“The Fashion Channel” which is a successful cable TV network and which had been started by two entrepreneurs in 1996, with up to date and entertainment features and information broadcast 24×7 which was related to fashion only.
The channel was actually dedicated to fashion only and its main audience were women of 35-54 age group. Earlier TFC’s tagline was “Fashion for Everyone” In 2006 TFC has earned the revenue of $310.6 Mn out of which their target was to earn a profit of $230 Mn only through advertisement. Till 2006 TFC was the market leader in fashion related programs and one of its more popular series in 2005 had been “Look Great on Saturday Night for Under $100.
In 2006 TFC has realized that some of the other channels like CNN and Lifetime are following the footsteps of TFC and also they are telecasting the programs related to the fashion world, which were now started to become more popular in comparison to the programs of TFC. These channels were giving competition to the TFC directly by taking the share of its ad revenue; these channels were giving a double edged competition to TFC.
Norm Frazier, senior vice president of advertising sale, advised that in order to increase the TFC’s ad revenues either TFC has to decrease its ad pricing by 10% or to increase its viewership by improving the quality n contents of the programs.
There were around 110 Mn households in USA with cable network and TFC’s average rating was around 1.0, this meant that on average 1,100,000 people were watching at any point in time. Advertising slots were divided in two slots i.e. of 30 seconds and 60 seconds and There were usually six minutes of national ad time in each half hour of programming, 24 hours per day for a total of 2,016 minutes per week. The network based ad unit prices on several factors, which advertisers also monitored, including the number of viewers , the audience’s characteristics i.e. age, demographics, and lifestyle, and general competitive trends. Prices were expressed as CPM (cost per thousand), which represented the price that an advertiser would pay for an advertisement.
There were two main source of generating revenue for TFC and that was one by ad revenue and another was through cable affiliation fee. Most U.S. households subscribed to cable television through local affiliates of a large cable multi-system operator, multi-system operators (MSO) would sign multi-year contracts with networks that specified the fee the network would receive for each household that received the channel. The local affiliates of that MSO marketed and distributed the service to consumers in all the local markets for which they held a franchise.
There were mainly two kinds of channel were existing and that was premium channel or basic channel and TFC was a basic channel so most consumers received it automatically when they signed up for basic cable service.
CNN and Lifetime were the two biggest threats for the TFC because there ratings were also higher in comparison to TFC. TFC has rating of 1.0 throughout whereas CNN had the rating of 3.3 and Lifetime had 4.4. The study showed that TFC was facing additional competitive challenges in its attractiveness to cable affiliates. On a scale of 1 to 5, TFC had achieved a 3.8 rating on consumer interest in viewing, while the two competitors with new fashion programming had scored higher: CNN had scored 4.3 and Lifetime a 4.5 On awareness, TFC had scored 4.1 while CNN scored 4.6 and Lifetime a 4.5. On perceived value TFC was at 3.7, CNN 4.1 and Lifetime 4.4. This was resulting on their ad revenues also that was the main reason why higher officials of TFC were concerned that others were taking away their market share of ad revenues.
The reason they were found was that they had not segmented their market they were doing it without any detailed segmentation, branding, or positioning strategy.
Now they were thinking to do a proper market segmentation so that they could approach to the right customer with the appropriate information and message. TFC needs to identify the customer groups that are most worth the effort to pursue. Fr that they use market research not only for demographic data but also to study consumer behavior and attitudes—how viewers use the network, what they value, and what needs they have.
For this market research they hired a research company called GFE associates, The researchers had asked a national panel of consumers more than 100 questions about their attitudes toward fashion and TFC as a way to understand the needs that the network served. GFE associates then constructed profiles for clusters of consumers who had common attitudes and needs. The report suggested four unique groups of viewers: Fashionistas, Planners & Shoppers, Situationalists, and Basics.
Now according to the result of this survey , Dana proposed three proposals in front of the CEO, Jared Thomas and then they tried to find out the most suitable option out of these three. These scenarios were like
249080832, $322882560 and $322882560 so from here it is clear that Scenario 3 gives the more revenue and also from Exihibit 5 Net income in case of scenario3 is $283867232 i.e. more than the other two options, so from here also we can derive a conclusion that scenario 3 is the best suitable option for the TFC.