Please answer the following questions in no more than 3 pages single spaced or 6 pages double spaced using a 12pt font. Exhibits such as your excel results do not count against the page limit. Please note that the column “2007 base” in the excel spread sheet assumes you do not segment the market. It is critically important that you communicate your reasoning clearly. You MUST NOT talk about the case in depth with anyone else.
1. How would you interpret the consumer and market data if you were Dana Wheeler? Develop a factual analysis of the segmentation options, and evaluate the pros and cons of each.
(1) With the total 110 million TV householders with televisions in the United States, the channel reached nearly 80 million householders that subscribed to cable and satellite television, and women between 35 and 54 years were its most avid viewers. However, these are only general data. For The Fashion Channel, the average viewers are 1.1 million which is much less than 3.3 million of Lifetime and 4.4 million of CNN, two main and strong competitors. Because raise cable affiliate fee will bring wicked effects on consumer satisfaction, the only two key levers to increase revenue would be increase viewership and increase advertising pricing. In addition, the common junction of these two is “deliver quality audiences”, who is willing to become loyal to TFC and also in highly valued to advertisers. According to the GFE Association report which constructed profiles for cluster of consumers who had common attitudes and needs, there are four unique groups of viewers: Fashionistas, Planners & Shoppers, Situationalists, and Basics. Among them the Fashionistas, the segment which was strong in the highly valued 18-34 female demographic, are highly engaged in fashion. It would be wise to pursue consumers who have interests in TFC’s program contents and willing to be very loyal, so this group people would be highly valued consumers to TFC.
(2) The first option is to maintain a broad appeal to a cross segment of Fashionists, Planners & Shoppers, and Situationalists. The pros would be the boosted viewer rating of 20% (from the current 1.0 to 1.2) and avoided incremental programming expense such as advertising. The cons would be the drop of ad sales in CPM to $1.80. Although TFC could keep itself in a stabilized situation with no “break something that isn’t broken”, there was always the risk that the competition would continue to penetrate segments which can be sold for a premium CPM and further erode TFC’s pricing ability. The second option is to alter from a broad to focus more on the Fashionistas. Advantage of this option would be the increase in CPM of $3.50 for an audience stronger in the younger, female-oriented Fashionistas because this segment could be more easily attracted by TFC and means more valuable to advertisers, although this smaller segment (only 15% of households) might lead to a drop in viewers. Besides, it would be needed to invest in new programming and spend an additional $15 million per year, which might be a con of expense under this scenario. The third option is to target two segments – the Fashionistas and the Shoppers & Planners. It could be achieve average rating of viewers to 1.2 with a potential CPM of $2.50, avoiding both less average rating and less CPM. However, it spends much more and nearly additional $20 million on programming. In a word, this option could help TFC drive quality consumer increase but will also raise much more incremental programming expense.
2. What is the expected outcome of each of the targeting scenarios? (Complete both the Ad Revenue and Financial calculators to fully understand the financial impact of the scenarios.)
The first scenario achieve 0.20% increase in average rating but average CPM of $1.80, leading to its ad sales of $249,080,832 and reach the total revenue of $330,680,832. This scenario will not bring additional...