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Fashion Channel Case Study Spreadsheet Software

Unformatted text preview: The FASHION CHANNEL M450 Marketing Strategy Case #1 The Fashion Channel 1 INTRODUCTION The Fashion Channel (TFC) is a cable television network that was founded in 1996. TFC is a one-­‐of-­‐a-­‐kind cable network due to its devotion to solely broadcasting programs that revolve around fashion. Differing from other cable networks that include fashion-­‐specific blocks as a small part of their programming schedule, TFC runs fashion programs 24 hours per day, 7 days per week. The company has experienced ongoing success and reaches over 70% of television-­‐households within the United States. Despite the company’s continuous profit growth, it is beginning to see increased competition from fashion-­‐related programming, specifically programs offered by two large networks: CNN and Lifetime. The Fashion Channel uses a mass marketing strategy – reaching out and connecting with all possible viewers. With increased competition, however, there are concerns that ad revenues will fall. The Fashion Channel has $60 million budgeted for 2007 for national and affiliate advertising, promotion, and public relations spending, a $15 million increase. Despite this increased spend, TFC expects to lower its advertising unit price by at least 10% in order to remain competitive. Instead of a mass marketing strategy, Dana Wheeler, VP of Marketing, is considering a segmentation strategy to better connect with more profitable viewers – men and/or women aged 18-­‐34 years. It is critical for TFC to attract a critical mass of viewers who are interested in the network’s content and who are attractive to advertisers. Wheeler is considering one of three possible segmentation strategies to improve overall ad revenue: 1. Mass marketing 2. Market Concentration on Fashionistas 3. Multi-­‐segment strategy targeting Fashionistas and Planners & Shoppers The intent of the ensuing analysis is to strengthen the Fashion Channel’s competitive position to ensure continued growth. TFC would be able to do this by focusing on two factors that drive revenue growth, which are increasing the viewership (ratings) and increasing advertising pricing. Assumptions to be used in this analysis: • Ratings and CPM by scenario Base 2007 Mass Marketing $60M ad spend Market Concentration Multi-­‐segment Rating (%) 1.0 1.2 0.8 1.2 Average CPM $1.80 $1.80 $3.50 $2.50 • • The best target demographic is men or women aged 18-­‐34 years There are 110 million households that watch TV Programming Costs $55M $55M $70M $75M The Fashion Channel 2 CUSTOMER SEGMENTS OVERVIEW To begin, we need to deeply understand that segments found in national consumer field study that was conducted by GFE Associates, a market research firm. There are four viewer segments to consider: • Fashionistas are highly engaged in fashion • Planners & Shoppers participate in fashion regularly but are more practical • Situationalists really only participate in fashion for specific needs • Basics are pretty disengaged in fashion The Customer Segments Overview below describes the four segments. Customer Segments Overview of US Television Households Fashionistas Planners & Shoppers Situationalists Basics Size 15% 35% 30% 20% Key Differentiating Demographics Female; 18-­‐35; live in large cities; high income Women, lower income, single; live on the outskirts of large cities Younger women and men, married, median incomes Predominantly male; baby boomers; Midwest region Key Differentiating Attitudes & Beliefs Love getting dressed up, plan outfits, spend their money on a new pair of shoes rather than rent; concerned about name brands Enjoy fashion, but price conscious; forever 21/charlotte russe shoppers, love fashion, but like shopping more; not as concerned with name brands Enjoy looking for the special night out outfit, or when they need a specific style to suit an event, not as price conscious; not concerned with name brands Price conscious, one stop shoppers, shop 2x a year, don’t spend frivolously, buy only what they absolutely need, shop at Kohl’s or Walmart type places Involvement in Fashion & Interest in Fashion on TV High, most likely group to have interest in fashion on TV; constantly staying on top of fashion trends and styles; NYC Medium-­‐High – interested and participate regularly; not obsessed with staying on top of trends, but enjoy shopping for new clothes Medium – only are involved for specific needs; only look for something if they need it, not staying on top of trends Low – don’t really care about fashion or being involved with it; don’t care about trends, want cheap fast, one stop shoppers Qualitative assessment of targeting priority 1-­‐ High priority, highly invested in fashion and would enjoy keeping up with TFC programs 3-­‐ Will most likely enjoy TFC programming; higher priority 5-­‐ May be interested in some TFC offerings, but not highly beneficial. 9-­‐ These consumers really won’t enjoy what TFC has to offer, so they are low priority The Fashion Channel 3 Qualitatively, Fashionistas and Planners & Shoppers are the highest priority for TFC to target. These two segments are the most interested in what TFC has to offer and would most likely engage fully with TFC’s programming. Personas for each segment are helpful in describing and individualizing each segment: Francine Forester is the ultimate Fashionista. As a 21-­‐year-­‐old college senior, Francine loves to put together outfits for any and all occasions and understands the power of the perfect accessory. Her apartment is the one-­‐stop-­‐shop for her friends whenever they need a new outfit for a date, interview or just a night out. Francine has TFC on at all times and uses it’s multiple programs to create only the most fashion-­‐forward outfits for every event in her life: internship, class, family functions or going out with friends. Trendstop Tracker is her all-­‐time favorite app and she uses it alongside TFC and Style.com to stay up-­‐to-­‐date on all of her favorite celebrities. Her idols are fashion superstars Lauren Conrad, Kate Middleton and anyone in the Kardashian clan. She loves incorporating their favorite trends into her daily outfits and she can’t wait to start her career, a place where she plans on eliminating any talks of “Casual Friday.” Fashion is the center of Francine’s world and her perfect day involves watching TFC while flipping through Vogue magazine and sipping a Starbucks Passion Tea Lemonade. Susan Stockman, a Planner & Shopper, is a 32-­‐year-­‐old businesswoman and mom of three kids: Shelby, Sidney and Shawn. Susan is a very detail-­‐oriented person who enjoys schedules and to-­‐do lists. She prides herself on constantly keeping herself and her family in trendy clothes. While she does appreciate popular styles, she enjoys her hobby on a budget. Susan loves couponing and sales events and uses her favorite app – ShopStyle Mobile – to compare clothes prices for everyone in her family. She uses all of her money-­‐saving tricks in order to purchase items during the most cost-­‐efficient season each year. Every mom in the neighborhood envies her well-­‐behaved and well-­‐dressed kids and most strive to be as efficient and effective as Susan is in her shopping. She is the type of mom that uses Christmas to stock her kids’ closets with a multitude of outfits to choose from for next fall’s school pictures. Susan, a Planner & Shopper through and through, uses TFC to stay up-­‐to-­‐date on current and upcoming fashion trends. She especially enjoys when the network broadcasts programs centered around budget shopping and ways to reuse basic clothing pieces in several outfits. Audra Andrews is a Situationalist: a 27-­‐year-­‐old stay-­‐at-­‐home mom to a set of twins: Lucas and Lacey. She is an avid member of the PTO at her kids’ school and spends the majority of her time at home scheduling events and appointments. She thoroughly enjoys shopping trips that are focused on creating outfits for events, especially for community fundraisers and friends’ weddings. Audra stays somewhat involved in fashion trends and is praised by fellow moms for her general fashion know-­‐how. Once Lucas and Lacey were born, Audra quit her job in order to become a full-­‐ time mom. Her life is now fully centered around her kids and no matter what draws her to the mall in the first place, she generally finds herself in the children’s department. Audra watches TFC sporadically, usually the two weeks leading up to a special occasion, about five or six times per year. While she enjoys being the best dressed at an event, she’s okay with her daily outfits being a tad “last season.” Bob Baker is a 24-­‐year-­‐old guy within our Basics segment. When he’s not wearing polos and khakis for work, he’s usually lounging around in athletic shorts and t-­‐shirts. For Joe, casual comfort is always a top priority and he makes sure his wardrobe allows him to be ready to play a pickup basketball game at any moment. His fashion-­‐forward friends constantly tease Joe whenever they go out for dinner and drinks; he will never understand why his jeans and V-­‐neck don’t fit in at the upscale clubs and restaurants downtown. Joe has watched TFC once during a rain delay of a late Cincinnati Reds game because it was a nearby channel that wasn’t dominated by late-­‐night infomercials. He isn’t interested in fashion news and doesn’t keep up with celebrities’ styles or trends. Joe’s television time is generally split between the ESPNs and CNN. The Fashion Channel 4 PROFIT POTENTIAL ANALYSIS Now that the segments have been profiled, the profit potential analysis below evaluates which segment(s) are the best to target from a financial perspective. Profit Potential Analysis of US TV Viewing Household Segments Fashionistas Planners & Shoppers Situationalists Basics 5 Market Size 8 7 3 This segment has the highest amount of individuals in the target demographic, even though it isn’t very large. This segment is the largest, nearly 2x larger than the smallest segment. Second largest segment, but fewer in the target demographic. Small cluster that does not represent target viewers well. 6 5 1 Enjoy fashion, but may or may not be interested in TFC. Not interested in fashion. They are more interested in value and practical ideas. 9 Competitive Strength Fashionistas generally prefer to watch fashion television, to alternative options. Still interested in TFC but, they would be more easily swayed to watch something else. 9 Price Sensitivity Production Costs Market Value (Sum /4) 6 5 Highly interested in fashion. They are less price sensitive and generally have higher incomes. More price sensitive than this Fashionistas. However, if they feel they need it ,they will pay for it. Somewhat price sensitive. They are searching for value and are less concerned with fashion. Very price sensitive. 5 6 7 7 It will take an incremental $15M in programming Need an extra $5M in programming $55M is base programming costs $55M is base programming costs 7 6.5 2 6 3.25 These ratings demonstrate that the Fashionistas would be the most ideal segment for TFC to target. Their small size is overcome by their interest in fashion and lack of price sensitivity. In addition, Planners & Shoppers are also very attractive because of their large size. The Fashion Channel 5 FINANCIAL ANALYSIS Using data from the Assumptions, we can calculate the revenue potential and profit for each scenario. Ad Revenue Calculator for Three Scenarios Current TV HH Average Rating Average Viewers (000s) Average CPM Average Rev./Ad Minute Ad Minute/Week Weeks/Year Ad Rev./Year Incremental Programming Expense 2007 Base Mass Marketing Market Concentrati on 110,000,000 Multi-­‐ Segment 110,000,000 1.0% 1100 110,000,000 .80% 880 110,000,000 1.2% 1320 $2.00 $2,200 2016 52 $230,630,400 $1.80 $1,980 2016 52 $207,567,360 $1.80 $2,376 2016 52 $249,080,832 $3.50 $3,080 2016 52 $322,882,560 $2.50 $3,300 2016`` 52 $345,945,600 $0 $15,000,000 $20,000,000 $0 .80% 880 110,000,000 1.2% 1320 Financials for TFC for Three Scenarios 2006 Actual Total Rev. Marketing & Advertising $207,567,360 $249,080,832 $322,882,560 $345,945,600 $81,600,00 $81,600,000 $81,600,000 $81,600,000 $289,167,360 $330,680,832 Expenses $404,482,560 $427,545,600 $310,630,400 $72,100,000 $72,100,000 $72,100,000 $72,100,000 $55,000,000 $55,000,000 $55,000,000 $70,000,000 $75,000,000 $6,918,912 $10,378,368 $60,000,000 $41,200,000 $219,527,021 $9,686,477 $60,000,000 $41,200,000 $216,918,912 $7,472,425 $45,000,000 $40,000,000 Total Expense $6,227,021 $45,000,000 SGA $70,000,000 Cost of Programming Multi-­‐ Segment $80,000,000 Affiliate Fees Ad Sales Commissions Market Concentration $230,630,400 Ad Sales Cost of Operations Mass Marketing 2007 Base Revenue $60,000,000 $41,200,000 $235,772,425 $41,200,000 $252,986,477 $258,678,368 Bottom Line Net Income $93,711,488 Margin $69,640,339 30% $94,908,407 24% $151,496,083 29% $168,867,232 37% 39% The Fashion Channel 6 Not surprising, Scenario 3 targeting both Fashionistas and Planners & Shoppers appears to be the most attractive option. This strategy has the highest advertising revenue, net income, and margin. However, Scenario 2 targeting only Fashionistas is not far behind. As a result, TFC needs to weigh whether it can successfully target two segments or more conservatively the one segment that is its best target -­‐ Fashionistas. RECOMMENDATIONS We recommend that Dana Wheeler implements a multi-­‐segment strategy as described in Scenario 3 for the following reasons: • Fashionistas as well as Planners & Shoppers have the highest emotional interest in fashion • Both segments like to stay up to date with fashion and participate in fashion regularly • Each segment has an attractive profit potential on its own. The profit potential of both will be equally good • It both generates the highest revenue (nearly $169M) and has the highest profit margin (39%) • It allows TFC to be more narrowly focused but also reach a wide enough audience to generate a critical mass of viewers, improving the current rating from 1.0% to 1.2% • It gives TFC more access to the best target demographic of 18-­‐34 year olds, increasing CPM from $1.80 to $2.50 However, there are downsides to consider. This strategy requires better, more specific programming content which will cost an incremental $20M. It can also be difficult to satisfy the needs of two different segments. Moreover, targeting segments is a big step for TFC and a big change from its current mass marketing strategy. TFC will have to be careful to make sure that really hooks Fashionistas as it also tries to connect with Planners & Shoppers. But with the incremental $15 million ad spend, we believe TFC can overcome these downsides. Thus, we recommend that TFC target both Fashionistas and Planners & Shoppers. WORKS CITED Goldsmith, Ronald E. "Some Personality Traits of Frequent Clothing Buyers." Journal of Fashion Marketing and Management 6.3 (2002): 303-­‐-­‐-­‐16. Web. 3 Feb. 2014. <http://www.emeraldinsight.com/1361-­‐-­‐-­‐2026.htm>. ...
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Please read and analyze this case on market segmentation and targeting options for a cable television network dedicated to fashion programming. No research into the industry or firm is necessary. Please use only the information provided by the case.

Each team should complete Exhibit #4 “Ad Revenue Calculator” and Exhibit #5 “Estimated Financials for 2006 and 2007” and submit a copy of their team’s work at the beginning of class. A spreadsheet is provided to help you with this assignment.

Consider the following questions and come to class ready to discuss your
ideas and recommendations:

1) How do we learn from the consumer research and market data?

Starting in 1996 TFC (the fashion channel) had a great success because of a big audience and no competitors in the business. Noticing the great success competitors such as CNN and lifetime started to also have fashion-based programmes. Since viewers now having a choice to decide which channel they want to watch the viewer numbers of TFC startet to decrease. A reason for this is shown by an alpha research which pointed out that both CNN and lifetime got a better feedback in customers satisfaction in consumer interest as well as in awareness and also perceived value.

Having their viewer numbers decreasing, TFC has to pay even more attention on their two main revenue streams: cable affiliate fees and advertising! Therefore they wanted to know who their audience is to can better react to them. They reached this with help of a detailed demographic breakdown which leaded to the result, that 61% of their viewers are female and 33% being aged 18-34 which is less then 45% being aged 35-54, but the younger group is stronger in this business Additional to this they did a GFA associated survey which divided the adience into 4 groups:

Fashionistas: highly engaged in fashion with being 15% of all viewers, 61% being female and 50% being aged 18-34;

Planners and Shoppers: participants in fashion on a regular basis with being 35% of all viewers, 54% being female and 25% being aged 18-34;

Situationalists: participants in fashion for specific needs with being 30% of all viewers, 50% being female and 30% being aged 18-34. Also they have 45% with children in the household;

Basics: not intersted in fashion with being 20% of all viewers and 45% being female.

2) Which research method was most helpful to you in developing and evaluating
the segmentation options?

As mentioned before, there are four groups resulting from the GFA associated research. Combines with the results from the demographic breakdown we think it is really helpful for TFC. Indeed, with these researches they have the opportunity to realize who their audience is and so they can work on getting a new audience, probably within the other groups. They also understand who is the most powerful group in their business so that they can work on reaching their needs and with these information it was possible to work out the segmentation options.

3) What are the segmentation options?

Broad-based marketing:
The goal is to develop a multi-segment strategy with a strong focus on “Fashionistas” and the “Planners&shoppers” and also have a focus on women aged between 18 and 34 since this is the most powerful group – as mentioned before.

“Fashionista” segmentation:
In this segmentation the focus is strong only on “Fashionistas”. The plan is to spend $ 15 million on programming. It is a single segment concentration.

“Fashionistas” plus “Planners & shoppers” segmentation: This one is a product specialized segmentation with focus on both “Fashionistas” and “Shoppers & Planners”. TFC has to spend $ 20 million on programming in this case.

4) What is the project financial impact of each of the option?

Scenario number 3 has the best financial result: against an increment of $20.000.000 in fixed costs and an increment of $4.151.347 in variable costs, the increment of revenue by Ad sales increases by $138.378.240 and the company can have the maximum net income ($168.867.232) and also the maximum margin (39%). Scenario number 1, instead, is the worst one: The Fashion Channel doesn’t have extra fixed cost but also their income are the lowest one ($249.080.832) that is $96.864.768 lower than in scenario 3. In this case, the firm can match the same result that reached in 2006. Scenario 2 is a little worst than scenario 3: they have a little few fixed cost ($70.000.000) as they gain less revenue by Ad sales ($322.882.560) and also the net income and the margin are not performing as in scenario 3.

5) Compare the segmentation options. What are the Pros & Cons (Strengths & Weaknesses) of each option?

1. Broad Appeal (Broad multi-segment approach) – Scenario 1 Cross segment of Fashionistas, Planners & Shoppers, and Situationalists Woman aged 18 to 34 in all of the clusters

2. Fashionistas – Scenario 2
Alternative to a broad, multi-segment approach – focus on single segment (Fashionistas)  aggressive approach. Strong in the highly valued 18-34 female demographic.

3. The Fashionistas and the Shoppers/Planners – Scenario 3 Dual targeting of two segments (Fashionistas and Shoppers/Planners).

6) What is your recommendation?

After the analysis of costs, revenues and net income and the review of advantages and disadvantages of the three options, according to us the best solution is the scenario 3: the “Fashionista” plus “Planners/Shoppers” segmentation. We understand that the risk involved with this scenario is very high. TFC will lose some of their most loyal consumers by re-positioning the channel towards fashionistas and the planners/shoppers. Furthermore, Exhibit 5 show us that this scenario also requires more programming and operational expenses. On the other hand, “Fashionistas” has superior interest in fashion and “Planners & Shoppers” has the largest cluster size, so it is a good choice to combine them. Indeed “Planners & Shoppers” will improve the rating in order to attract more ad buyers and at the same time “Fashionistas” will enhance the CPM to gain more ad revenue.

Moreover, from the Exhibits 4 and 5 we can observe that scenario 3 gives the more revenue that the others and it provides more net income and a better margin than the other two options. To conclude, the benefits truly do seem to outweigh the risks in this scenario and we recommend that targeting at two valued groups “Fashionistas” and “Planners & shoppers” is the best solution to this problem. It will create more revenues (above all from advertising), make TFC get back market shares quickly and maintain TFC’s leading status and core viewer loyalty.

Obviously, The Fashion Channel will also implement this new marketing plan.

One of the more difficult challenges for TFC is trying to keep their older loyal consumers while attracting the new fashionistas and planners/shoppers (18-34 female audience), otherwise they could certainly lose more than they gain. In order to achieve this aim, TFC should analyze the loyal consumers’ favorite programs and make sure to keep these programs when they begin their new marketing plan. Moreover, The Fashion Channel should look at Lifetime and their Fashion Today program to gain a better understanding of how they market to their 18-34 year-old female audience, so they will be in a very advantageous position to capture a large share of the market.

Furthermore, TFC must continually find ways to improve consumer interest, awareness, and perceived value. Lastly, TFC must be aware of its competition and be ready to differentiate and re-position its programs in order to earn the best TV ratings and capture the most market share.

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