The Fashion Channel case study
TheFashion Channel case study
TheFashion Channel case study
TheFashion Channel was one of the successful cable television stationfounded by two entrepreneurs in 1996. The television channelsbroadcasted up to date entertainment new, features and informationaround the clock, 24 hours 7 days a week. The fashion only cablenetwork television mainly targeted women between the age of 35 and 54years. Earlier, the marketing programs of The Fashion Channel usedthe theme “Fashion for Everyone” with one of the most famoustelevisions program being “Look Great on Saturday Night for Under$100”. The program, which was very famous in 2005 and 2006, madeThe Fashion Channel a market leader in fashion television. As aresult, The Fashion Channel revenues in 2006 reached 300 milliondollars, which was considered to be above the industry averagerevenue. 230 million dollars, out of the 300 million dollars revenuewas attributed to advertisements only. However, the money in thefashion television attracted the attention of other cable televisionnetworks. Thus, in 2006, The Fashion Channel noted that other majorplayers in the industry such as Lifetime and CNN had started focusingon the fashion industry. This meant one thing for The FashionChannel, competition with giant industry players. CNN and Lifetimestarted broadcasting programs on fashion which within a short timebecame popular to the targeted audience compared to The FashionChannel programs. Within their financial might and industryexperience, there is no doubt that their entry ha d huge impact onthe revenues of The Fashion Channel.
Inthe years that followed, The Fashion Channel faced direct and doubleedge competition from the two television networks. Advertisers optedfor the more renowned and highly rated CNN and Lifetime whichnegatively affected The Fashion Channel advertisement revenues. Sinceadvertisement revenues constituted about three quarters of thecompany’s revenue, desperate strategic actions were necessary. As aresult, Norm Frazier, the vice president in charge of advertisementsales proposed that to withstand the intense competition, The FashionChannel needed to reduce their pricing by ten percent. The otheroption was to attract advertisers by increasing viewership throughprograms that had better quality content. By that time, it wasestimated that there were about 110 million household connected tothe cable network in the United States. With an average rating ofabout 1.0, it was estimated that about one million and hundredthousand people were watching The Fashion Channel at any time. TheFashion Channel advertisements mainly targeted consumer’s marketersin the fashion industry such as cosmetic manufacturers, clothingdesigners as well as the motor vehicle industry. The advertisementspots were either 30 second or 60 seconds. The Fashion Channel has ausual 6 minutes advertisement time after every 30 minutes ofprogramming throughout the day. Thus, the advertisement sales teamhad over two thousand minutes a week to sell. In 2006, it isestimated that consumer advertisers in the United States spent about20 billion dollars in cable network advertisements. However, withhundreds of cable network televisions competing for the dollars aswell as viewership, competition was very intense.
Despitethe intense competition, The Fashion Channel remained the only cablenetwork that dedicated its programs to the fashion industry. As aresult, the networked faced a unique competitive dynamic. This isbecause it competed for only a particular clientele of viewers and atthe same time, specific advertisement buyers. As a result, TheFashion Channel competed against a wide range of industry players forthe advertising revenues. While for the case of The Fashion Channel,the advertisement buyers will be interested in the programming in thenetwork, the buyers will be attracted to other networks by thedemographics of the viewers as well as the viewership rating.Additionally, advertisers interested with specific programming willalso be attracted by other fashion oriented programs in othertelevision networks, despite the fact that they are not 24/7 fashionnetworks. For example, both CNN and Lifetime networks had establishedvery popular fashion programs. The success of CNN and Lifetime wasalso likely to attract more players in the fashion programming. Thismeant more competition for The Fashion Channel.
Thepricing of advertisement in the cable network is based on a number offactors. While these factors are determined by the televisionnetwork, the advertisers are very concern about these factors. Someof the major factors that are of interest to both parties include thedemographics and characteristics of the viewers (including age andlifestyle), the number of viewers, which is determined by the networkrating, and the competition trends in the industry. In addition tothe advertisement revenues, the other main source of revenue wascable affiliation fee. However, this accounted for a significantlysmall percent of the total revenue. In the United States, there aremulti-system operators through which households subscribe to cabletelevision. The multi system operators have contracts with televisionnetworks where a specific fee is paid to the channel for everyhousehold connected. The affiliates of the multi system operator areresponsible for marketing and distribution of services to theconsumers locally. A television network channel can either beclassified as premium or basic channel. Basic channel is received byall consumers connected to the cable automatically, while an extrafee is required to access premium channels. The Fashion Channel wasclassified as basic channel and therefore received by consumersautomatically. The Fashion Channel had agreed a fee of one dollar peryear per subscriber with the multi system operator which was notsubject to changes in the viewership. The contact was only based oncarriage. Due to the specialty niche, the subscription fee was in thelower end compared to premium television networks such as ESPN whichgot higher fees from the multi system operators. Additionally, adecline in popularity of a channel risked being dropped by operators.Therefore, despite being a basic channel, it had to remain relevantin the viewership market to retain the affiliation.
Themost important task the management of The Fashion Channel has is todecide whether the targeted clientele is sufficient enough to enablethem retain their share of revenues in the industry. In their newmarketing strategy, the management will be required to select aclient cluster that will result into increased revenue. Otherwise,there is a risk of diminishing revenue due to changes in the marketdynamics. The Fashion Channel management must consider what factorswill have an influence on the rating of the television network. Thisshould be in recognition of the increased competition in the fashiontelevision industry by big players such as CNN and Lifetime.Additionally, to secure the subscription fee revenue, The FashionChannel must maintain a high satisfaction level among multi systemoperators. Otherwise, The Fashion Channel risks being dropped insubsequent years. The senior vice president of marketing, DanaWheeler, noted that The Fashion Channel has two basic levels thatwill influence revenue growth at The Fashion Channel. These levelsare increasing viewership and therefore the overall rating of thechannel and increasing advertisement pricing.
Thebiggest challenge the management at The Fashion Channel had inimplementing the new strategy was increasing viewership and improvingon the rating. Already, The Fashion Channel was ranked relatively lowcompared to its main rivals in the fashion programming, CNN andLifetime. At the time The Fashion Channel has a viewership of about1.1 million viewers at a time (a rating of 1.0) CNN enjoyed aviewership of about 4.4 million households, while Lifetime had aviewership of 3.3 million households. This means that The FashionChannel, perhaps, had a lot of ground to cover to catch up with thecompetition. However, there was a major difference in the time periodof The Fashion Channel programming compared to the two rivals. WhileThe Fashion Channel was a 24/7 fashion channel with only one purpose,fashion, CNN and Lifetime had multiple purposes. They only hadfashion dedicated programs in selected times and days in a week, notexciding five days a week or two hours in a day. There, because ofthe fact that the targeted niche is larger compared to The FashionChannel which has a specific niche, both CNN and Lifetime was betterplaced to capture a larger viewership. The case would be different ifthey were fashion dedicated channels. Despite them posing asignificant competition to The Fashion Channel, direct comparison oftheir rating would give the wrong picture.
Accordingto Frazier, a senior vice president of advertising sales, the intensecompetition in the advertisement sector could force the company toreduce their advertising price to attract more advertisers. This wasdue to the poor performance of The Fashion Channel in terms ofviewers. However, a low pricing in ads will result into decline inrevenue. Therefore, increasing the pricing was the only option themanagement had to grow their revenue. This had to be supported byassuring advertisement buyers value for their money by increasingviewership through high quality programming. The big question is whatdetermines what the advertisement buyers are willing to pay.Advertisement buyers were willing to pay premium cost per thousand ifthey were able to reach a particular clientele. The Fashion Channelmain clientele was women aged 34 to 54 years. In 2006, advertiserswere wiling to pay premium prices for advertisements if they wereable to reach young adult between 18 and 34 years of age, especiallymales. This is because this group provided the largest market forconsumer goods, while older generations are less likely to beinfluenced by television adverts.
Comparedto its competitors, The Fashion Channel was at a consumerdemographics disadvantage. CNN had captured over 45 percent of themale audience while Lifetime had captured a 43 percent of the femaleaudience between the age of 18 and 34 years. The Fashion Channel hadless that forty percent audience in both populations. The perceivedvalues of The Fashion Channel as well as channel awareness andconsumer interest were also important indirect factors that had animpact on advertising revenues. Statistics indicated that the channelwas performance was below its main competitors. The average ratingwas below 4.0 while the average rating of both CNN and Lifetime wereabove 4.0. However, similar to the case of viewership rating, thiscould be as a result of the fact that The Fashion Channel targeted aspecific niche in the market while its competitors’ range ofprogramming is wide. Nonetheless, this had an impact on the revenuesof the channel.
Tocome up with alternatives that would work for the channel in thechanging market dynamics, The Fashion Channel hired the services ofGFE associates to conduct a market research. The main aim of themarket research was to establish the needs of the target market. Themarket research identified four clusters of viewers which includes“Fashionistas, Planners & Shoppers, Situationalists andBasics”. Based on the result of the market research, the DanaWheeler proposed three alternatives, from which the management was tochoose the most suitable option.
Inthe first alternative, The Fashion Channel would adopt a multisegment strategy that is a broad based marketing strategy. Thealternative would target “Fashionistas, Planners & Shoppers andSituationalists” mainly between the age of 18 and 34 years. Thiswould result into a 40 million dollars increase in net income. Theadvantage of this alternative was the fact that it would not resultinto increase in programming cost. The target of a different marketsegment will improve the rating from 1.0 to 1.2. However, the maindisadvantage of the alternative is the likely reduction in the costper thousand (CPM) and thus advertisement pricing since there is nochange in programming. Thus, the competitors will have an advantagein attracting advertisement buyers.
Inthe second alternative, The Fashion Channel would focus on a singlesegment and select the fashionistas segment of the market, femalesbetween 18 and 34 years. However, they will be required to spend 15million dollars on programming that will suit this clientele. Themain strength of this alternative is the fact that the targeted grouphas a strong interest on fashion. This will result into improvementin CPM and thus more advertisement buyers. The main disadvantage ofthis alternative is the relatively small fashionistas segment, thusthe number of viewers will significantly reduce. In the thirdalternative, the channel can focus on product specialization andtarget a due cluster of Fashionistas and Shoppers & Planners. Toimplement the product specialization new programming at a cost of 20million dollars will be necessary. This is the main limitation ofthis alternative. The main strength of dual targeting is theincreased number of viewers and thus rating. The rating will beexpected to increase to a1.2 and consequently an increase in CPM.
Thereis no doubt that The Fashion Channel faces a huge challenge inimplementing a marketing plan that will rejuvenate it performance.The three scenarios can all work for the channel, but the managementshould be very careful to avoid mistakes that could result intosudden death. A careful analysis of the strengths and weakness of thethree alternatives in relation to the case, the third alternative wasthe most appropriate. Dana Wheeler was also convinced that the thirdscenario which has a dual target was the most desirable. First,fashionistas have a stronger interest in fashion and therefore theywill be attracted by the new The Fashion Channel programming.Additionally, they are the main target of majority of consumerproduct companies in the fashion industry. If The Fashion Channel isable to capture this niche, more advertisement buyers will beknocking. On the other hand, the Planners & Shoppers is arelatively large group and therefore will attract viewers in theregular programming. This will have positive impacts on rating of thechannel. The increased viewership will further attract advertisementbuyers. Additionally, the channel will be more satisfying to themulti system operators. Statistics indicates that scenario 3 willresult into the highest revenues that are 283.8 million dollars netrevenue. The two groups targeted in the third alternatives are valuesclusters and thus satisfying them will be an important step towardsresolving the challenges facing The Fashion Channel. If The FashionChannel can capture these important clusters, they can effectivelycome back to the market and assume a leading position in the fashiontelevision. However, it is important to note that by adopting thisalternative, The Fashion Channel is taking a huge risk. It isimportant to note that by the current loyal clients had previouslypropelled the channel to economic breakthrough. By targetingFashionistas and Shoppers & Planners, there is a likelihood thatthe channel will lose its loyal customers. It will be an uphill taskto build brand loyalty among new viewers or recapture previously lostviewers.