1. Interpretation of consumer and market data.

From its inception in 1996 until recently, The Fashion Channel (TFC) enjoyed great success by
appealing to as a broad an audience as possible. Overall viewer numbers were the main focus, and so
long as TFC had no significant competition in terms of the fashion-specific content it offered, this
something for everyone approach was a winner.
But competitors such as CNN and Lifetime made note of TFCs success. They began to offer fashion-
specific programming. Consumers now have a choice, and the ratings show that non-loyal consumers
are starting to choose alternatives to TFC. Reasons for this can be found in the recent Alpha research
study on customer satisfaction, which shows that when it comes to consumer interest, awareness and
perceived value, both CNN and Lifetime outscore TFC. TFCs 2 main revenue streamscable affiliate
fees and advertisingare threatened by the attraction of CNNs and Lifetimes fashion programming
to an audience formally exclusive to TFC, and the inability of TFC currently to adequately
differentiate itself from its competitors.
So who are TFCs viewers? A detailed demographic breakdown shows a 39%-61% split in favor of
women, with 33% of viewers aged 18-34 and 45% aged 35-54. A survey of consumers by GFE
Associates identifies four groups that make up potential viewers: Fashionistas (the fashion devoted,
who comprise 18% of those surveyed); Planners and Shoppers (enjoyers of fashion, 35%);
Situationalists (occasionally interested in fashion for specific purposes, 30%) and Basics (generally
uninterested in fashion, 20%). Attitudinal research by GFE indicates that male consumers tend to fall
into the Basics group, while 61% of Fashionistas are women. Also, 50% of Fashionistas are aged 18 to
34a demographic highly desirable to advertisers.
2. What is the expected outcome of each of the targeting scenarios?
TFCs senior vice president of marketing, Dana Wheeler, believes increasing both viewership (ratings)
and advertising pricing would increase the advertising revenue that the company was seeking. She
developed three different scenarios to mix their most popular viewing segments and the expected
results it would have on advertising pricing (CPM).
The first scenario would target the Fashionistas, the Shoppers/Planners and the Situationalists. This
would create a broader marketing base, but miss the primary group that advertisers are
seeking. Based on this scenario, the viewership could increase over time from 1.0% to 1.2%, while
the average CPM would decrease from $2.00 to$1.80 (see Exhibit 4). Overall, this scenario would
generate an increase in advertising revenue of 8% from 2006 revenues to $249 million.
Scenario #2 narrows the focus on the Fashionistas, preferred by advertisers. In this scenario, the
average viewership rating would drop from 1.0% to .8% due to the narrow focus, but the CPM would
increase dramatically from $2.00 to $3.50 resulting in an increase of 40% in advertising revenue or
roughly $92 million (see Exhibit 4). This scenario would also require and additional programming cost
of $15 million per year, but given the additional revenue it would generate, the investment seems like
a good one to make.
Finally, the third approach focuses on both the Fashionistas and the Shoppers/Planners
segments. This dual approach would increase viewership form 1.0% to 1.20% and increase CPM from
$2.00 to $2.50(see Exhibit 4). By using this approach TFC would increase the advertising revenue by
50% or over $115 million. This approach would also require an additional investment in programming
costs of $20 million.
Each of these scenarios would increase the net income from the $93 million generated in 2006 (see
Exhibit 5). Scenario #1 would generate almost $95 million in net income and has the most general
appeal for all viewers, but it does not emphasize the segment that advertisings want to target
resulting in a decrease in CPM. The net income of $151 million generated in scenario #2 targets the
advertisers most sought after market segment and increases the CPM significantly, but it also reduces
overall viewership and decreases ratings. The balance comes with scenario #3 which increases
viewership and increases CPM resulting in $168 million in net income.
3. Develop a factual analysis of the segmentation options with the pros and cons of each.
While each option provides the opportunity for increased net income, there are significant advantages
and disadvantages that need to be weighed for each option.
The first option is a full market coverage option and is intended on capitalizing on the broad appeal of
the network; the something for everyone model. The major question that comes up under this
option is whether a differentiated or undifferentiated approach would be used for targeting the various
groups in the target demographic. While more expensive a differentiate approach could do more to
garner widespread appeal in that each cluster within the age demographic would be given different
offering that would appeal to their various sensibilities. For example, a show about upscale thrift store
shopping could be developed to speak to value driven Situationalists. Unfortunately, based on the
information provided, Wheeler looks to implement a more undifferentiated approach. While either
approach is likely to increase ratings for TFC, the undifferentiated approach is likely to erode CPM as
the qualitative value of the viewer is decreased by the addition of less fashion savvy viewers.
The single-segment concentration of Wheelers second option would allow TFC to develop a deeper
understanding of its consumers needs and have the potential to establish TFC as the go-to source
for fashion information and entertainment. If successful, the 175% increase in CPM projected by
Wheeler would be a reasonable expectation. On the negative side, this option involves the investment
of an additional $15 million per year for improvements to programming and would likely result in a
decrease in the rating for TFC. Additionally, TFC would be pinning its future on a limited portion of the
market that could possibly defect in the future. Larger competitors such as Lifetime and CNN have
significant resources and may spend large amounts of money creating programming to draw viewers
away from TFC even if the advertising profits from said programming would not cover the production
costs. Such a scenario would be similar to Microsofts development of the XBox and XBox 360 gaming
systems, which have never turned a profit and are seen by Microsoft as a loss leader.
Under Wheelers final option, an increase in both the ratings and CPM for TFC is
anticipated. Furthermore, TFC would diversify its consumer base, thereby creating the potential to
minimize negative impact should consumers defect to other cable networks. The downside to this
option is that similar to option 2, option 3 is predicated on investing an additional $20 million per year
to improve programming.
4. Recommendations.
The Fashion Channel needs to maintain if not increase its overall viewer numbers in order to insure its
revenue stream from Cable Affiliate fees, while simultaneously targeting specific demographics to raise
the price (CPM) it can charge for advertising.
Of the 3 scenarios considered by Dana Wheeler, the third is the most likely to meet the needs of TFC.
This scenario entails specific targeting of content to 2 consumer groups identified by GFE: the
Fashionistas, which contains the greatest concentration of the highly valued 18-34 female
demographic, and the Planners and Shoppers. Scenario 3 maintains TFCs affiliate fees revenue
stream, lifts TFCs ratings by 20% and average CPM by 25%. Although expenses in scenario 3 are
greater than those in scenario 1 and 2, so is the potential improvement in income. And importantly,
Scenario 3 nurtures a core viewer loyalty towards the networka viewership that feels engaged with
programming that specifically caters towards it, and one that is less likely to drift to the competition.
Adoption of Scenario 3 requires a key shift in consciousness within TFC. The something for everyone
strategy has served it well for over a decade. Revenues remain high and audience has continued to
grow, and this may encourage resistance within the network structure to change. Thus, a policy of
detailed consultation and education must be formulated, so everyone within the network understands
the threats faced by the development of competition, and the great benefits to TFC of moving in a
new, carefully researched direction of marketing to specific segments of its viewers.