Fashion Channel Questions
Please answer the following questions in no more than 3 pages single spaced or 6 pages double spaced using a 12pt font. Exhibits such as your excel results do not count against the page limit. Please note that the column “2007 base” in the excel spread sheet assumes you do not segment the market. It is critically important that you communicate your reasoning clearly. You MUST NOT talk about the case in depth with anyone else.

1. How would you interpret the consumer and market data if you were Dana Wheeler? Develop a factual analysis of the segmentation options, and evaluate the pros and cons of each.

(1) With the total 110 million TV householders with televisions in the United States, the channel reached nearly 80 million householders that subscribed to cable and satellite television, and women between 35 and 54 years were its most avid viewers. However, these are only general data. For The Fashion Channel, the average viewers are 1.1 million which is much less than 3.3 million of Lifetime and 4.4 million of CNN, two main and strong competitors. Because raise cable affiliate fee will bring wicked effects on consumer satisfaction, the only two key levers to increase revenue would be increase viewership and increase advertising pricing. In addition, the common junction of these two is “deliver quality audiences”, who is willing to become loyal to TFC and also in highly valued to advertisers. According to the GFE Association report which constructed profiles for cluster of consumers who had common attitudes and needs, there are four unique groups of viewers: Fashionistas, Planners & Shoppers, Situationalists, and Basics. Among them the Fashionistas, the segment which was strong in the highly valued 18-34 female demographic, are highly engaged in fashion. It would be wise to pursue consumers who have interests in TFC’s program contents and willing to be very loyal, so this group people would be highly valued consumers to TFC.

(2) The first option is to maintain a broad appeal to a cross segment of Fashionists, Planners & Shoppers, and Situationalists. The pros would be the boosted viewer rating of 20% (from the current 1.0 to 1.2) and avoided incremental programming expense such as advertising. The cons would be the drop of ad sales in CPM to $1.80. Although TFC could keep itself in a stabilized situation with no “break something that isn’t broken”, there was always the risk that the competition would continue to penetrate segments which can be sold for a premium CPM and further erode TFC’s pricing ability. The second option is to alter from a broad to focus more on the Fashionistas. Advantage of this option would be the increase in CPM of $3.50 for an audience stronger in the younger, female-oriented Fashionistas because this segment could be more easily attracted by TFC and means more valuable to advertisers, although this smaller segment (only 15% of households) might lead to a drop in viewers. Besides, it would be needed to invest in new programming and spend an additional $15 million per year, which might be a con of expense under this scenario. The third option is to target two segments – the Fashionistas and the Shoppers & Planners. It could be achieve average rating of viewers to 1.2 with a potential CPM of $2.50, avoiding both less average rating and less CPM. However, it spends much more and nearly additional $20 million on programming. In a word, this option could help TFC drive quality consumer increase but will also raise much more incremental programming expense.

2. What is the expected outcome of each of the targeting scenarios? (Complete both the Ad Revenue and Financial calculators to fully understand the financial impact of the scenarios.)

The first scenario achieve 0.20% increase in average rating but average CPM of $1.80, leading to its ad sales of $249,080,832 and reach the total revenue of $330,680,832. This scenario will not bring additional programming cost, so its expense would be $235,772,425 in total, which is smaller than the other two scenarios. Finally, it could achieve an increase of about $1million in net income than year 2006, but this scenario could not show much more potential in improving margin. In a word, this scenario brings least profits and no additional expense to TFC among three scenarios. The second scenario would bring 0.20% decrease in average rating but average CPM of $3.50, best CPM among three scenarios, leading to higher ad sales of $322,882,560 and get to $404,482,560 in total revenue. In addition, it would produce incremental programming expense which is $15,000,000 and reach $252,986,477 in total expense. Finally, this scenario could achieve net income of $151,496,083 and considerable margin of 37%. The third scenario is expected to achieve 1.2% in average rating and $2.50 in average CPM, behave not bad in both, and reach the total as sales of $345,945,600. So its revenue is highest which $427,545,600 in total is. What’s more, although this scenario brings highest expense in programming which is $75,000,000, it achieves highest net income which is $168,867,232 and highest margin which is 39%. This scenario could be better generate revenue by using its programming expense.

3. If you were Dana Wheeler, what would you recommend and why?

I would recommend choosing the second scenario, which focus more on the Fashionistas. Firstly, I would like to talk about why I do not choose the first scenario. From the Alpha research which showed that TFC performed worse than CNN and Lifetime both on consumer interest in viewing and perceived value, which means TFC risked in offering competitive programming. So it’s the time to pitch TFC against the new fashion content on CNN and Lifetime, and improve consumer interest. If TFC maintain a broad and did nothing about segments, it could put revenue at risk and more importantly the grim competition would continue to penetrate the premium segments. I prefer the second scenario than the third one because of the inner environment in TFC. Although the scenario that target two segments could bring more benefits to TFC, it needs more input such as the programming expense. It would be less mild than the second one. Because TFC had grown quickly without articulating any detailed segmentation, some of the leadership still felt an urge to resist change, and whether TFC could adapt to a so big change is unknown, Dana Wheeler need to persuade and implement her recommendations in the way of most possibly. In these situations, the second scenario could be the better choice. It could bring significant benefits to TFC and need not much more expenses compared with the third one, so it might be accepted more easily by management levels.

From the data has been present, I can know Lifetime target its market on the age between 18 and 34 years old and CNN target its market on male. But the real gap between TFC and its competitors is the average households, the average households of TFC is less 2.2 million than Lifetime’s and 3.3 million than CNN’s. These two numbers show the real challenge TFC faces. There are two main source of TFC’s revenue, one is the advertising revenue, and the other is cable affiliate fees. The advertising revenue is not main influenced by the average households because you may do not have large group of views, but your viewers may have the high consumption capabilities, in this situation, advertisers also would like to pay for advertises on your channel. But for cable affiliate fees, it is totally based on the number of viewers you have. So increase the number of average households is the key point. So increase budgeting on advertising, promotion, and public relations is necessary. Enlargement popularity and set up good reputation are efficient way to increase TFC’s number of viewer. On the other hand, TFC should create new programs and improve the old ones which focus on its competitors’ target market, because Lifetime and CNN are the new channels for providing fashion information, their target markets have limitations, it is much easier for TFC takes market share with them before they have dominant their target market. Maybe TFC cannot gain advantage in this competition, but when TFC has stable market share on other fields, it can use most of its resource to take these two customer groups.

4. Dana is filling the role of change agent in this organization. How should she manage the discussion and meeting to be most effective in leading the group to make the right decision?

As a result of Dana does not join in TFC for a long time, she may not know some details about this company and other managers may not trust her completely, in order to be most effective in leading the group to make the right decision, firstly, she should encourage other managers share their opinions to ensure she does not miss some important information. After that, she needs to introduce the situation of market and TFC’s competitors, let everyone know the challenge the company faces, using the data to directly present the market sharing. Then providing her solutions and plan, explain the reasons and goals of her suggestion. At last, ask other managers opinions about her recommendations, try to find out advantages and disadvantages in order to improve her plan.