Is it possible have the answer for the first question please?
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
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
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
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
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
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
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
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
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