The Fashion Channel - Case Study Example

The Fashion Channel: Case Study The Fashion Channel: Case Study Analysis of the case situation It is evident from the case study written by Wendy Stahl that The Fashion Channel (TFC) is facing the challenge of an operational change. Although the TFC has been successful since its establishment, currently the organization faces the threat of losing its market shares to competitors. Traditionally, the company has been following a strategy of being appealing to a broad group as much as possible in order to improve the number of viewership members maximum. In addition, the company never practiced segmentation, branding, and positioning policies to increase its competitiveness. Encouraged from the success of TFC, networks like Lifetime and CNN have begun to add fashion-related programs to their line-ups. Some recent market surveys indicate that Lifetime and CNN perform better than TFC in terms of customer satisfaction, awareness, and perceived value. According to a recently published Alpha research (as cited in Stahl, 2007) on customer satisfaction with cable networks, TFC achieved a rating of 3.8 (on a scale of 1 to 5) on customer satisfaction whereas CNN scored 4.3 and Lifetime gained 4.5. In terms of awareness, CNN achieved 4.6 and Lifetime a 4.5 while the TFC’s rating was 4.1. In case of perceived value, the scores of TFC, CNN, and Lifetime were respectively 3.7, 4.1, and 4.4 (as cited in Stahl, 2007). Evidently, TFC’s declining performance adversely affected their two major sources of revenues- advertising revenues and cable affiliate fees. In order to strengthen the TFC’s market position and to improve its competitiveness, the organization is currently planning some strategy changes. TFC is mainly thinking of increasing the price for a unit of advertising so as to improve its financial stability. In order to increase or hold the advertisement price, it is essential for the organization to make its network’s content appealing to a critical mass of viewers who in turn would attract advertisers. Analysis of the key alternatives In order to address this market condition, Dana Wheeler, senior vice president of marketing, has framed three alternative solutions. Wheeler developed three key alternatives based on a national consumer field study conducted by GFE Associates. The study identified four unique groups of viewers including Fashionistas, Planners & Shoppers, Situationalists, and Basics. The first alternative is to develop a broad appeal to all these four segments. Wheeler believes that the level of awareness and the channel viewing rates can be improved by investing in a comprehensive marketing and advertising campaign as well as programming. She also suggests that this strategy may assist the organization to boost its ratings by 20% over time. It was identified that Ad Sales might be dropped by 10% if the current audience mix remained to be the same. At the same time, the suggested multi-cluster strategy is not likely to change the structure of the current audience mix. Therefore, this alternative may cause the firm to experience a decline in Ad Sales, which is a major revenue source of the TFC. In addition, this broad policy would not prevent competitors from spreading their business more into premium segments. Consequently, such a situation would worsen the financial position of the TFC. The second alternative is to focus more on the Fashionistas. This segment of viewers is very strong in the highly rated 18-34 female demographic, which is one of the premium segments too. From Exhibit 3, it is clear that Fashionistas are smaller than the other segments, representing only 15% of households. Hence, targeting Fashionistas will probably lead to a decline in the number of viewers. However, Wheeler argues that this audience segment would be greatly valuable to advertisers and this situation in turn may lead to an increase in CPM (cost per thousand). Wheeler predicts that although this strategy may reduce the firm’s rating to 0.8, Ad Sales would bring a $3.50 CPM for this stronger audience segment. She also requires investments in new programming to attract and retain the interests of this premium segment. Wheeler estimated that the company needs to invest an additional $15 million per year in programming as per this alternative. The third alternative is to target two segments: the Fashionistas and the Shoppers/Planners. Wheeler claims that this dual targeting strategy may benefit the organization to increase “average ratings over time to 1.2 with a potential CPM of $2.50” (Stahl, 2007). She specially states that under this scenario, the company would need to invest an additional $20 million in programming so as to ensure that the network’s content addresses the needs of both segments. Recommendations for specific action It is recommendable for the TFC to choose the third scenario (targeting on both Fashionistas and Shoppers/Planners). In order to justify the selection of this option, it is vital to see the TFC’s Estimated Financials for 2006 and 2007 (Exhibit 5). From this report, it is clear that this option would assist the TFC to increase its total revenues to $427,545,600 and net income to $168,867,232. Obviously, both the other options are not potential to strengthen the firm’s financial soundness to this level. Through this strategic change, the organization mainly plans to improve its Ad Sales. While analyzing the Exhibit 5, it seems that the firm’s Ad Sales would be increased to $345,945,600 under the Scenario 3 whereas it would be $249,080,832 and $322,882,560 respectively under scenario 1 and scenario 2. In this regard, the scenario 3 provides TFC with the most feasible option. It seems that the affiliate fees remain unchanged in all the three scenarios. Although the third alternative causes the firm to raise its total expenses, such financial challenges would be outweighed by the increase in total revenues. It is also identified that this option may be helpful for the firm to improve its net income margin by 39% while the first and second options offer an increase in net income margin by only 29% and 37% respectively (Exhibit 5). In short, the scenario 3 would be greatly beneficial for the TFC to improve its competitive position in the market and to stop losing market shares to competitors. Furthermore, this option would improve the organization’s financial performance in the long run. References Stahl, W. (2007). The Fashion Channel. Harvard Business School. Brief cases. Read More