2. 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.
3. 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
4. Main Sources of Revenue
Generally 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.
5. 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
6. 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
7. 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
8. Main Competitors
There are two main competitors for TFC in the fashion market.
I. Lifetime
II. CNN
These 2 competitors achieved notable rating vs. TFC
9. 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 Lifetime
Interest in viewing 3.8 4.3 4.5
Awareness 4.1 4.6 4.5
Perceived Value 3.7 4.1 4.4
10. 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.
11. SWOT Analysis for TFC to obtain new
segmentation and positioning strategy
STRENGTHS WEAKNESSES
TFC 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 THREATS
Finding loyal untargeted segment Lifetime & CNN with new programs attracting
more and more viewers
Ability 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
12. 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
13. 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.)
14. Market Research Findings
Highlights 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%
15. Market Research Findings
Compiling previous results into
attitudinal cluster
Cluster
Involvement
Fashion
Size of Cluster
(%HH)
Index:
in Fashion on
TV*
Demographic
Highlights
Fashionistas
Highly
engaged in
fashion
15% 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% 105
Female: 50%
Children in HH: 45%
Age: 18-34, 30%
Basic Disengaged 20% 50
Female: 45%
Male: 55%
16. 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)
17. 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: Fashionistas
3) Two segment approach: Fashionistas and Planner & Shoppers
18. Segment 1
Fashionistas, 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
19. 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
20. Segment 3
Fashionistas 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
21. 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
22. 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.
23. Estimated Financials (Figures are in Millions)
Current 2007 Base Scenario 1 Scenario 2 Scenario 3
Revenue
Ad. Sales $230.63 $207.57 $249.08 $322.88 $345.95
Affiliate Fees $80.00 $81.60 $81.60 $81.60 $81.60
Total Revenue $310.63 $289.17 $330.68 $404.48 $427.55
Expenses
Cost 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 $10.38
Marketing and
Advertising
$45.00 $60.00 $60.00 $60.00 $60.00
SGA $40.00 $41.20 $41.20 $41.20 $41.20
Total Expenses $216.92 $234.53 $235.77 $252.99 $258.68
Net Income $93.71 $54.64 $94.91 $ 151.50 $168.87
Margin 30% 19% 29% 37% 39%
24. Scenario: 3
Analysis
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
25. 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