The Fashion Channel (TFC) was founded in 1996 as the first TV cable network devoted to fashion twenty four hours a day, seven days a week. Since the networks inception, TFC has had a constant revenue and profit growth above the industry average, with a niche network of 80 million viewers as well as $310.6 million in revenue forecasted for the year 2006. The TFC’s main revenue streams can be traced back to the Advertising revenue model as well as the Cable Affiliates Fees model. The TFC targets mostly women between 35 and 54 as their avid viewers; however, the principle marketing message of the TFC is “Fashion for Everyone,” Indicating that they do aspire to break out of their principle customer base. Because of their recent success, the TFC has begun to see stiffer competition from other TV networks such as CNN and Lifetime. Although the TFC is seeing great success and many of its board members do not want to “break something that isn’t broken,” the TFC as brought in Dana Wheeler to revamp the TFC’s marketing strategies as the TFC is beginning to see new threats to its viewership from other networks. In order to revamp the TFC’s marketing strategy, Dana Wheeler will have to overcome some significant challenges such as the management’s unwillingness to change, the use of generalization marketing strategies such as “Fashion for Everyone,” and finally the bad position the TFC has against its competitors due to its low average rating.
If I were Dana Wheeler, I would attempt to interpret the consumer market data, allowing me to identify certain market segments that make up the most important customer base. Due to the fact that the TFC revenue model is centered on the Advertising revenue model as well as the Cable Affiliates Fees model, the TFC can attempt to position themselves differently depending on the target market segments they choose to pursue. In this case, the most profitable demographics appear to be females from the ages 18 to 34 as well as male viewers of all ages. According to the provided consumer data, it is clear that the competition is doing better than the TFC in these two demographics as Lifetime is targeting young females while CNN dominates in the male populous. Although the TFC is positioned as a niche channel that focuses on an individual industry, the TFC still caters to a wide range of demographics, offering all-inclusive fashion programs for almost every viewer. Based on the data, the TFC found that there are four main segments that make up the overall customer base. These segments include basic viewers, situational shoppers, planes & shoppers, and enthusiasts. In understanding the segment segments that each of these types of viewers represent and how to position the TFC based on these different viewers, the TFC can create a far more comprehensive and effective revenue model.
Although one of the marketing strategies proved to be a failure, the other three were all viable options. In the base case, there was an approximate a $23 million drop in add sales, or a 10% decrease, consequently causing the total revenue to drop by $21 million, or a 7% decrease. Likewise, the profit margin of the TFC also dropped from 30% to 19% between 2006 to 2007. However, the other three scenarios saw far superior outcomes. In the first scenario, they focus on three out of the four segments. This led to sales increasing by $20 million, or a 6.45% increase. This result is mirrored by an increase in net income but a lower profit margin. The second scenario specifically targeted the fashion fanatics. This far more specific targeting led to a $94 million dollar increase of revenue, or a 30% increase. In addition, there was also a 7% increase in profit margin when compared to the actual 2006 year. Finally, the third segmenting scenario focused on the fashionista and planner/shopper segments. This segment led to a $117 million increase in revenue, or a 38% increase. Likewise, there was also an 8.8% increase in profit margins.
In the base option, there are numerous pros and cons. In this option, the cons are that TFC is not making any changes, resulting in the potential risk that CPM will go below $2.00 and potentially reaching $1.80. This occurs due to the fact that TFC is losing appeal when compared to the other cable networks as well as market share. These two losses will lead to a decrease in profit. On the other hand, the only real pro of this option is that the TFC has a stable rating of 1% and covering all markets without any form of specialization. In the first scenario, the pros are that this option will generate almost $40 million more in terms of income. Likewise, this scenario will reach 100% of all 18 to 34 year-old females while also improving the TV ratings by close to 20%. Finally, there are no incremental programming expenses with this option. The cons of this option are that CNN and lifetime could continue to penetrate the premium CPM segments. This led to a decrease of CPM of about 10%. In addition to this, TFC did not change the current market strategy; thus, they did not improve their current position. Finally, this scenario does not involve any targeting of a specific cluster of segment. In the second scenario, the first pro is that this option will generate around $96 million more in terms of net income. In addition, the CPM of this option increases from $2 to $3.5, a 75% increase. Likewise, this option will strengthen the value of the customer as this plan aims to focus on females between the ages of 18-34. Finally, this option will decrease the competition with lifetime due to the fact that their main segment targets females ages 18-34. The first con of this option is that there will be a $15 million cost for new incremental programing Likewise, this option will also decrease the TV ratings by around 20%. Finally, the specificity of the targeting will lead to the program only attracting a specific segment, neglecting the other potential segments. This could also cause the customers’ awareness to stay the same and consequently cause the rating to decrease more. In the third scenario, the first pro of this option is that this option will generate almost $115 million more in terms of net income. In addition to this, the TV ratings increased from 1.0 to 1.2, a 20% increase, while the CPM increased from $2.00 to $2.50, a 25% increase. The most dynamic pro of this option arguably is ho this scenario targets its viewers. This option targets 50% of U.S. TV households, of which 50% are female and 25% of them are 18-34 in terms of age. Finally, this option offers different programming options for individuals based on how into fashion they are. The first con of this option is that there is a $20 million cost for new incremental programming. In addition, this scenario only targets 50% of U.S. TV households. Finally, this option could decrease the amount of loyal customers if the segments appealing to them are not including, potentially leading to a decrease in ratings in the long run.
Based on the previous studies, market analysis, and financial information, it is clear that Dana should recommend that TFC should apply scenario three, targeting two segments of the market, to their new marketing strategy. This scenario will generate the largest financial return and highest profit margin when compared to the other potential scenarios. Likewise, this option does not involve generalized targeting; rather, it targets only a specific segment, making it the far safer and less risky option. Likewise, specifically targeting certain segments will increase public awareness while also improving TFC’s competitive position when compared to the other cable networks. In short, option three is the best at maximizing the revenue streams of TFC as a whole, making it the best overall plan of action.