5th November 2014

The Fashion Channel: Consumer Behavior and 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 TFCs 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 theres
something for everyone approach. Beyond basic 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. TFCs 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. 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,
perceived value, and consumer interest in 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
consequently charging a higher CPM which advertisers were willing to pay. As a result, Dana Wheeler faced the
challenge of both increasing TFCs viewership numbers and increasing revenue from advertising.
Dana Wheeler believed that in order to win in the market and strengthen its competitive position, TFC needed to
develop brand loyalty which would be hard for a competitor to take away. This required a specific customer
segmentation, targeting and positioning strategy - a far cry from the previous theres something for everyone
approach. First, the management team at TFC needed to identify the customer groups that would be most
receptive to its offerings and would be worth the effort to pursue. Then, specific marketing programs would have
to be developed (that would include traditional and internet advertising, public relations and promotions) that
would be targeted specifically at these customers.

2. Referring to the survey results in exhibit 2, what were the 3 most important benefits (combined
strongly agree and agree responses) consumers desired from their interest in fashion and ultimately
delivered by a fashion television channel.
The GFE Associates: National Consumer Survey, which was commissioned by Dana Wheeler, revealed what
consumers were looking for when they watched fashion-related programming, i.e. their motivations for watching
the programming and/or what their attitudes towards fashion were. In other words, what were the benefits or

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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 ones peer group and friends and family appreciate ones dressing
sense at parties and family gatherings. This group couldve been a prime audience for one of TFCs 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.
3) Entertainment These consumers watch fashion programs on television simply to be entertained. They
may or may not be interested in looking good or in the latest fashion trends, but for them, being
entertained is the primary motivation for watching fashion-related programming. They enjoy the
programming they see, and thats it.

3. The research firm hired by Wheeler developed four attitudinal segments. Referring to exhibit 3,
please provide a one paragraph description of each of the four segments.
1) Fashionistas are usually women who are highly engaged in fashion. They like to anticipate and stay upto-date on the latest fashion trends. In addition to being entertaining, fashion is an integral part of their
lives and they are happy to share their fashion expertise with others. They enjoy shopping, think a lot
about fashion as compared to the average person, and try to integrate fashion into their lifestyle. Half of
these women are 18-34 years old and about a third of them have an income of more than $100,000 per
year. Fashionistas represent 15% of U.S. television households.
2) Planners & Shoppers Are people who participate in fashion on a regular basis. Just like the Fashionistas,
the Planners & shoppers like to stay up-to-date on the latest fashion trends and enjoy shopping. They
differ from the Fashionistas in that they add the practical element to fashion and are more interested in
value, and not necessarily in the most expensive items. A little more than half of all Planners & Shoppers

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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

Weaknesses

- Increase in awareness and

viewing of the channel.
- Expected increase in ratings of
about 20% (from 1.0 to 1.2) over
time.

Having a broad multisegment appeal to

women aged 18-34 in
all the three groups
Fashionistas,
Planners & Shoppers,
and Situationalists

Focus more on the

Fashionistas in
particular

- All the three groups have

sizeable proportion of women
aged 18-34, which could mean
considerable increase in
viewership.
- Following this strategy would
mean that TFC would be able to
maintain its overall audience
ratings with cable consumers and
the cable affiliate distribution
network. Otherwise, if TFC strays
away too much, it risks losing its
distribution support.
- This strategy would allow TFC to
deliver specific target groups to
advertisers, something the
advertisers are looking for.
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- Current audience mix most

likely to stay the same.
- Possible 10% drop in CPM from
the current $2.00 to $1.80
- Risk that the competition
would continue to penetrate the
premium segments and further
erode TFCs pricing ability.

- Relatively small segment (only

15% of households); exclusively
targeting this segment could
lead to a decline in viewers.

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 theres something
for everyone approach, which
could disappoint viewers who
like the networks 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 targeting two

segments, viz.
Fashionistas and
Shoppers & Planners

- Anticipated increase in ratings

to 1.2 from the current 1.0 over
time.
- Anticipated increase in CPM to
$2.50 from the current $2.00

- Additional costs of around $20

million to develop programming
aimed at both segments.

- As opposed to the other two

targeting strategies, this is the
only strategy which would lead to
an increase in both ratings and
CPM best of both worlds
approach

5. Wheeler perceived several possible cluster/segmentation schemes. What were the criteria Wheeler set out
to judge the value of the segmentation and target segment(s) schemes?
Dana Wheeler believed that the most valuable viewer segments would be those that would be loyal to the TFC
brand and would eventually develop an emotional connection to TFC. They would be very resistant to swaying by
TFCs competitors and would remain loyal to TFC and its programming, thereby ensuring that TFC maintains a lead

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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 wouldve been looking for the strategy 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.

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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

110,000,000
1.0%
1100
$2.00
$2,200
2016
52
$230,630,400

Scenario 1 - Broad
multi segment
appeal

2007 Base

110,000,000
0
$0
2016
52
$0

Scenario 2 - Focus
on Fashionistas

110,000,000
1.2%
1320
$1.80
$2,376
2016
52
$249,080,832
$

Scenario 3 - Dual
targeting: both
Fashionistas and
Shoppers &
Planners

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

$249,080,832

$307,882,560

$325,945,600

Scenario 1 - Broad
multi segment
appeal

Scenario 2 - Focus
on Fashionistas

Scenario 3 - Dual
targeting: both
Fashionistas and
Shoppers &
Planners

Grey =
student input area

* Revenue/Thousand Viewers
** Calculated by multiplying Average Viewers by Average CPM

2006 Actual

2007 Base

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%

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

$81,600,000
$81,600,000
$72,100,000

$330,680,832

$72,100,000
$
$7,472,425
$60,000,000
$41,200,000
$180,772,425

$149,908,407
45%

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

$345,945,600 Insert scenario results from revenue calculator

$81,600,000 Grows 2% per year with population

$404,482,560

$427,545,600

$72,100,000
15,000,000 $
$9,686,477
$60,000,000
$41,200,000
$197,986,477

$206,496,083
51%

Assumptions

$72,100,000
20,000,000
$10,378,368
$60,000,000
$41,200,000
$203,678,368

$223,867,232

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)

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