Week 5: The Fashion Channel Case

This week I am going to apply what I have learned about the STDP on The Fashion Channel (TFC) case.

I’ve started working on the case during the winter break. The TFC slide deck from Prof. Talbott provides very helpful guidance for the case study.

The purpose of this case study is to recommend new segmentation and positioning strategy for TFC. TFC’s marketing approach has been “Fashion for Everyone”, i.e. no segmentation. The company had been highly successful to date since it was a widely available niche network. However, when other big players such as CNN and Lifetime enter the market, TFC suffers some market loss. If TFC wants to secure its position as the market leader, it needs to rethink about its segmentation and positioning strategy.

I investigate the pros and cons of the various segmentation strategies and discuss this with the team. The goal of the TFC is to create strong brand value to protect current and future ad revenues. So the TFC should use segmentation to build brand value. Although focusing on specific segment could risk losing some of current viewers, the TFC could compensate for losses by increasing achieving audiences in the targeted segments and achieving higher CPM.  

Considering financial implications of the TFC, I find that three quarter of the TFC revenue comes from ad revenue and segmentation could increase the ad revenue by around 60%. Although segmentation approaches incur higher expenses, they achieve about three times the net income of the base. In term of margin, segmentation approaches would lead to higher margin than that in 2006, while the broad approaches achieve lower margin. Performing sensitivity analysis, I find that the net income and margin are sensitive to change in average rating and CPM. The impact of a change in incremental programming expense, on the other hand, is insignificant. For 10% change, the low net income of segmentation approaches is still higher than the high income of a broad approach. Also, the margins of the two segmentation approaches (scenarios 2 and 3) are in about the same range.

After considering pros and cons and financial implications, I agree with my team that we should recommend TFC to target the fashionista segment (scenario 2). The TFC has a distinct competitive advantage with the fashionistas since it is the only full time fashion network available. So focusing on developing high quality programming targeted at fashionistas will deliver higher ad revenue and income. This would also enable TFC to build on its currently outstanding reputation and position of fashion programming leadership to propel the company into a sustainably differentiated position.