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[answered] 1-) What are the key facts in the case? 2-) If you were Dan


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1-) What are the key facts in the case?


1-) What are the key facts in the case?

 

2-) If you were Dana Wheeler, which segmentation option would you recommended and why? The Fashion Channel

 

Introduction

 

Dana Wheeler, senior vice president of marketing for The Fashion

 

Channel (TFC), sat in her Chicago office and scrolled through the email

 

messages in her inbox. Thankfully, none required an urgent reply. She

 

toggled over to her calendar: no meetings for the rest of the day.

 

Finally, she could focus her thoughts on reviewing her

 

recommendations for TFC?s new segmentation and positioning

 

strategy.

 

Wheeler believed that she had prepared a solid analysis; she felt

 

confident about the strategy she was proposing. But next week?s

 

senior management meeting would mark her first big presentation to

 

the company?s leaders since she had joined TFC, and, she admitted to

 

herself, she was eager to gain the support of her colleagues.

 

There was a lot riding on the outcome of this meeting, both for

 

Wheeler and for the channel. If founder and CEO Jared Thomas and his

 

team liked what they heard, Wheeler would move forward to

 

implement her recommendations. The company needed to strengthen

 

its competitive position and would be spending more than $60 million

 

in all national and affiliate advertising, promotion, and public relations

 

in 2007, based on these recommendations. This would be an increase

 

of $15 million over 2006 spending. Background TFC was a successful cable TV network? and the only network

 

dedicated solely to fashion, with up- to-date and entertaining features

 

and information broadcast 24 hours per day, 7 days per week. Founded

 

in 1996 by two entrepreneurs, it had experienced constant revenue

 

and profit growth above the industry average almost since the

 

beginning. Revenues for 2006 were forecast at $310.6 million, marking

 

another steady upswing.

 

The channel was also one of the most widely available niche networks,

 

reaching almost 80 million U.S. households that subscribed to cable

 

and satellite television.1 Women between 35 and 54 years were its

 

most avid viewers, according to its annual demographic survey. But

 

beyond basic demographics, the channel didn?t have much in the way

 

of detailed information about its viewers. Nor did it attempt to market

 

to any viewer segments in particular. From the beginning, in fact, Jared

 

Thomas had believed that TFC?s marketing messages should appeal to

 

as broad a group as possible in order to achieve the highest possible

 

viewership numbers. Early on, the network had chosen ?Fashion for

 

Everyone? as the theme for its marketing programs; one of its more

 

popular series in 2005 had been ?Look Great on Saturday Night for

 

Under $100.?

 

TFC had clearly grown quickly without articulating any detailed

 

segmentation, branding, or positioning strategy. However, at the

 

beginning of 2006, the network realized that other networks were

 

taking note of its success and beginning to add fashion-related

 

programming to their line-ups. TFC was facing competition that could

 

provide meaningful choices to both viewers and advertisers. By June

 

2006, these new competitive dynamics had prompted Thomas to

 

rethink his approach to marketing. At the quarterly executive meeting

 

that month, he told his senior team: ?It?s time for us to build a modern

 

brand strategy and secure The Fashion Channel?s position as the

 

market leader. I want to use marketing to lay a foundation for future

 

growth.? At the same meeting, Thomas had announced plans to

 

sharply increase TFC?s investment in advertising and to hire an

 

experienced marketer to develop marketing and brand-building

 

programs to support TFC?s continued growth.

 

Enter Dana Wheeler, in July 2006. Wheeler had a strong background in

 

marketing for packaged consumer products as well as broad

 

experience in the advertising industry. Thomas expected that Wheeler would draw on these strengths to help TFC build on the momentum it

 

had created to date and stave off any competitors trying to make

 

inroads. Still, he and some of the other members of the leadership

 

team felt an urge to resist change. The network had been highly

 

successful to date and no one wanted to ?break something that isn?t

 

broken.? Wheeler?s Plans

 

Wheeler turned back to her computer, opened up the slide-deck

 

presentation she had created, and started reviewing it. As she began

 

to page through the materials, she was thinking about the trends in the

 

advertising marketplace that Norm Frazier had been talking about in

 

the sales forecasting meeting this morning.

 

Frazier, senior vice president of Advertising Sales, had warned that TFC

 

might need to drop the price for a unit of advertising next year by 10%

 

or more if the network did not make some changes in its performance.

 

He mentioned that both Lifetime and CNN had launched fashionspecific programming blocks that were achieving notable ratings

 

(Exhibit 1). Frazier was a high-energy salesman who had personally

 

built the strong ad sales performance of the channel. He was justifiably

 

worried. Wheeler had left that meeting acutely aware that next week?s

 

executive session wasn?t coming a moment too soon.

 

Wheeler knew that in order to hold or increase price it would be crucial

 

to attract a critical mass of viewers who were interested in the

 

network?s content and were also attractive to advertisers. The key

 

would be targeting the right viewers and offering advertisers an

 

attractive mix of viewers when compared with what competitors were

 

offering. Wheeler believed she had good market data that would give

 

her insights into the options for identifying the right segments for TFC.

 

At the same time,

 

she knew that the network needed to maintain its overall audience

 

ratings with the cable consumers and the cable affiliate distribution

 

network. If the network changed its offerings in a way that

 

disappointed too many cable subscribers, it could risk losing its

 

distribution support.

 

Wheeler clicked to the slide that outlined the marketing tools in her arsenal, and then clicked to a slide near the end of the presentation

 

that revealed an aggressive implementation schedule. Her plan was to

 

build a strategy for segmentation, and use it as a base to employ all of

 

the marketing tools? traditional and internet advertising, public

 

relations and promotions?to reach the target consumers with

 

integrated positioning messages. She also knew that it would take time

 

to create and launch all the elements of a well-integrated marketing

 

program and that there was no time to waste.

 

She moved back a dozen slides or so, opening the ones that

 

summarized TFC?s revenue stream from advertising sales and the

 

slides that considered its revenue stream from cable-affiliate fees.

 

Thomas and the rest of the senior management team knew this data

 

as well as she did, she assumed. Everyone felt that advertising was

 

TFC?s primary growth opportunity. She wanted to think about her key

 

messages one more time to ensure her recommendations would

 

support building revenues as aggressively as possible. TFC?s Advertising Revenue Model

 

First, she reviewed TFC?s advertising revenue model. TFC was on target

 

to generate $230.6 million in 2006 from advertising. The advertising

 

business model was built on attracting a mix of male and female

 

viewers on a regular basis as measured by ?ratings? (the percentage of

 

television households watching on average during a measured viewing

 

period.) Across the entire schedule, TFC?s average rating was 1.0. With

 

110 million television households in the United States, this meant that

 

on average 1,100,000 people were watching at any point in time. 2

 

TFC?s Ad Sales team sold access to these viewers via advertising spots

 

(30 or 60 seconds in length) to a variety of well-known consumer

 

marketers ranging from cosmetics companies to brand name clothing

 

designers and automobile manufacturers. There were usually six

 

minutes of national ad time in each half hour of programming, 24

 

hours per day for a total of 2,016 minutes per week. Wheeler knew

 

from industry studies that, in 2006, U.S. consumer advertisers spent

 

almost $20 billion buying spots on cable networks such as TFC.

 

Because there were several hundred cable networks competing for

 

viewers and the related ad dollars, competition for ad revenue was

 

always fierce across all the networks. While competition was intense for advertising overall, TFC remained

 

the only network dedicated to fashion programming 24 hours per day,

 

7 days per week. This set up an interesting competitive dynamic. TFC

 

needed to compete against a broad range of networks for advertising

 

revenues. For these networks the ad buyers would be most interested

 

in buying ratings and demographics, and less interested in specific

 

programming subjects. At the same time TFC competed against other

 

fashion- oriented programming that would appeal to advertisers who

 

specifically wanted to participate in that programming context. The

 

strong fashion programming blocks on Lifetime and CNN represented a

 

double-edged competitive challenge. And if successful, more networks

 

would likely copy the concept, skimming more viewers and ad dollars

 

from TFC.

 

Dana reminded herself about the conversation she?d had with Norm

 

Frazier about advertising pricing. The network based ad unit prices on

 

several factors, which advertisers also monitored, including the

 

number of viewers (ratings), the audience?s characteristics (age,

 

demographics, and lifestyle), and general competitive trends. Prices

 

were expressed as CPM (cost per thousand), which represented the

 

price that an advertiser would pay for an ?impression,? or moment of

 

viewing.3 The ad market was dynamic because of the relatively fixed

 

supply of advertising on traditional television networks. Market pricing

 

moved up and down frequently, as advertisers developed new

 

campaigns that required television support. And, in recent years, the

 

advertising buying process had become very sophisticated, with many

 

buying agencies and clients using combinations of surveys and

 

?optimizer? programs to analyze the demographic and psychographic

 

characteristics of audience groups and then establish pricing

 

parameters that fit the audiences various networks delivered. The

 

output of these programs would be a recommended advertising

 

placement portfolio for a specific product campaign.

 

Networks were increasingly evaluated on their ability to deliver specific

 

target groups. Generally, networks whose audiences were older or had

 

low family incomes commanded lower rates for advertising. Advertisers

 

would pay a premium CPM to reach certain other groups; in 2006,

 

these were men of all ages and women aged 18-34. By increasing the

 

ratings in highly valued demographic groups, the TFC Ad Sales team

 

could achieve CPM pricing increases from 25% to 75%. By attracting a large number of highly valued viewers, the network had the

 

opportunity to substantially grow its advertising revenues. Cable Affiliate Fees

 

Wheeler next turned to the slides that dealt with the cable affiliate fee

 

revenue stream. Cable affiliate fees, which were on track to bring in

 

$80 million in 2006, were the second source of TFC revenue. Most U.S.

 

households subscribed to cable television through local affiliates of a

 

large cable multi-system operator (nationally, Comcast, Time Warner,

 

Cablevision, and Cox were the largest). Consumers paid a monthly fee

 

for a basic lineup of channels and incremental fees for premium

 

channels and on-demand programming. TFC was positioned as a basic

 

channel, so most consumers received it automatically when they

 

signed up for basic cable service.

 

Large multi-system operators (MSO) would sign multi-year contracts

 

with networks that specified the fee the network would receive for

 

each household that received the channel. The local affiliates of that

 

MSO marketed and distributed the service to consumers in all the local

 

markets for which they held a franchise. For TFC, this negotiated

 

subscriber fee averaged $1.00 per subscriber per year. The fee was

 

paid entirely on the basis of carriage and did not go up or down as

 

viewership changed. The TFC fee was at the low end of the industry

 

range, reflecting the specialty niche content of the network. ESPN, and

 

other networks that appealed to large numbers of households, charged

 

the highest fees. Wheeler knew that the cable operators and affiliates

 

carefully monitored customer satisfaction with network offerings and

 

would threaten to drop unpopular channels. There were case studies of

 

networks causing viewer outcry from unpopular changes.

 

Consequently, it was important for TFC to maintain its general

 

satisfaction level and keep the affiliates happy. Because TFC was

 

widely distributed there was not much upside in affiliate revenue,

 

though, and the general goal for both parties was to maintain a good

 

equilibrium.

 

Wheeler closed the slide deck entirely. As far as cable affiliate revenue

 

went, there wasn?t much to be done, she thought. The network had

 

already achieved virtually full penetration of available cable

 

households and there was limited opportunity to raise fees. Wheeler

 

knew that the two key levers to drive revenue growth would be (1) increased viewership (ratings), and

 

(2) increased advertising pricing.

 

She pulled out a legal pad and wrote: ?Deliver quality audiences, as

 

demanded by advertisers? across the top in large print. Competitive Threats

 

The phone rang, breaking her concentration. ?Dana,? boomed Norm

 

Frazier. ?I?m running to a client meeting but just wanted to connect

 

with you. I wanted to say, in the meeting next week, I hope we?ll be

 

able to talk about how to pitch TFC against the new fashion content on

 

CNN and Lifetime. Lifetime is taking away a lot of ad buys from me

 

because they?re attracting younger female demographics. CNN is

 

starting to deliver some great numbers on men. Both of these

 

segments can be sold for a premium CPM, so we need to do something

 

to draw these viewer groups back. If you want to talk before the

 

meeting, just let me know.?

 

Wheeler shook her head, understanding his impatience, but frustrated

 

just the same. Still, this might be an opportunity to build consensus.

 

?I?m on it, Norm. And thank you for the offer. I might take you up on it.

 

My goal is to be able to come out of next week?s meeting ready to take

 

action immediately.? They hung up, and Wheeler turned once again to

 

her notepad, jotting down key points about the competitive landscape.

 

She picked up a folder and pulled out a summary of a recent Alpha

 

research study on customer satisfaction with cable networks. The

 

study showed that TFC was facing additional competitive challenges in

 

its attractiveness to cable affiliates. On a scale of 1 to 5 (with 5 being

 

the highest possible score), TFC had achieved a 3.8 rating on consumer

 

interest in viewing, while the two competitors with new fashion

 

programming had scored higher: CNN had scored 4.3 and Lifetime a

 

4.5 On awareness, TFC had scored 4.1 while CNN scored 4.6 and

 

Lifetime a 4.5. On perceived value TFC was at 3.7, CNN

 

4.1andLifetime4.4.4

 

Cableoperatorsusedthesedatatodeterminehowmuchtopayforeachnetwo

 

rk, and also where they would include the network in their consumer

 

offerings. The cable operator needed to offer service packages (often

 

called tiers) that would appeal to the home consumer and would justify

 

the monthly cable fee. If a network underperformed the averages, it risked being offered in less appealing packages, which could mean it

 

would be seen in fewer households.

 

While TFC had generally scored above the midpoint, these data

 

suggested that it was lagging two key networks that were now offering

 

competitive programming. To Wheeler this indicated a need for

 

marketing initiatives to improve consumer interest, awareness, and

 

perceived value. Change would upset some viewers who liked the

 

network?s current programs and probably some TFC employees as well,

 

but change would have to come.

 

She thought back to her final interviews with Jared Thomas, before he

 

had offered her the position at TFC. ?TFC can win in the market if the

 

channel builds its marketing programs around the right consumer

 

segmentation,? she had told him. ?First, you have to identify the

 

customer groups that are most worth the effort to pursue. You can use

 

market research not only for demographic data but also to study

 

consumer behavior and attitudes?how viewers use the network, what

 

they value, and what needs they have.

 

?It?s likely that there?s a core group willing to become very loyal to our

 

network. These viewers have an emotional connection to TFC. We can

 

find them and market to them so that we have the building blocks to

 

create the brand loyalty that is hard for a competitor to take away.?

 

Thomas had agreed, but confessed to being worried about viewers?

 

fickleness. ?It?s easy to spend a fortune pursuing viewers who won?t

 

stay with you,? he had cautioned. ?There?s an obvious risk in targeting

 

only some of our customers. Some viewers could quit watching us and

 

our ratings would decline.?

 

She wondered what the management team would say when she

 

presented her research and recommendations. They?d been at the

 

network for several years and been buoyed by the growth that had

 

been achieved with the something-for-everyone strategy. She expected

 

there would be concern about doing anything that put revenue at risk,

 

even in the short term. Attitudinal Research Findings

 

Wheeler flipped open another folder on her desk to review the most

 

recent consumer research reports that she?d commissioned. She removed two documents, which contained the highlights of a national

 

consumer field study that had been completed in the previous month

 

(Exhibit 2) by GFE Associates, a well-regarded market research firm.

 

The researchers had asked a national panel of consumers more than

 

100 questions about their attitudes toward fashion and TFC as a way to

 

understand the needs that the network served.

 

Attached to the data highlights was a second document (Exhibit 3)

 

which GFE Associates had prepared compiling the results into

 

attitudinal clusters. To create these clusters they had run the answers

 

to all 100 questions through a sophisticated statistical correlation

 

program to analyze patterns in the way consumers had answered. GFE

 

Associates then constructed profiles for clusters of consumers who had

 

common attitudes and needs. The report suggested four unique groups

 

of viewers: Fashionistas, Planners & Shoppers, Situationalists, and

 

Basics. While the segments varied in size, Wheeler quickly noticed that

 

the smallest?the Fashionistas?had a high degree of interest in

 

fashion. Wheeler also perceived several possible multi-cluster

 

schemes, each of which would need to be judged according to

 

? How the scheme would impact the quantity of viewers (ratings);

 

? What the CPM advertising revenue potential would be;

 

? How TFC could be differentiated from current and future competition.

 

Most of the male interest occurred in the Basics cluster?the least likely

 

to be engaged with TFC content. Wheeler had already concluded that

 

it would be unwise to pursue additional male viewers only. Instead, she

 

felt, TFC segmentation and positioning should be targeted at women,

 

particularly the premium 18-to-34 year-old demographic. She turned to

 

a summary of the research on women. Since there were women aged

 

18 to 34 in all of the clusters, Wheeler first considered maintaining a

 

broad appeal to a cross segment of Fashionistas, Planners & Shoppers,

 

and Situationalists. By investing in a major marketing and advertising

 

campaign as well as programming, it would be reasonable to expect

 

that awareness and viewing of the channel would go up and could,

 

over time, deliver a ratings boost of 20% (from the current 1.0 to 1.2).

 

However, Ad Sales was forecasting a 10% drop in CPM to $1.80 if the

 

current audience mix stayed the same? and a broad multi-cluster

 

strategy might not deliver an audience different enough to avoid that

 

fate. And there was always the risk that the competition would continue to

 

penetrate the premium segments and further erode TFC?s pricing

 

ability. An alternative to a broad, multi-segment approach would be to

 

focus more on the Fashionistas. This segment was strong in the highly

 

valued 18-34 female demographic. It was smaller than the other

 

segments, representing only 15% of households, and so targeting them

 

might lead to a drop in viewers?but it would also strengthen the value

 

of the audience to advertisers, with a likely increase in CPM. Wheeler

 

estimated that this strategy could deliver a rating of 0.8. Ad Sales had

 

given her a projection of a $3.50 CPM for an audience stronger in the

 

younger, female-oriented Fashionista segment. In addition to targeting

 

this segment in marketing programs, Wheeler expected that it would

 

be necessary to invest in new programming to attract and retain the

 

interest of this segment. She estimated that she would need to spend

 

an additional $15 million per year on programming under this scenario.

 

Wheeler was also interested in a third alternative scenario that

 

targeted two segments?the Fashionistas and the Shoppers/Planners.

 

She estimated that a dual targeting would drive average ratings over

 

time to 1.2 with a potential CPM of $2.50. For this scenario she would

 

need to spend an additional $20 million on programming to ensure that

 

there were selections aimed at both segments. Wheeler knew that her

 

recommendation would have to show how her plan would increase TFC

 

revenue and also quantify risks if the plan disappointed. She had

 

created a revenue calculator spreadsheet to calculate the impact of

 

ratings and CPM increases on potential TFC ad revenues (Exhibit 4).

 

Now she opened up a new worksheet and prepared to look at the

 

financial impact of these choices (see Exhibit 5 for TFC 2006 and

 

2007 estimated financial statements). She would need to be prepared

 

for many questions from Thomas and the other members of the

 

leadership team. While everyone was aware of the changing

 

competitive landscape, they really had not yet faced a decision about

 

making real changes in order to stay ahead. Dana expected a vigorous

 

discussion.

 


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