The Fashion Channel

Background

The Fashion Channel (TFC) was a successful cable TV network- and the only network solely dedicated

to fashion, with up-to-date and entertaining features and information broadcast 24 hours per day, 7

days per week. Founded in 1996 it had experienced constant revenue and profit growth. Revenues

for 2006 were forecast at $310.6 MN. The channel was one of the most widely available niche

networks reaching almost 80 MN households. From the beginning its founder Jared Thomas believed

that its marketing message should appeal to as broad as group as possible. The network had chosen

“Fashion for everyone” as its theme for the marketing program.

However in 2006 other networks took note of TFC success and started adding fashion related

programs in their line-ups that prompted Thomas to rethink his approach to marketing. He told his

senior team: “it’s time for us to build a modern brand strategy and secure TFC position as the market

leader”. Still he and his senior leaders felt urge to resist change-“Why break something that isn’t

broken?”

Data Wheeler joined TFC in July 2006 as VP-marketing for TFC. She had strong background in

marketing packaged products as well as in advertising industry. She was now getting ready to

present new segmentation and positioning strategy scheduled next week.

Frazier, VP of advertising sales, had warned in today’s sales forecast meeting that TFC might need to

drop the price for a unit of advertising next year by 10% if the network did not make changes in its

performance. He said both Lifetime and CNN had launched fashion specific programming blocks that

were achieving notable ratings (Exhibit 1). Wheeler knew 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. She 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, if the network

changed its offerings in a way that disappointed too many cable subscribers, it could risk losing its

distribution support.

The popularity of TFC was measured by “ratings” that represented the percentage of TV household

watching on during a measured viewing period. Across the entire schedule TFC average rating was

1.0. With 110 MN TV households in US, this meant on an average 1.1MN were watching TFC. TFC Ad

sales team sold access to these viewers via advertising spots (30 or 60 seconds in length) to

consumer marketers such as cosmetics, cloting designers and Auto manufacturers. There were

usually 6 min of national ad time in each hald hour programming, 24 hrs/day for a total of 2016

min/week. Competition for ad revenue was always fierce across all networks. The strong fashion

programming blocks on Lifetime and CNN represented a double edged competitive challenge.

Revenue Model

The network based ad unit prices on several factors which advertisers also monitored. These

included number of viewers (rating), the audience characterisitics (age, demographics and lifestyle)

and general competitive trend. Prices were expressed as CPM (Cost Per Mille- a roman numeral for

1000). It represented price that advertisers would pay for an impression or moment of viewing.

CPM = cost / (target audience / 1,000). Ad revenue/spot=Households X rating / (1000 X CPM). Thus

To determine CPM you divide the cost of advertising by total number of people reached by the

advertisement (in thousands) . If a radio commercial costs $100 and reaches 50,000 people your

CPM would be $2.

Cable affiliate fees which were on track to bring $80 MN were the second revenue source for TFC.

Most US households subscribed to cable through local affiliates of large cable operators such as

Time warner, Cox, Comcast and Cablevisions. Consumers paid monthly fee for basic lineup and

incremental fees for premium channels and on demand programming. TFC was positioned as basic

channel so most consumers received it automaticaaly when they signed up for basic cable service.

TFC received $1/subscriber/year which was at the low end of the industry. It was based on Carriage

and did not vary with change of viewership. The cable operators monitored the customer

satisfaction and could threaten to drop unpopular channels.

Recent Alpha research indicated these figures for on a scale of 1 (low) to 5 (Very high):

Channel TFC CNN Lifetime

consumer interest in viewing 3.8 4.3 4.5

Awareness 4.1 4.6 4.5

Perceived value 3.7 4.1 4.4

Cable operated monitored these data to determine how much to pay for each network. To Dana this

indicated a need for marketing initiatives to improve consumer interest, wareness and perceived

value.

Attitudinal research findings

Wheeler had commissioned a MR from professional Research organization that was completed last

month. The responses are suumarised in Exhibit 2. The researcher also prepared Exhibit 3 compiling

the results into attitudinal clusters.

Dana’s options

Dana felt women in age group of 18-34 would be most interested in TFC programs. As there were

women aged 18-34 in all the clusters, she first considered maintaing a broad apeal to cross segment

Of Fashionistas, Planners & Shoppers and Situationalists. By investing in a major marketing and

adverising campaign a boost of 20% in rating could be expected. However Ad sales was forecasting a

10% drop in CPM to $1.8 if the current audience mix remained the same. There was also the risk that

competition would continue to penetrate the premium segments and further erode TFC pricing

ability.

An alternative to this approach would be to focuss more on the Fashionistas. This segment was

strong in highly valued 18-34 female demographics. It was smallest representing only 15% of

households but it would alsso strengthen the value of the audience to the advertisers. Dana

estimated that this strategy could deliver rating of 0.8. Ad Sales had given her a projection of $3.5

CPM for an audience stronger younger, female oriented Fashionista segment. She estimated that

she would need to spend an additional $ 15 MN per year for programming under this scenario.

Dana was also interested in a third alternative scenario that targeted two segments-the fashionistas

and the Shppers/Planners. She estimated that the dual targeting would drive average rating to 1.2

with a potential CPM of $2.5. She estimated that she would need to spend an additional $ 20 MN

per year for programming under this scenario.

Dana knew that her recommendations would have to show how her plan would increase TFC

revenue and also quantify risks if the plan disappointed. She had created spreadsheet to calculate

impact of rating and potential CPM on ad revenue (Exhibit 4) and their financial impact (Exhibit 5).

Exhibit 1: Viewer demographics and Competitor Comaprison

All TV Viewers TFC Lifetime:Fashion Today CNN:Fashion Tonight

Time period 24 x 7 24 x 7 M-F 9-11PM M-F, 8-9PM

Sat, Sun, 10-11PM

Male 49% 39% 37% 45%

Female 51% 61% 63% 55%

18-34 30% 33% 43% 27%

35-54 41% 45% 42% 40%

54-74 21% 20% 14% 26%

Income > $100K 16% 18% 19% 17%

Average rating NA 1.0 3.0 4.0

Program profile All Fashion news,

features & info.

Fashion news and info. Fashion news/ features

with celebrity focus

Exhibit:3 Analysis of Attitudinal clusters in US TV household for TFC

Cluster Involvement in

fashion

Size of cluster

(% HH)

Index: Interest in

Fashion on TV

(100=all viewer

average)

Demographic

highlights

Attitude drivers

Fashionistas Highly engaged in

fashion

15% 140 Female 61%

Income >

$100K, 30%; 18-

34,50%

Anticipate trends

stay uptodate

Think a lot about

fashion

Enjoy Shopping

Develop fashion

expertise to share

Fashion is entertaining

Planners &

Shoppers

Participate in

fashion on a

regular basis

35% 110 Female 53%.

18-34, 25%

stay uptodate

Enjoy Shopping

Fashion is practical

Interest in value

Situationalist Participate in

fashion for

specific needs

30% 105 Female 50%

Children HH

45%, 18-34,

30%

Enjoy shopping for

specific needs

Think about fashipn for

specific situations

Fashion is both

entertaining and

practical

Interested in value

Basics Disengaged 20% 50 Female 45%

Male 55%

Do not enjoy shopping

Do not spend much time

thinking what to wear

Interested in value

This case has been adapted by Satish Duryodhan from The Fashion Channel Wendy Stahl HBS