Case Study: The Fashion Channel 1. Define the segmentation scenarios considered by Dana Wheeler and discuss the pros and cons of each scenario. In the HBS Fashion Channel case, Dana Wheeler considered 3 different market segmentation scenarios. Various market research firms had divided viewers into 4 distinct groups: “Fashionistas”, “Planners and Shoppers”, “Situationalists”, and “Basics”. These four groups were comprised of a mix of consumers with a plethora of demographics, all with specific desires, interest in fashion, and values.
To survive against new competitors such as CNN and Lifetime, Wheeler needed to choose a segmentation strategy that would increase network ratings, generate loyal fans for TFC, and attract viewers that were highly valued by advertising agencies. Scenario 1: Broad Based Multi-Segment Strategy The first scenario examined by Dana Wheeler would essentially maintain the status quo at The Fashion Channel (TFC). Wheeler considered a “multi-cluster” approach that would target a broad cross segment of Fashionistas, Planners and Shoppers, and Situationalists.
This segmentation scenario intends to reach the largest audience and appeal to as many people as possible, similar to an undifferentiated targeting approach. Pros: * Cheapest scenario because of easy implementation. There is no need to develop new programming. * Sticks with old marketing approach, which had caused TFC to grow so quickly in the past and become popular in its early years. * Keeps executives calm – Why fix something that “isn’t broken”. * Hits the target market of valuable 18-34 year old females in all clusters (Fashionista, Planners and Shoppers, and Situationalists). Will not drive any existing loyal viewers away because not much will change. Cons: * Luke-warm approach – by attempting to satisfy everyone, TFC will satisfy no one * Risk losing viewers too more targeted programs like CNN and Lifetime. * Devastating long term consequences because of failure to attract new loyal consumers * Fails to prevent 10% drop in CPM projected by Ad Sales – TFC will continue to spiral downward * Does nothing to specifically appeal to valuable groups such as Fashionistas who have a high interest in fashion * Lack of new programs may cause TFC to appear dated and out of touch with new trends
Scenario 2: Concentrated Single Segment Strategy In scenario 2, Wheeler considers segmenting TFC according to purely the Fashionistas. It is a narrow psychographic segmentation approach. Pros: * The Fashionista segment is saturated with valuable 18-34 year old females. * Penetrating a valuable advertising audience will increase CPM drastically. * The segment places lots of interest in fashion making them more loyal to fashion programming. * Potential to take back viewers who have transferred to CNN and Lifetime. * Homogeneous segment with similar values, attitudes, and desired benefits.
Cons: * Only represent 15% of households – this strategy would decrease viewership * Potential sustainability problem because the segment is much smaller than before. * Costly – TFC must invest in new programming which will cost $15 million. * Ruffles the feathers of executives who are skeptical of change. Scenario 3: Dual Segmentation Strategy This 3rd and final scenario attempts to concentrate on both the Fashionistas and the Planners and Shoppers. It is essentially middle ground between 2 extremes, yet it still maintains focus and re-vamps TFC. Pros: Attracts a large portion of the most valuable group of consumer – females age 18-34. * Less decrease in viewer numbers than with Scenario 2. * Drives up both ratings and CPM. * Both Fashionistas and Planners and Shoppers are potentially loyal viewers. * Both groups have similar values, attitudes and desired benefits. Cons: * Most costly to implement – New programs cost $20 million. * Must stay on top of trends and latest fashion to satisfy both groups. * May upset executives who are comfortable with the status quo. * Smaller audience than broad approach. 2. What is the expected financial outcome of each targeting scenario?
Scenario #1 produced the lowest advertising revenue, total revenue, and net income for TFC. In this scenario: Ad Revenue = $249,080,832, Total Revenue = $330,680,832, and Net Income = $94,908,407. Scenario #2 outperformed the former with the following results: Ad Revenue = $322,882,560, Total Revenue = $404,482,560, and Net Income = $151,496,083. However, Scenario #3 was most successful with Ad Revenue = $345,945,600, Total Revenue = $427,545,600, and Net Income = $168,867,232. Thus, the implementation of Scenario #3, increases Net Income by $75,155,744 compared to 2006. 3.
Based on your analysis, make a final recommendation to Dana Wheeler. What segment(s) should the Fashion channel target? Why? Based on the financial calculations, Dana Wheeler should choose segmentation strategy number three. While this strategy has large up front expenses due to the necessary program development, the reward is the greatest. Scenario 3 essentially combines the pros from Scenarios 1 and 2, and simultaneously eliminates a number of the cons. Not only does the final strategy contribute the largest amount of net income this year, at $168, 867, 232 it also creates the most sustainable and long lasting strategy.
TFC needs to both tap into valuable market demographic groups such as 18-34 year old females, and develop a loyal consumer base. Despite the broad appeal of scenario 1, it fails to attract loyal consumers. The audience in scenario 1 is “fickle”, and quick to give up on TFC in favor of other programs on other channels. While it is a cheap and convenient choice, if it is chosen, TFC will simply see more of the same, viewer satisfaction rating declining, interest of advertisers fading, and revenues dropping. Scenario 2 allows TFC to concentrate on satisfying valuable young female views, and would certainly target viewers who love fashion.
However, despite the potentially loyal viewers, the segment size is just too small to be sustainable. Although the CPM value for the Fashionista segment is the highest of all at $3. 50, the significant decline in average viewership makes it difficult for TFC to make up for lost ground. Finally, Scenario 3, as stressed before, delivers an ideal segment. With the combination of Fashionistas and Planner-Shoppers, TFC can target not only a mix of viewers who are likely to become loyal to the channel, but also synch itself with the 18-34 year old female population that advertisers desire so much.
Thus, despite the steep costs of developing new programs ($20,000,000), Scenario 3 still produces both the highest net income, and the highest margin at 39%. Undoubtedly, Scenario 3 is the wise choice for TFC. *** This essay is the work of Kenneth Patricia who is the author and owner. I have uploaded this work for educational purposes ONLY. I do not authorize any party to copy or otherwise claim ownership of this work as their own***