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The Fashion Channel: Consumer Behavior and Market Segmentation Please navigate to the class web site and download the case study on The Fashion Channel. Please read the case

study carefully and then type answers to each of these questions.

1. What was TFC’s strategic marketing approach when Wheeler was hired and what was the business

problem that Wheeler faced at TFC? What did Wheeler believe needed to be done to fix the problems?

When Dana Wheeler was hired to be part of the company, TFC was still following its tried-and-tested “there’s

something for everyone approach”. Beyond basic demographic information, the channel did not have much

information about its viewers, nor did it seem interested in acquiring that information or target to a particular

segment. TFC’s strategy was to achieve the highest possible viewership numbers and this, according to the

founder and CEO Jared Thomas, could only be done by appealing to as broad a group as possible. Case in point:

During its formative years, TFC had chosen “Fashion for Everyone” as the theme for its marketing programs. Not

only the CEO, but some of the other members of the leadership team also strongly believed in this approach

(which had been highly successful to date) and were reticent to any changes being introduced. They were

seasoned TFC employees and were buoyed by the growth that had been achieved using this strategy.

However, things had started to change. Although TFC was still the only network dedicated solely to fashion with

24x7 programming, more popular networks like CNN and Lifetime had introduced their own fashion-oriented

programs which were becoming increasingly popular, and as a result, TFC was beginning to lose ground. In fact,

both CNN and Lifetime scored higher than TFC in a consumer satisfaction study that measured awareness,

perceived value, and consumer interest in viewing. Lifetime and CNN were taking away ad buys from TFC because

they were attracting niche target segments, viz. younger female demographics and men, respectively, and were

consequently charging a higher CPM which advertisers were willing to pay. As a result, Dana Wheeler faced the

challenge of both increasing TFC’s viewership numbers and increasing revenue from advertising.

Dana Wheeler believed that in order to win in the market and strengthen its competitive position, TFC needed to

develop brand loyalty which would be hard for a competitor to take away. This required a specific customer

segmentation, targeting and positioning strategy - a far cry from the previous “there’s something for everyone”

approach. First, the management team at TFC needed to identify the customer groups that would be most

receptive to its offerings and would be worth the effort to pursue. Then, specific marketing programs would have

to be developed (that would include traditional and internet advertising, public relations and promotions) that

would be targeted specifically at these customers.

2. Referring to the survey results in exhibit 2, what were the 3 most important benefits (combined

strongly agree and agree responses) consumers desired from their interest in fashion and ultimately

delivered by a fashion television channel.

The GFE Associates: National Consumer Survey, which was commissioned by Dana Wheeler, revealed what

consumers were looking for when they watched fashion-related programming, i.e. their motivations for watching

the programming and/or what their attitudes towards fashion were. In other words, what were the benefits or

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consequences that consumers were seeking which made them watch fashion-related programming or made them

interested in fashion altogether?

41% (20% strongly agree + 21% agree) of the respondents said that they liked to shop for clothes for parties and

special activities.

44% (20% strongly agree + 24% agree) of the respondents said that they believed that they were more interested

in fashion than most people.

45% (25% strongly agree + 20% agree) of the respondents said that for them, watching fashion programs on

television was very entertaining.

Therefore, the three most important benefits that consumers desired from their interest in fashion were:

1) Looking good (for special occasions) – These consumers want to look good for parties and special

occasions and activities and are generally value-seekers. They might not want to put in the effort in

looking good on a daily basis, but for parties and special functions and activities, they are willing to make

an exception in an attempt to look good. This could be traced to the underlying inner feeling of

satisfaction that one experiences when one’s peer group and friends and family appreciate one’s dressing

sense at parties and family gatherings. This group could’ve been a prime audience for one of TFC’s more

popular series in 2005, “Look Great on Saturday Night for Under $100”.

2) Looking good (on a regular basis) – These consumers said that they were more interested in fashion than

the average person, which could mean that they want to look good on a regular basis and hence have

developed a keen interest in fashion. Again, this might stem from the inner feeling of satisfaction that

these people get when they receive attention for being well-dressed. They might also enjoy shopping for

clothes and other items and would be glad to share their fashion expertise with others.

3) Entertainment – These consumers watch fashion programs on television simply to be entertained. They

may or may not be interested in looking good or in the latest fashion trends, but for them, being

entertained is the primary motivation for watching fashion-related programming. They enjoy the

programming they see, and that’s it.

3. The research firm hired by Wheeler developed four “attitudinal” segments. Referring to exhibit 3,

please provide a one paragraph description of each of the four segments.

1) Fashionistas – are usually women who are highly engaged in fashion. They like to anticipate and stay up-

to-date on the latest fashion trends. In addition to being entertaining, fashion is an integral part of their

lives and they are happy to share their fashion expertise with others. They enjoy shopping, think a lot

about fashion as compared to the average person, and try to integrate fashion into their lifestyle. Half of

these women are 18-34 years old and about a third of them have an income of more than $100,000 per

year. Fashionistas represent 15% of U.S. television households.

2) Planners & Shoppers – Are people who participate in fashion on a regular basis. Just like the Fashionistas,

the Planners & shoppers like to stay up-to-date on the latest fashion trends and enjoy shopping. They

differ from the Fashionistas in that they add the ‘practical’ element to fashion and are more interested in

value, and not necessarily in the most expensive items. A little more than half of all Planners & Shoppers

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are female, a fourth of whom are 18-34 years old. Planners & Shoppers represent the largest fraction of

U.S. television households: 35%.

3) Situationalists – Are sporadic fashion-seekers who participate in fashion for specific needs, events or

occasions. They do not participate in fashion on a regular basis. In addition to women aged 18-34, children

also constitute this group; a group that enjoys shopping to some degree and only for special needs and

occasions. They are similar to Planners & Shoppers in that they seek value and ‘practicality’ in the items

they buy. Situationalists represent 30% of U.S. television households.

4) Basics – Are people who are disengaged from fashion, who do not spend much time thinking about what

to wear and generally do not like shopping. In the rare event that they do buy fashion products, they look

for value. Their interest in fashion on TV is half of the average for all viewers. This is the only segment

where men are more than women (55% men, 45% women). Basics represent 20% of U.S. television

households.

4. Wheeler developed three targeting strategy options. For each option, create a 3 column table that

summarizes the strategy, its strengths, and its weaknesses.

S. No. Strategy Strengths Weaknesses

1

Having a broad multi-segment appeal to

women aged 18-34 in all the three groups –

Fashionistas, Planners & Shoppers,

and Situationalists

- Increase in awareness and viewing of the channel.

- Expected increase in ratings of about 20% (from 1.0 to 1.2) over time.

- All the three groups have sizeable proportion of women aged 18-34, which could mean considerable increase in viewership.

- Following this strategy would mean that TFC would be able to maintain its overall audience ratings with cable consumers and the cable affiliate distribution network. Otherwise, if TFC strays away too much, it risks losing its distribution support.

- Current audience mix most likely to stay the same.

- Possible 10% drop in CPM from the current $2.00 to $1.80

- Risk that the competition would continue to penetrate the premium segments and further erode TFC’s pricing ability.

2

Focus more on the Fashionistas in

particular

- This strategy would allow TFC to deliver specific target groups to advertisers, something the advertisers are looking for.

- Relatively small segment (only 15% of households); exclusively targeting this segment could lead to a decline in viewers.

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- Younger, female-oriented niche segment would be very attractive to certain advertisers who would be willing to pay a premium CPM for access to this audience.

- Estimated CPM increase to $3.50 from the current $2.00

- Estimated ratings drop from 1.0 to 0.8

- Additional costs of around $15 million per year to develop new programming to attract and retain the interest of this segment.

- Targeting the Fashionista segment in particular would mark a huge change from the traditional “there’s something for everyone” approach, which could disappoint viewers who like the network’s current programs and probably even some TFC employees.

3

Dual targeting - targeting two segments, viz.

Fashionistas and Shoppers & Planners

- These two segments alone represent 50% of households with higher than average interest in fashion-related programs.

- Anticipated increase in ratings to 1.2 from the current 1.0 over time.

- Anticipated increase in CPM to $2.50 from the current $2.00

- As opposed to the other two targeting strategies, this is the only strategy which would lead to an increase in both ratings and CPM – “best of both worlds” approach

- Additional costs of around $20 million to develop programming aimed at both segments.

5. Wheeler perceived several possible cluster/segmentation schemes. What were the criteria Wheeler set out

to judge the value of the segmentation and target segment(s) schemes?

Dana Wheeler believed that the most valuable viewer segments would be those that would be loyal to the TFC

brand and would eventually develop an emotional connection to TFC. They would be very resistant to swaying by

TFC’s competitors and would remain loyal to TFC and its programming, thereby ensuring that TFC maintains a lead

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in the market. They would be hardcore TFC viewers, thereby providing the channel with increased viewership,

which would allow TFC to command higher rates from advertisers.

Wheeler was tackling a double-edged sword. On the one hand, she had to make sure that TFC maintained

sufficiently high ratings so that the cable operators and affiliates would not threaten to stop including TFC in their

lineup. On the other hand, there was pressure to increase advertising pricing through increased CPM prices. She

thus had to please both advertisers AND cable consumers/cable affiliate distribution networks. Thus, in addition

to brand loyalty, expected increases in CPM prices and ratings were two important criteria Wheeler used to judge

the value of the segmentation and target schemes.

After determining the three possible segmentation and targeting approaches, Wheeler set up to quantify the

expected increase in revenue that these three segments would bring. She would do this by conducting a cost-

benefit analysis, i.e. comparing the benefits (revenue) that the company would achieve by pursuing one of the

three strategies (refer to attached spreadsheet).

Ideally, Wheeler would’ve been looking for the strategy that would not only provide the maximum positive cash

flow to the company, but also lead to an increase in both ratings and CPM prices. The only strategy that does this

is the strategy which calls for dual targeting, i.e. targeting to both Fashionistas and Shoppers & Planners (refer to

attached spreadsheet).

The dual targeting strategy nets the company the maximum net income of $223,867,232, with a corresponding

increase in both ratings and CPM.

Exhibit 4: Ad Revenue CalculatorAd Revenue Calculator

Current 2007 BaseScenario 1 - Broad

multi segment

appeal

Scenario 2 - Focus

on Fashionistas

Scenario 3 - Dual

targeting: both

Fashionistas and

Shoppers &

Planners

TV HH 110,000,000 110,000,000 110,000,000 110,000,000 110,000,000Average Rating 1.0% 1.2% 0.8% 1.2%

Average Viewers (Thousand) 1100 0 1320 880 1320Average CPM* $2.00 $1.80 $3.50 $2.50

Average Revenue/Ad Minute** $2,200 $0 $2,376 $3,080 $3,300Ad Minutes/Week 2016 2016 2016 2016 2016

Weeks/Year 52 52 52 52 52Ad Revenue/Year $230,630,400 $0 $249,080,832 $322,882,560 $345,945,600

Incremental Programming Expense -$ 15,000,000$ 20,000,000$ Revenue after deducting Programming Expense $249,080,832 $307,882,560 $325,945,600

* Revenue/Thousand Viewers

** Calculated by multiplying Average Viewers by Average CPM

2006 Actual 2007 BaseScenario 1 - Broad

multi segment

appeal

Scenario 2 - Focus

on Fashionistas

Scenario 3 - Dual

targeting: both

Fashionistas and

Shoppers &

Planners Assumptions

Exhibit 5: FinancialsRevenueAd Sales $230,630,400 $249,080,832 $322,882,560 $345,945,600 Insert scenario results from revenue calculator

Affiliate Fees $80,000,000 $81,600,000 $81,600,000 $81,600,000 $81,600,000 Grows 2% per year with population

Total Revenue $310,630,400 $81,600,000 $330,680,832 $404,482,560 $427,545,600

ExpensesCost of Operations $70,000,000 $72,100,000 $72,100,000 $72,100,000 $72,100,000 Grows 3% per year with inflation

Cost of Programming $55,000,000 -$ 15,000,000$ 20,000,000$ Add incremental programming expense

Ad Sales Commissions $6,918,912 $7,472,425 $9,686,477 $10,378,368 3% of ad sales revenue

Marketing & Advertising $45,000,000 $60,000,000 $60,000,000 $60,000,000 Reflects increased spending of $15M

SGA $40,000,000 $41,200,000 $41,200,000 $41,200,000 $41,200,000 Growing with inflation 3%

Total Expense $216,918,912 $113,300,000 $180,772,425 $197,986,477 $203,678,368 Spreadsheet calculates automatically

Net Income $93,711,488 ($31,700,000) $149,908,407 $206,496,083 $223,867,232 Spreadsheet calculates automatically

Margin 30% -39% 45% 51% 52% Spreadsheet calculates automatically

Grey = student input area

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