The Fashion Channel

INTRODUCTION

The Fashion Channel is currently doing good business but is anticipating a competitive intrusion in
the market, which it needs to mitigate by strengthening its competitive position. It shall have to take
some bold marketing decisions which will change the whole dynamics upon which the company
used to operate.

Problem Statement :

There is an increasing rivalry in the market from fashion programs by CNN and Lifetime. Also, the
average rating for consumer interest, awareness, and perceived value are less than that of CNN and
Lifetime.

With following the strategy of 24/7 only fashion channel without segmenting their viewers has led to
a decrease in revenue from cable affiliates and advertisers as they are looking at targeting a specific
audience.

Objective:

Improve their avg rating compared to similar programs on CNN and Lifetime .i.e., Increase
viewership ratings.

Use segmentation to reach more audience and Increase in CPM.

Discussing the PROS AND CONS of the 3 scenarios of segmentation that could be followed:

STRATEGIES ADVANTAGE DISADVANTAGE

SCENARIO 1  Broadest segment  10% drop in CPM.
Cross Segment (Fashionista; base (80.00%).  Competitors’
Planners and Shoppers;  Rating boost of 20%. penetration in
Situationists)  Margin of 29.00%. premium segments.
 No additional cost.
SCENARIO 2  High percentage (50%)  Narrow segment
Fashionistas of valued female coverage (15%).
demographics (Age 18-  Reduction in rating to
34) 0.8.
 Increase in CPM to  Additional
$3.5 i.e almost 95%. programming cost $
 Strengthening the 15Mn.
value of viewers to
advertisers.
 Margin of 37.00%
SCENARIO 3  Broader segment base  Additional
Dual Segment (Fashionista; (50%) programming cost $
Planners and Shoppers)  Increase in CPM to 20Mn.
$2.5 i.e almost 38%.
 Margin of 39.00%
 Rating boost of 20%.
 Appendix 1
Ad Revenue Calculator
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% 1.0% 1.2% 0.8% 1.2%

Average Viewers (Thousand) 1100 1100 1320 880 1320

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

$230,630,40 $207,567,36 $249,080,83 $322,882,56 $345,945,60

Ad Revenue/Year 0 0 2 0 0

Incremental Programming
Expense $0 $0 $15,000,000 $20,000,000
* Revenue/Thousand Viewers ** Calculated by multiplying Average Viewers by Average CPM

Appendix 2
TFC Estimated Financials for 2006 and 2007

Financials 2006 Actual 2007 Base Scenario 1 Scenario 2 Scenario 3

Revenue

Ad Sales $230,630,400 $207,567,360 $249,080,832 $322,882,560 $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 $404,482,560 $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 $9,686,477 $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 $252,986,477 $258,678,368

Net Income $93,711,488 $54,640,339 $94,908,407 $151,496,083 $168,867,232

Margin 30% 19% 29% 37% 39%

From the above comparative analysis, it can be inferred that Strategy 3 i.e. focusing on Fashionistas
and Planners & Shoppers is delivering the highest Net Income of $168 million approximately. It
also has the highest margin percentage i.e., 39%, among the given strategy options, making it the
most likely option as well.

Recommendations:

 After analyzing the entire case and its financial implications and analyzing the pros and cons
of applying each of the above mentioned strategies, we think that TFC should apply strategy
3, i.e. a dual segmentation of Fashionistas and Shoppers/Planners.
 This strategy acquires half of the females of age group 18-34 also both this segment covers
50% of the entire population watching fashion related shows. Also targeting women of age
between 18-34 provides the highest CPM from advertisers. Hence, increasing CPM.
 It gives the highest margin of 39% and a net income higher than the other two plans
i.e.$168,867,232
  Not concentrating on only one segment also helps viewers to buy the fashion they need;
also tells us what to buy and where to buy.
 TFC will target only 2 unique consumer clusters, the precision segmentation and targeting
strategy will not only reduce competitive challenge from players like Lifetime and CNN as
TFC will not be competing on numerous fronts but It will also have a strengthened and well-
defined competitive position which will, over time result in estimated rise in average rating
to 1.2.
 This will increase awareness of the channel among the people and keeps up a healthy
competition vs. CNN and lifetime