The Fashion Channel - A case Analysis

Presented byDevanandLavanyaSrivatsSurya

Uthra RavichandranYamini

Yogeshwaran

Case Analysis

• Dana Wheeler, Senior VP of marketing for TFC has developed three strategies to mark her

presentation to the company’s leaders.

• The Co. needed to strengthen its competitive position and would be raising $15Mn over

2006 spending of $45Mn for advertising, promotion and public relations.

• Widely available niche networks reaching 80Mn US HH.

• Most avid viewers – women of age 35-54

• Popular series “Look great on Saturday Night Under $100”

• No detailed segmentation, positioning or branding strategy

• Lifetime and CNN had launched specific fashion programs whose ratings were higher than

that of TFC.

Position of TFC More no. of viewers

Lesser no. of viewers

Fashion audience

Nonspecific audience

TFC

Lifetime

CNN

Sources of Revenue Advertising revenue

$230.6 Mn for the year 2006

6 mins of ad time for every half and hour, 24 hrs per day for a total 2016 mins per week

Price was expressed in CPM for which an advertiser would pay.

Cable affiliate revenue

$80Mn for the year 2006

Positioned as basic channel hence available for basic cable services

MSO would sign multi year contracts with the network

Subscriber fee averaged $1 per subscriber per year

Alpha research studyTFC CNN Lifetime

Consumer interest 3.8 4.3 4.5

Awareness 4.1 4.6 4.5

Perceived value 3.7 4.1 4.4

Problems of TFC

• Rivalry in the market – fashion programs by CNN and Lifetime

• The average rating for consumer interest, awareness and perceived value is much

lesser than that of CNN and Lifetime.

• No targeting strategy – with 24/7 only fashion channel they survived.

• Decrease of revenue from cable affiliates and advertisers

• TFC needs more than just its “Always on, fashion for everyone” strategy to retain its

desired position.

Objectives of TFC

• Improve their average rating compared to similar programming on CNN and Lifetime.

(Increase viewership ratings)

• If The Fashion Channel wants to increase advertising revenue, they must find a way to

enter into the certain premium CPM groups. (Increase advertising pricing)

• Segment and target the female audiences who were of 18-34 years of age.

Demographic and Attitudinal cluster data analysis For scenario 1:

• Broad multicast strategy – cross segment of fashionistas, planners & shoppers

and situationalists. Women aged between 18 to 34 is more .

• Total TV households = 110 million

• Fashionistas = 15% i.e., 16.5 million TV households

• Planners & shoppers = 35% i.e., 38.5 million TV households

• Situationalists = 30% i.e., 33 million TV households.

• Therefore there are totally 88 million TV households in this category.

• Fashionistas- 140 > 100, planners & shoppers- 110>100, situationalists-

105>100.

For scenario 2• Multi-segment approach- focus more on fashionistas. It was highly valued 18 to 34

female demographic.

• Here , there is only 16.5 million TV households.

• Here only fashionistas i.e., 140>100

For scenario 3• Dual targeting- fashionistas and shoppers & planners.

• 55 million TV households

• Fashionistas- 140 > 100, planners & shoppers- 110>100

Uses:

• TFC generally scored above the midpoint and these data suggested it was lagging

two key networks that were offering competitive programming

• It also helped to design the strategies based on the size of cluster and the index.

Criteria to evaluate targeting options

Cross segment Multi-segment Dual segment

Rating 1.2 0.8 1.2

CPM $1.8 $3.5 $2.5

Promotion cost Same as current year

$15Mn $20Mn

Demographic (18-34 W)

Present in all three

Higher number Mediocre population of viewers

PROS CONS

Strategy 1 – Crossover segmentation

Fashionistas+

Planners & Shoppers+

Situationalists

i. Boost ratings to 20% (1.0 to 1.2)ii. No additional promotional

expenseiii. Size of the cluster 80%iv. Margin 29%

I. CPM is same as predicted for 2007 - $1.80

II. This type of segment approach may eventually fail

III. CPM decrease

Strategy 2 – Multi segmentation

“FASHIONISTAS”

i. Strong in highly valued 18-34 female demographic

ii. Strengthen the value of audience to advertisers

iii. High increase in CPM $3.5iv. Margin 37%

I. Covers only 15% of householdsII. Rating drops to 0.8III. Additional programming cost

of $15MnIV. Size of the cluster 15%

PROS CONS

Strategy 3 – Dual targeting

Fashionistas

+

Shoppers/Planners

i. Rating would increase to 1.2ii. Increase in CPM to $2.50iii. Balance on two segmentsiv. Margin 39%v. Size of the cluster 50%

I. Incremental expense for promotion - $20Mn

Ad Revenue Calculator

Current 2007 Base Scenario 1 Scenario 2 Scenario 3

TV HH 110,000,000 110,000,000 110,000,000 110,000,000 110,000,000

Average Rating 1.0% 1.00% 1.2% 0.8% 1.2%

Average Viewers (Thousand) 1100 1,100 1,320 880 1,320

Average CPM $2.00 $1.80 $1.80 $3.50 $2.50

Average Revenue/Ad Minute $2,200 $1,980 $2,376 $3,080 $3,300

Ad Minutes/Week 2016 2016 2016 2016 2016

Weeks/Year 52 52 52 52 52

Ad Revenue/Year $230,630,400 $207,567,360 $249,080,832 $322,882,560 $345,945,600 Incremental Programming

Expense $15,000,000 $20,000,000

2006 Actual 2007 Base Scenario 1 Scenario 2 Scenario 3

Financials

Revenue

Ad Sales $230,630,400 $207,567,360 $249,080,832 $322,822,560 $345,945,600

Affiliate Fees $80,000,000 $81,600,000 $81,600,000 $81,600,000 $81,600,000

Total Revenue $310,630,400 $289,167,360 $330,680,832 $404,422,560 $427,545,600

Expenses

Cost of Operations $70,000,000 $72,100,000 $72,100,000 $72,100,000 $72,100,000

Cost of Programming $55,000,000 $55,000,000 $55,000,000 70,000,000 $75,000,000

Ad Sales Commissions $6,918,912 $6,227,021 $7,472,425 $9,684,677 $10,378,368

Marketing & Advertising $45,000,000 $60,000,000 $60,000,000 $60,000,000 $60,000,000

SGA $40,000,000 $41,200,000 $41,200,000 $41,200,000 $41,200,000

Total Expense $216,918,912 $234,527,021 $235,772,425 $252,984,677 $258,678,368

Net Income $93,711,488 $54,640,339 $94,908,407 $151,437,883 $168,867,232

Margin 30% 19% 29% 37% 39%

Financial analysis for 2006 and forecasted 2007

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

$350,000,000

Ad Sales Total Revenue Net Income

2006 2007

Most suitable option:

• After analyzing the case and its financial implications and pros and cons of applying each of the strategies, we

think that TFC should apply strategy 3, a dual segmentation of Fashionistas and Shoppers/Planners.

• This strategy acquires half of the females of age group 18-34

• It gives a greatest margin of 39% and a net income higher than the other two plans

• Not concentrating on only one segment and also helps viewers to buy the fashion they need; also tells us where

to buy and what to buy.

• This will increase the awareness among the people and keeps up a healthy competition vs. CNN and lifetime