The Fashion Channel

The Fashion Channel Case Analysis I September 12, 2011

The Fashion Channel 2 Case Analysis I

Index I. II.

Introduction and Background Analysis a. Company and Market Data Analysis b. Scenario Analysis

III.

Decision

IV.

Recommendation


I. Introduction and Background The Fashion Channel is a 24/7 cable TV network which exclusively serves a fashion interested audience. Since its founding in 1996, TCF has experienced a steady, above average growth both in audience and revenue. Although TCF is still the only pure fashion channel, new entrants in the fashion segment like CNN and Lifetime have increased competition and threatened market share. Because of this, Dana Wheeler, the senior vice president of marketing, has been chosen to develop a new brand strategy. To convince management of the strategic change she developed three scenarios: a broad multi segment approach, a focused one segment approach, and a two segment strategic approach. 

The first strategy option provided involves continuing on the company’s current marketing approach with special focus on women aged 18-34. The target clusters involve Fashionistas, Planners & Shoppers, and Situationalists.

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The second scenario 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.

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The final approach described narrows down segments and includes only Fashionistas and Shoppers & Planners.

Regardless of which scenario will be chosen, TCF is in need to actively defend and increase their 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, TCF 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.


II. Analysis a. Company and Market Data Analysis Conducting a SWOT analysis as base for selecting the appropriate strategy, more concrete conclusions about the company’s internal & external environment can be drawn. Strength

TCF is the only exclusive TV network dedicated to fashion with a 24x7 and 7 days a week broadcasting. Furthermore, also it is operating in a niche market; the channel is accessible for all cable customers as TFC. Due to the large number of subscribers and the comparable low advertising fee it is attractive for advertisers. Weaknesses TCF’s market research is poor, as it does not consider its customers, competition and advertising clients. Low customer awareness, interest and perceived awareness in comparison to the competition is one of result. As the company does not perform any customer segmentation, advertisers are not able to attract a particular target group or cluster, resulting in less than expected ad revenues. Furthermore, reluctance to drastic changes is prevalent in the company and hinders them so far from developments. Opportunities TCF’s strength offers certain opportunities. A new focused advertising strategy as well as successful segmentation will improve the situation. 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. Threats Today TCF faces various threats due to increased competition, lack of reputation and awareness resulting in loss of market share, advertising revenues and audience. In the case that TCF becomes even less attractive, cable operators will consider offering the network in less appealing packages thereby losing its broad audience. According to the SWOT analysis, TCF’s competitive advantage will not be sustainable as already other fashion blogs from broader networks erode its market share and show 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 consumer and age groups. Hereby, TCF has to take the risk of losing certain customers as only a change can secure future success. In order to improve the current situation, increase reputation and awareness as well as attract more advertising revenues, the market and customer data provide vital information. Reviewing Dana’s data, the national consumer survey offer various hints what consumers are looking for and what should be taken in TCF’s future programming considerations. The survey shows that fashion is not a topic for a broad audience as only half of the interviewees shows interest or likes to shop. This information already disproves the current strategy and leads to a segmentation strategy as the only option. The consumers who like fashion are most interested in information about fashion trends, special TV programs on current fashion, value deals, entertainment and special event clothing. These results should be taken in consideration when creating the new programs. Additionally, this survey reflects the lack of reputation and awareness already established before. Only 30% of the interviewees strongly agree or agree with the statement that TFC is the best place on TV for fashion information. Considering the competitive data, TFC does not offer any unique programming feature to distinguish from the fashion blocks of CNN or Lifetime who only dedicated limited broadcasting periods to fashion. In contrast the competitors’ average ratings are 3 to 4 times as high. A closer look at the prime segment of those aged 18-34 shows that Lifetime already established a high market share. However, as CNN focuses more on the 35-54 agers, TCF still has room for growth.


b. Scenario Analysis Based on this data Dana’s segmentation approaches are evaluated and pros and cons developed: Scenario 1: Broad multi segment approach Pros Reduced risk as approach is consistent with company mission (Fashion for everyone) and past strategic approaches

Cons 10% drop in CPM to 1.8

No additional programming costs

Continued loss of market share due to strong competition

1.0 to 1.2 increase in ratings

Loss of advertising revenues

Less expected internal and external reluctance due to minimal changes

No strategic improvement or development, lack of focus

Easy to obtain economies of scale, scope, and density, covers wide range of population

Lack of customized services as all viewers are treated the same

Scenario 1 reflects the “easy way” with low expected reluctance from audience and supervisors. The company would stay closely with its current strategy while ignoring customer and advertisers demand as well as competitive threat. In the short-term Dana might be able to promote this strategic approach as revenue and ratings rise, however in the long-term it will not be profitable as it leads to a drop in CPM. Scenario 2: Focused approach Pros Highest value for advertisers as it appeals to a specific segment

Cons Most competitive segment

Increased CPM up to 3.5

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) Reluctance from supervisors and audience

Opposed to scenario 1, this approach would be a drastic change in the current overall strategy. As it focuses solely on Fashionistas opposed to a broad audience it would be easier to establish a true market niche and build a reputation as the true fashion channel. It would further help to distinguish the company from its competitors who take


a more mainstream approach. The focus on the Fashionistas-Cluster which is highly valued by advertisers is expected to increase the CPM to $3.50. However, Dana will have a hard time selling this approach to her supervisor as it offers high risk and demands the openness to reinvent the channel. A 20% loss of viewers; a rating drop from 1.0 to 0.8, and additional programming cost $15,000,000 per year compose additional financial hurtles. Scenario 3: Two segment approach Pros Increase in rating from 1.0 to 1.2

Cons Higher programming expenses of additional 20 Million

Growth in CPM to 2.50 Leveraged risk as focus is not as narrow as in option 2 Transition and development of strategy instead of radical change as opposed to option 2 Company’s past mission is still feasible to retain

The third scenario seems to be a compromise between scenario 1 and 2, targeting the two most relevant segments without going too broad. Although strategic changes would be made, the channel would still be able to maintain its mission. The change would lead to 20% growth in ratings, from 1.0 to 1.2 as well as a boost in CPM to $2.50. However the increase in revenue comes with additional cost of $20,000,000. Although, the factual scenario analysis of each strategic option already leads to a favorable strategic approach, it is important to conduct a financial impact study of each scenario to support the decision. Exhibit 4: Ad Revenue Calculator TV HH Average Rating Average Viewers (Thousand) Average CPM Average Revenue/Ad Minute Ad Minutes/Week Weeks/Year Ad Revenue/Year Incremental Programming Expense

Current 2007 Base 110,000,000 110,000,000 1.0% 1.0% 1100 1100 $2.00 $1.80 $2,200 $1,980 2016 2016 52 52 $230,630,400 $207,567,360 $0

Scenario 1 110,000,000 1.20% 1320 $1.80 $2,376 2016 52 $249,080,832 $0

Scenario 2 Scenario 3 110,000,000 110,000,000 0.8% 1.2 880 1320 $3.50 $2.50 $3,080 $3,300 2016 2016 52 52 $322,882,560 $345,945,600 $15,000,000 $20,000,000

The Fashion Channel 8 Case Analysis I Exhibit 5: Financials 2006 Actual

2007 Base

Scenario 1

Scenario 2

Revenue Ad Sales Affiliate Fees Total Revenue

$230,630,400 $80,000,000 $310,630,400

$207,567,360 $81,600,000 $289,167,360

$249,080,832 $81,600,000 $330,680,832

$322,882,560 $81,600,000 $404,482,560

$345,945,600 $81,600,000 $427,545,600

Expenses Cost of Operations Cost of Programming Ad Sales Commissions Marketing & Advertising SGA Total Expense

$70,000,000 $55,000,000 $6,918,912 $45,000,000 $40,000,000 $216,918,912

$72,100,000 $55,000,000 $6,227,021 $60,000,000 $41,200,000 $234,527,021

$72,100,000 $55,000,000 $7,472,425 $60,000,000 $41,200,000 $235,772,425

$72,100,000 $70,000,000 $9,686,477 $60,000,000 $41,200,000 $252,986,477

$72,100,000 $75,000,000 $10,378,368 $60,000,000 $41,200,000 $258,678,368

Net Income Margin

$93,711,488 30%

$54,640,339 19%

$94,908,407 29%

Scenario 3

$151,496,083 $168,867,232 37% 39%

According to the Ad Revenue Calculations, Scenario 3 offers the highest revenue prospects per year. In case this strategy is selected, revenues are expected to increase by 50% in comparison to the current year. Although the expenses for Scenario 3 are the highest (Exhibit 5)¸ it offers the highest profit margin (39%). The expected net income when choosing scenario 3 furthermore is 80% higher as in the current year and 78% higher as in scenario 1. Scenario 2 is expected similar successful as scenario 3 with a profit margin of 37%.


III. Decision In regard to the different analysis conducted, scenario 3 is the most fitting long-term strategic option Dana can suggest to her supervisors. Although this strategy does not offer the highest CPM, it convinces with the highest profit margin and net income. Furthermore, it allows the company to segment with leveraged risk as the strategy is not as narrow as in scenario 2 and not as broad as in scenario 1. As it is not a drastic change to the current strategy, less resistance from supervisors and audience is expected. Although Scenario 2 offers a higher CPM and its profit margin is only marginally less than in scenario 3, the concept is entirely too risky. While advertisers might favor this narrow target market, supervisors and the broad audience would be hard to convince as it alters the current concept completely. Scenario 1 is out of question as Dana would not be able to initiate the needed change. This option not only offers the least beneficiary financial data, it is disadvantageous as the company would lose audience, awareness and reputation to its main competitors.


IV. Recommendations In order to put scenario 3 into action it is recommended that Dana follow certain steps to ensure its success: I.

Dana has to become a change agent and the leader of the strategic change. Although the third option might not be as drastic as scenario 3, it needs the full commitment and support from both the supervisors and employees. Lack of commitment, resistance of the people involved, as well as a lack of resources will lead to a failure. Dana knows that the supervisors have the tendency to avoid changes and show reluctance to new approaches; she has to be absolutely convincing and in charge of the discussion. Objective analysis, advantages and disadvantages of each possible outcome as well as potential financial outcomes have to be presented in order to initiate a discussion and come to one coherent conclusion. Considering the implementation of an integrated marketing approach, the commitment, involvement and support of the whole team is indispensable to transport the coherent message to the customers.

II.

In order to achieve commitment and involvement, Dana may set up mixed project teams working on suggestion to bring scenario 3 alive. Hereby all employees can be involved while capturing valuable input from sales people, program writers, technicians etc.

The internalization of the integrated

marketing message is another advantage of the described involvement and joint development. III.

As two different segments are target, Dana is advised to approach both segments and the different age groups separately in order to avoid mixed messages or confusion however considering not stepping out the overall integrated marketing message. As the prime cluster, Fashionistas aged 18-34, will be highly involved in their profession during the week, the programming should focus on them during the weekend or at night time. Weekends are especially interesting as their main competitor in this segment, Lifetime, only broadcasts fashion blocks on weekdays. The programming should be based on the attitude drivers


established in the survey. Planners and Shoppers, where the age group 35-54 is more predominant can be mainly target during the day or late afternoons. IV.

In order to ensure the success of this strategy implementation, it is recommended that Dana keeps track of the implementation process, establish SMART sales, profit and customer objectives and continuously watch as well as measures the progress. This action will help to quickly adapt the strategy in case the audience or the advertisers do not respond as predicted.

V.

Finally, Dana is advised to stay in close contact with the audience and advertisers, keep track of new changes and demand, measure awareness and reputation and conduct continuous market research.

The Fashion Channel

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