Interpretation of consumer and market data

Interpretation of consumer and market data.

From its inception in 1996 until recently, The Fashion Channel (TFC) enjoyed great success by appealing to as a broad an audience as possible. Overall viewer numbers were the main focus, and so long as TFC had no significant competition in terms of the fashion-specific content it offered, this “something for everyone” approach was a winner.

But competitors such as CNN and Lifetime made note of TFC’s success. They began to offer fashion-specific programming. Consumers now have a choice, and the ratings show that non-loyal consumers are starting to choose alternatives to TFC. Reasons for this can be found in the recent Alpha research study on customer satisfaction, which shows that when it comes to consumer interest, awareness and perceived value, both CNN and Lifetime outscore TFC. TFC’s 2 main revenue streams—cable affiliate fees and advertising—are threatened by the attraction of CNN’s and Lifetime’s fashion programming to an audience formally exclusive to TFC, and the inability of TFC currently to adequately differentiate itself from its competitors.

So who are TFC’s viewers? A detailed demographic breakdown shows a 39%-61% split in favor of women, with 33% of viewers aged 18-34 and 45% aged 35-54. A survey of consumers by GFE Associates identifies four groups that make up potential viewers: Fashionistas (the fashion devoted, who comprise 18% of those surveyed); Planners and Shoppers (enjoyers of fashion, 35%); Situationalists (occasionally interested in fashion for specific purposes, 30%) and Basics (generally uninterested in fashion, 20%). Attitudinal research by GFE indicates that male consumers tend to fall into the Basics group, while 61% of Fashionistas are women. Also, 50% of Fashionistas are aged 18 to 34—a demographic highly desirable to advertisers.

2. What is the expected outcome of each of the targeting scenarios?

TFC’s senior vice president of marketing, Dana Wheeler, believes increasing both viewership (ratings) and advertisingpricing would increase the advertising revenue that the company was seeking. She developed three different scenarios to mix their most popular viewing segments and the expected results it would have on advertising pricing (CPM).

The first scenario would target the Fashionistas, the Shoppers/Planners and the Situationalists. This would create a broader marketing base, but miss the primary group that advertisers are seeking. Based on this scenario, the viewership could increase over time from 1.0% to 1.2%, while the average CPM would decrease from $2.00 to$1.80 (see Exhibit 4). Overall, this scenario would generate an increase in advertising revenue of 8% from 2006 revenues to $249 million.

Scenario #2 narrows the focus on the Fashionistas, preferred by advertisers. In this scenario, the average viewership rating would drop from 1.0% to .8% due to the narrow focus, but the CPM would increase dramatically from $2.00 to $3.50 resulting in an increase of 40% in advertising revenue or roughly $92 million (see Exhibit 4). This scenario would also require and additional programming cost of $15 million per year, but given the additional revenue it would generate, the investment seems like a good one to make.

Finally, the third approach focuses on both the Fashionistas and the Shoppers/Planners segments. This dual approach would increase viewership form 1.0% to 1.20% and increase CPM from $2.00 to $2.50(see Exhibit 4). By using this approach TFC would increase the advertising revenue by 50% or over $115 million. This approach would also require an additional investment in programming costs of $20 million.

Each of these scenarios would increase the net income from the $93 million generated in 2006 (see Exhibit 5). Scenario #1 would generate almost $95 million in net income and has the most general appeal for all viewers, but it does not emphasize the segment that advertisings want to target resulting in a decrease in CPM. The net income of $151 million generated in scenario #2 targets the advertisers’ most sought after market segment and increases the CPM significantly, but it also reduces overall viewership and decreases ratings. The balance comes with scenario #3 which increases viewership and increases CPM resulting in $168 million in net income.

3. Develop a factual analysis

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