THE FASHION CHANNEL

Market Segmentation and Targeting

MK-1 Assignment


Quantitative and Qualitative Analysis of three strategy options for TFC: a broad
multi segment approach, a focused one segment approach and a two segment
strategic approach.

[Year]


GROUP NO. 9 .

Anuja Bhargava (2012PGP055)
Ganeshprasad Arote (2012PGP113)
Mayur Macharla (2012PGP192)
Prakarsh Aren (2012PGP263)
Saurish Suhas Jagdale (2012PGP343)
Vikalp Kumar Nigam (2012PGP436)



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Contents

A. Background ..................................................................................................................................... 3
B. Analysis ........................................................................................................................................... 4
1. SWOT Analysis ......................................................................................................................... 4
2. Qualitative Analysis of three Strategy options ....................................................................... 5
3. Quantitative Analysis of three Strategy options ..................................................................... 6
C. Decision ........................................................................................................................................... 7


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A. Background
The Fashion Channel is a 24/7 cable TV network which exclusively serves a fashion interested
audience. Since its founding in 1996, TFC has experienced a steady revenue and profit growth above
industry average. Although TFC is still the only pure fashion channel, new entrants in the fashion
segment like CNN and Lifetime have increased competition and threatened its market share,
because of this, Dana Wheeler, the senior vice president of marketing, has been chosen to develop a
modern brand strategy. To convince management of the strategic change she developed three
Strategy Options: a broad multi segment approach, a focused one segment approach, and a two
segment strategic approach.
I. Broad multi segment approach: The first strategy option provided a special focus on women
aged 18-34 with the target clusters as Fashionistas, Planners & Shoppers and Situationalists.
II. Focused one segment approach: The second strategy option identified offers a narrow
strategic approach exclusively focusing on Fashionistas. Although this cluster only accounts
for 15% of the accessible households, it is most valuable to advertisers.
III. Two segment strategic approach: The third strategy option targeted two segments; the
Fashionistas and the Shoppers & Planners.
Regardless of which strategy option will be chosen, TFC is in need to actively defend and increase its
current market share, reputation and awareness in order to stay competitive and profitable.
Although it was quite popular among its viewers the competition was able to gain remarkable
numbers and satisfaction rates recently.
So far, TFC relied on its competitive advantage as the only exclusive fashion so occupying a niche
market. Strategies and advertising were not based on actual research but on supposed knowledge
and assumptions of the market and the demand.













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B. Analysis
1. SWOT Analysis
STRENGTHS:
Only Exclusive TV network dedicated to fashion
24x7 broadcasting
Operating in a niche market
Accessibility: HIGH (accessible to all cable
customers)
Attractive for advertisers; because of:
Large no. of subscribers
Low advertising fee
WEAKNESSES:
Poor market research
Segmentation: POOR
Target Audience: POOR
Advertisers are not able to attract a
particular target group or cluster through
TFC, resulting in less than expected ad
revenues.
Reluctance to make drastic changes, it, in
turn, hinders them so far from
developments.

OPPORTUNITIES:
New focused advertising strategy
Better segmentation
Targeting the viewers of certain clusters and
age groups will increase advertising revenue
and profit margin.
Identifying the prime, most valuable consumer
groups will bring huge profits.
THREATS:
Increased competition
Lack of reputation and awareness resulting
in loss of market share, advertising
revenues and audience.
Cable operators might consider offering TFC
in less appealing packages thereby losing its
broad audience.
Change might upset current audience and
employees.

According to the SWOT analysis, TFCs competitive advantage will not be sustainable as already
other fashion programmes from different players are eroding its market share and showing higher
audience awareness. In order to sustain in this environment, the company has to develop and renew
its strategy and introduce a segmentation approach, targeting more profitable consumers and
specific age groups.









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2. Qualitative Analysis of three Strategy options

Strategy Option I: Broad multi segment approach
Pros Cons
Reduced risk as approach is consistent with
company mission (Fashion for everyone) and
past strategic approaches
No additional programming costs
1.0 to 1.2 increase in ratings
Less expected internal and external
reluctance due to minimal changes
10% drop in CPM to 1.8
Continued loss of market share due to strong
competition
Loss of advertising revenues
No strategic improvement or development,
lack of focus

Strategy Option II: Focused one segment approach
Pros Cons
Strengthen the value of audience to
advertisers as it appeals to a specific
segment (Income > 100K)

Increased CPM up to $ 3.50

High focus, unique niche strategy
Most competitive segment



Risk to lose loyal audience

Smallest cluster, less audience
Additional programming costs of $ 15 Million
Drop in rating from 1.0 to 0.8
Lack of strategy-company fit (fashion for
everyone)

Strategy Option III: Two segment strategic approach
Pros Cons
Increase in rating from 1.0 to 1.2
Growth in CPM to $ 2.50
Low Risk as focus is not as narrow as in
strategy option 2
Companys past mission is still feasible to
retain, i.e. fashion for everyone
Higher programming expenses of additional
$ 20 Million








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3. Quantitative Analysis of three Strategy options
Current 2007 Base Strategy Option 1 Strategy Option 2 Strategy Option 3
TV HH
11,00,00,000 11,00,00,000 11,00,00,000 11,00,00,000 11,00,00,000
Average Rating
1.0% 1.0% 1.2% 0.8% 1.2%
Average Viewers
(Thousand)
1100 1100 1320 880 1320
Average CPM
$2.00 $1.80 $1.80 $3.50 $2.50
Average Revenue
Per Ad Minute
$2,200 $1,980 $2,376 $3,080 $3,300
Ad Minutes/Week
2016 2016 2016 2016 2016
Weeks/Year
52 52 52 52 52
Ad Revenue/Year
$23,06,30,400 $20,75,67,360 $24,90,80,832 $32,28,82,560 $34,59,45,600
Exhibit 4: Ad Revenue Calculator

Exhibit 5:
2006 Actual 2007 Base Strategy Option 1 Strategy Option 2 Strategy Option 3
Revenue
Ad Sales $23,06,30,400 $20,75,67,360 $24,90,80,832 $32,28,82,560 $34,59,45,600
Affiliate Fees $8,00,00,000 $8,16,00,000 $8,16,00,000 $8,16,00,000 $8,16,00,000
Total Revenue $31,06,30,400 $28,91,67,360 $33,06,80,832 $40,44,82,560 $42,75,45,600
Expenses
Cost of Operations $7,00,00,000 $7,21,00,000 $7,21,00,000 $7,21,00,000 $7,21,00,000
Cost of Programming $5,50,00,000 5,50,00,000 $ 5,50,00,000 $ 7,00,00,000 $ 7,50,00,000 $
Ad Sales
Commissions $69,18,912 $62,27,021 $74,72,425 $96,86,477 $1,03,78,368
Marketing
& Advertising $4,50,00,000 $6,00,00,000 $6,00,00,000 $6,00,00,000 $6,00,00,000
SGA $4,00,00,000 $4,12,00,000 $4,12,00,000 $4,12,00,000 $4,12,00,000
Total Expense $21,69,18,912 $23,45,27,021 $23,57,72,425 $25,29,86,477 $25,86,78,368
Net Income $9,37,11,488 $5,46,40,339 $9,49,08,407 $15,14,96,083 $16,88,67,232
Margin 30% 19% 29% 37% 39%

According to the Ad Revenue Calculations,
Strategy Option 3 offers the highest revenue prospects per year. In case this strategy is
selected, revenues are expected to increase by more than 50% in comparison to the current
year.
Though Expenses for Strategy Option 3 are the highest (Exhibit 5) it offers the highest profit
margin (39%) too.
The expected net income when choosing Strategy Option 3 is 80% higher as in the year 2006
and 77.9 % higher as in Strategy Option 1.
Strategy Option 2 is expected to be almost as successful as Strategy Option 3 with a profit
margin of 37%.




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C. Decision
Strategy Option 1 is not viable as this option not only offers the least net income & revenue, it
is disadvantageous as the company would lose audience, awareness and reputation to its main
competitors.
Strategy Option 2, although, offers a higher CPM and its profit margin is only marginally less
than in Strategy Option 3, the concept is entirely too risky. While advertisers might favour this
narrow target market, supervisors and the broad audience would be hard to convince as it alters
the current concept completely.
Strategy Option 3 seems to be the most fitting long-term strategic option Dana can suggest to
her supervisors. Although this strategy does not offer the highest CPM, it generates the highest
profit margin and net income. Strategy Option 3 is not a drastic change to the current strategy
and hence less resistance is expected from supervisors and target audience.