated in scenario #2 targets the advertisers’ most sought after market segment and increases the CPM significantly, but it also reduces overall viewership and decreases ratings.  The balance comes with scenario #3 which increases viewership and increases CPM resulting in $168 million in net income.
3.  Develop a factual analysis of the segmentation options with the pros and cons of each.
While each option provides the opportunity for increased net income, there are significant advantages and disadvantages that need to be weighed for each option.
The first option is a full market coverage option and is intended on capitalizing on the broad appeal of the network; the “something for everyone” model.  The major question that comes up under this option is whether a differentiated or undifferentiated approach would be used for targeting the various groups in the target demographic.  While more expensive a differentiate approach could do more to garner widespread appeal in that each cluster within the age demographic would be given different offering that would appeal to their various sensibilities. For example, a show about upscale thrift store shopping could be developed to speak to value driven Situationalists.  Unfortunately, based on the information provided, Wheeler looks to implement a more undifferentiated approach.  While either approach is likely to increase ratings for TFC, the undifferentiated approach is likely to erode CPM as the qualitative value of the viewer is decreased by the addition of less fashion savvy viewers.
The single-segment concentration of Wheeler’s second option would allow TFC to develop a deeper understanding of its consumers’ needs and have the potential to establish TFC as the “go-to” source for fashion information and entertainment.  If successful, the 175% increase in CPM projected by Wheeler would be a reasonable expectation.  On the negative side, this option involves the investment of an additional $15 million per year for improvements to programming and would likely result in a decrease in the rating for TFC.  Additionally, TFC would be pinning its future on a limited portion of the market that could possibly defect in the future.  Larger competitors such as Lifetime and CNN have significant resources and may spend large amounts of money creating programming to draw viewers away from TFC even if the advertising profits from said programming would not cover the production costs.  Such a scenario would be similar to Microsoft’s development of the XBox and XBox 360 gaming systems, which have never turned a profit and are seen by Microsoft as a loss leader.
Under Wheeler’s final option, an increase in both the ratings and CPM for TFC is anticipated.  Furthermore, TFC would diversify its consumer base, thereby creating the potential to minimize negative impact should consumers defect to other cable networks.  The downside to this option is that similar to option 2, option 3 is predicated on investing an additional $20 million per year to improve programming.  
4.  Recommendations.
The Fashion Channel needs to maintain if not increase its overall viewer numbers in order to insure its revenue stream from Cable Affiliate fees, while simultaneously targeting specific demographics to raise the price (CPM) it can charge for advertising.
Of the 3 scenarios considered by Dana Wheeler, the third is the most likely to meet the needs of TFC. This scenario entails specific targeting of content to 2 consumer groups identified by GFE: the Fashionistas, which contains the greatest concentration of the highly valued 18-34 female demographic, and the Planners and Shoppers. Scenario 3 maintains TFC’s affiliate fees revenue stream, lifts TFC’s ratings by 20% and average CPM by 25%. Although expenses in scenario 3 are greater than those in scenario 1 and 2, so is the potential improvement in income. And importantly, Scenario 3 nurtures a core viewer loyalty towards the network—a viewership that feels engaged with programming that specifically caters towards it, and one that is less likely to drift to the competition.
Adoption of Scenario 3 requires a key shift in consciousness within TFC. The “something for everyone” strategy has served it well for over a decade. Revenues remain high and audience has continued to grow, and this may encourage resistance within the network structure to change. Thus, a policy of detailed consultation and education must be formulated, so everyone within the network understands the threats faced by the development of competition, and the great benefits to TFC of moving in a new, carefully researched direction of marketing to specific segments of its viewers.  
 

Bibliography

Stahl, Wendy. (2007, June 1). The Fashion Channel. Boston, Massachusetts: Harvard Business School Publishing.
 
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