Fashion Channel

Topics: Profit margin, Revenue, Nielsen ratings Pages: 7 (2135 words) Published: May 31, 2009
Instructions: Please complete your answers to the following questions and submit them to the Dropbox on SmartSite before class on April 27th, 2009. Upload your answers in a single, 2003 Word or Excel file.

1.Fill in the Excel workbooks with information from the case.

Please see attached Spreadsheet.

2.Which scenario would you recommend if you were in Dana’s shoes?

Scenario 3 – Targeting 2 segments (Fashionistas and Shoppers/Planners)

a.What is the rationale for your decision?

The primary driving force behind my rationale is derived from the projected Net Margin achieved from this campaign, and the strong belief that “two is always better than one”,

First, let us discuss the projected Net Margin estimates, as numbers are all-too-important in analyzing such a drastic change in marketing and programming.

As noted in the attached spreadsheet estimates, based on the information provided, Scenario 3 would yield a Net income of $168,867,232, with a net profit margin of 39%. This is the highest return obtained, in comparison to the net margins of Scenario 1 and 2 (Scenario One yields 29%, while Scenario Two yields 37%). If we would like to maximize our potential gains from our added investments in marketing and audience segmentation, Scenario 3 is the best option.

Secondly, by choosing Scenario 3, we have the added benefit of targeting two key market segments which provide huge potential in expanding our visibility, brand/channel image, and overall viewership ratings. The Fashionistas and Shoppers/Planners are two highly prized viewer segmentation groups which can deliver immense value to us. If we cater our marketing and programming programs to these two sub-groups, the yields are much more likely to surface than simply focusing on the broader scope of all viewers (As presented in Scenario 1). With a fixed number of total ad minutes (2,016 in total), we can gift ourselves by providing a higher probability of achieving the estimated 1.2% viewership rating, as well as generating more sales/ad revenues. In addition, in comparison to Scenario 2 (where we target only the Fashionistas), “two is always better than one”. That is, by targeting two distinct groups of viewers, we are ‘spreading our risk’ to a greater population, thereby increasing our chances of receiving a financial gain from our changes in actual marketing mix. Such a blended approach to our programming falls in line of effective selective specialization of key market segments. Let us also not forget that Norm Frazier, senior vice president of Advertising expressed a keen interest in maintaining (if not growing) our share of viewers comprised of younger females, as well as males. These two market segments were continued to being wooed by our competition at CNN and Lifetime (Page 5). Such a unique market segmentation will allow us to achieve this.

b.What are the potential gains and risks associated with your recommendation?’

Essentially, we need to watch out for the “grey columns” in the spreadsheet, as they are all variables which can alter drastically in the coming months/years. The television market, as well as our audiences, can be quite finicky. If we drastically change our marketing and programming mix, it may not produce desired results. Our industry research does provide us general trends and expected results from which we can safely provide estimates as to projected consumer behavior. However, we must always play devil’s advocate and realize the potential risks of deviating from our programming path to one which is starkly different.

Other industries have experienced similar occurrences as well. Many product manufacturers conduct extensive test marketing and focus groups, but when their product changes roll out, the outcome is disaster. I would consider Scenario 3 the riskiest of the 3 options, as it involves the highest additional incremental programming expense of $20 million, as well as plays out based on several...
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