5th November 2014 The Fashion Channel: Consumer Behavior a nd Market Segmentation
Please navigate to the class web site and download the case study on The Fashion Channel. Please read the case study carefully and then type answers to each of these questions. 1. What was TFC’s strategic marketing approach when Wheeler was hired and what was the business problem that Wheeler faced at TFC? What did Wheeler believe needed to be done to fix the problems?
When Dana Wheeler was hired to be part of the company, TFC was still following its tried-and- tested “there’s something for everyone approach”. Beyond basic demographic demographic information, the channel did not have much
information about its viewers, nor did it seem interested in acquiring that information or target to a particular segment. TFC’s strategy was to achieve the highest possible viewership numbers and this, according to the
founder and CEO Jared Thomas, could only be done by appealing to as broad a group as possible. Case in point: During its formative years, TFC had chosen “Fashion for Everyone” as the theme for its marketing programs. programs. Not
only the CEO, but some of the other members of the leadership team also strongly believed in this approach (which had been highly successful to date) and were reticent to any changes being introduced. They were seasoned TFC employees and were buoyed by the growth that had been achieved using this strategy. However, things had started to change. Although TFC was still the only network dedicated solely to fashion with 24x7 programming, more popular networks like CNN and Lifetime had introduced their own fashion-oriented programs which were becoming increasingly popular, and as a result, TFC was beginning to lose ground. In fact, both CNN and Lifetime scored higher than TFC in a consumer satisfaction study that measured awareness, awareness, perceived value, value, and consumer interest in viewing. viewing. Lifetime and CNN were taking away ad buys from TFC because they were attracting niche target segments, viz. younger female demographics and men, respectively, and were
5th November 2014 consequences that consumers were seeking which made them watch fashion-related programming or made them interested in fashion altogether? 41% (20% strongly agree + 21% agree) of the respondents said that they liked to shop for clothes for parties and special activities. 44% (20% strongly agree + 24% agree) of the respondents said that they believed that they were more interested in fashion than most people. 45% (25% strongly agree + 20% agree) of the respondents said that for them, watching fashion programs on television was very entertaining. Therefore, the three most important benefits that consumers desired from their interest in fashion were: 1) Looking good (for special occasions) – These consumers want to look good for parties and special occasions and activities and are generally value-seekers. They might not want to put in the effort in looking good on a daily basis, but for parties and special functions and activities, they are willing to make an exception in an attempt to look good. This could be traced to the underlying inner feeling of satisfaction that one experiences when one’s peer group and friends and family appreciate one’s dressing sense at parties and family gatherings. This group could’ve been a prime audience for one of TFC’s more popular series in 2005, “ Look Great on Saturday Night for Under $100”.
2) Looking good (on a regular basis) – These consumers said that they were more interested in fashion than the average person, which could mean that they want to look good on a regular basis and hence have developed a keen interest in fashion. Again, this might stem from the inner feeling of satisfaction that these people get when they receive attention for being well-dressed. They might also enjoy shopping for clothes and other items and would be glad to share their fashion expertise with others.
5th November 2014 are female, a fourth of whom are 18-34 years old. Planners & Shoppers represent the largest fraction of U.S. television households: 35%. 3) Situationalists – Are sporadic fashion-seekers who participate in fashion for specific needs, events or occasions. They do not participate in fashion on a regular basis. In addition to women aged 18-34, children also constitute this group; a group that enjoys shopping to some degree and only for special needs and occasions. They are similar to Planners & Shoppers in that they seek value and ‘practicality’ in the items they buy. Situationalists represent 30% of U.S. television households. 4) Basics – Are people who are disengaged from fashion, who do not spend much time thinking about what to wear and generally do not like shopping. In the rare event that they do buy fashion products, they look for value. Their interest in fashion on TV is half of the average for all viewers. This is the only segment where men are more than women (55% men, 45% women). Basics represent 20% of U.S. television households.
4. Wheeler developed three targeting strategy options. For each option, create a 3 column table that summarizes the strategy, its strengths, and its weaknesses.
S. No.
Strategy
Strengths - Increase in awareness and viewing of the channel. - Expected increase in ratings of
Weaknesses
5th November 2014 - Younger, female-oriented niche segment would be very attractive to certain advertisers who would be willing to pay a premium CPM for access to this audience. - Estimated CPM increase to $3.50 from the current $2.00
- Estimated ratings drop from 1.0 to 0.8 - Additional costs of around $15 million per year to develop new programming to attract and retain the interest of this segment. - Targeting the Fashionista segment in particular would mark a huge change from the traditional “there’s something for everyone” approach, which
could disappoint viewers who like the network’s current
programs and probably even some TFC employees.
- These two segments alone represent 50% of households with higher than average interest in fashion-related programs.
Dual targeting -
- Anticipated increase in ratings to 1.2 from the current 1.0 over
5th November 2014 in the market. They would be hardcore TFC viewers, thereby providing the channel with increased viewership, which would allow TFC to command higher rates from advertisers. Wheeler was tackling a double-edged sword. On the one hand, she had to make sure that TFC maintained sufficiently high ratings so that the cable operators and affiliates would not threaten to stop including TFC in their lineup. On the other hand, there was pressure to increase advertising pricing through increased CPM prices. She thus had to please both advertisers AND cable consumers/cable affiliate distribution networks. Thus, in addition to brand loyalty, expected increases in CPM prices and ratings were two important criteria Wheeler used to judge the value of the segmentation and target schemes. After determining the three possible segmentation and targeting approaches, Wheeler set up to quantify the expected increase in revenue that these three segments would bring. She would do this by conducting a costbenefit analysis, i.e. comparing the benefits (revenue) that the company would achieve by pursuing one of the three strategies (refer to attached spreadsheet). Ideally, Wheeler would’ve been looking for the strate gy that would not only provide the maximum positive cash
flow to the company, but also lead to an increase in both ratings and CPM prices. The only strategy that does this is the strategy which calls for dual targeting, i.e. targeting to both Fashionistas and Shoppers & Planners (refer to attached spreadsheet). The dual targeting strategy nets the company the maximum net income of $223,867,232, with a corresponding increase in both ratings and CPM.
Exhibit 4: Ad Revenue Calculator Ad Revenue Calculator
Current
TV HH Average Rating Average Viewers (Thousand) Average CPM* Average Revenue/Ad Minute** Ad Minutes/Week Weeks/Year Ad Revenue/Year Incremental Programming Expense Revenue after deducting Programming Expense
Scenario 1 - Broad multi segment appeal
2007 Base
110,000,000 1.0% 1100 $2.00 $2,200 2016 52 $230,630,400
110,000,000
Scenario 2 - Focus on Fashionistas
Scenario 3 - Dual targeting: both Fashionistas and Shoppers & Planners
110,000,000 110,000,000 110,000,000 1.2% 0.8% 1.2% 1320 880 1320 $1.80 $3.50 $2.50 $2,376 $3,080 $3,300 2016 2016 2016 52 52 52 $249,080,832 $322,882,560 $345,945,600 $ 15,000,000 $ 20,000,000 $249,080,832 $307,882,560 $325,945,600
0 $0 2016 52 $0 $
Grey = student input area
* Revenue/Thousand Viewers ** Calculated by multiplying Average Viewers by Average CPM
2006 Actual
2007 Base
Scenario 1 - Broad multi segment appeal
Scenario 2 - Focus on Fashionistas
Scenario 3 - Dual targeting: both Fashionistas and Shoppers & Planners
Assumptions
Exhibit 5: Financials Revenue Ad Sales Affiliate Fees Total Revenue
$230,630,400 $80,000,000 $310,630,400
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
$41,200,000 $113,300,000
Net Income Margin
$93,711,488 30%
($31,700,000) -39%
$81,600,000 $81,600,000
$72,100,000 $
$249,080,832 $81,600,000 $330,680,832
$72,100,000 $7,472,425 $60,000,000 $41,200,000 $180,772,425
$
$322,882,560 $81,600,000 $404,482,560
$72,100,000 15,000,000 $9,686,477 $60,000,000 $41,200,000 $197,986,477
$
$345,945,600 Insert scenario results from revenue calculator $81,600,000 Grows 2% per year with population $427,545,600
$72,100,000 20,000,000 $10,378,368 $60,000,000 $41,200,000 $203,678,368
$149,908,407 $206,496,083 $223,867,232 45%
51%
Grows 3% per year with inflation Add incremental programming expense 3% of ad sales revenue Reflects increased spending of $15M Growing with inflation 3% Spreadsheet calculates automatically Spreadsheet calculates automatically
52% Spreadsheet calculates automatically
Targeting both Fashionistas and Shoppers & Planners provides maximum return on investment (52% margin)
